after two (2) years from the date of issue at
Republic Planters Bank v
REPUBLIC PLANTERS BANK, petitioner, vs. HON. ENRIQUE A. AGANA, SR., as
Presiding Judge, Court of First Instance of Rizal, Branch XXVIII, Pasay City,
ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION and ADALIA
F. ROBES, respondents.
Even for preferred shares issued with a 1% dividend rate, the stockholders do
not become entitled to the payment thereof as a matter of right without the
necessity of a prior declaration of dividends which can only come from
existing retained earnings.
Facts
On September 18, 1961, Private respondent Corporation secured a loan
from petitioner in the amount of P120,000.00. As part of the proceeds of the loan,
preferred shares of stocks were issued to private respondent Corporation,
through its officers then, private respondent Adalia F. Robes and one Carlos F.
Robes
Petitioner 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 private respondent
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
One Per Centum (1%), cumulative and
participating.
xxx
2. That such preferred shares may be redeemed,
by the system of drawing lots, at any time
the option of the Corporation. x x x."
On January 31, 1979, private respondents proceeded against petitioner
and filed a Complaint anchored on private respondents' alleged rights to collect
dividends under the preferred shares in question and to have petitioner redeem
the same under the terms and conditions of the stock certificates.
The trial court ruled in favor of private respondents and petitioner to pay
private respondents the face value of the stock certificates as redemption price,
plus 1% quarterly interest thereon until full payment.
Hence, this petition.
Issue: Whether or not the respondents have the right to receive a quarterly
dividend of one Per Centum 1% as a matter of right without necessity of a prior
declaration of dividend.
Ruling: No.
A preferred share of stock, on one hand, is one which entitles the holder
thereof to certain preferences over the holders of common stock. The preferences
are designed to induce persons to subscribe for shares of a corporation. Preferred
shares take a multiplicity of forms. The most common forms may be classified
into two: (1) preferred shares as to assets; and (2) preferred shares as to
dividends. The former is a share which gives the holder thereof preference in the
distribution of the assets of the corporation in case of liquidation; the latter is a
share the holder of which is entitled to receive dividends on said share to the
extent agreed upon before any dividends at all are paid to the holders of common
stock.
There is no guaranty, however, that the share will receive any dividends.
Under the old Corporation Law in force at the time the contract between the
petitioner and the private respondents was entered into, it was provided that "no
corporation shall make or declare any dividend except from the surplus profits
arising from its business, or distribute its capital stock or property other than
actual profits among its members or stockholders until after the payment of its
debts and the termination of its existence by limitation or lawful dissolution."
Similarly, the present Corporation Code provides that the board of directors
of a stock corporation may declare dividends only out of unrestricted retained
earnings. The Code, in Section 43, adopting the change made in accounting
terminology, substituted the phrase unrestricted retained earnings," which may
be a more precise term, in place of "surplus profits arising from its business" in
the former law. Thus, the declaration of dividends is dependent upon the
availability of surplus profit or unrestricted retained earnings, as the case may
1
be. Preferences granted to preferred stockholders, moreover, do not give them a
lien upon the property of the corporation nor make them creditors of the
corporation, the right of the former being always subordinate to the latter.
Dividends are thus payable only when there are profits earned by the corporation
and as a general rule, even if there are existing profits, the board of directors has
the discretion to determine whether or not dividends are to be declared.
Shareholders, both common and preferred, are considered risk takers who invest
capital in the business and who can look only to what is left after corporate debts
and liabilities are fully paid.
The respondent judge stated that since the stock certificate granted the
private respondents the right to receive a quarterly dividend of one Per Centum
(1%), cumulative and participating, it "clearly and unequivocably (sic) indicates
that the same are 'interest bearing stocks' or stocks issued by a corporation under
an agreement to pay a certain rate of interest thereon. As such, plaintiffs (private
respondents herein) become entitled to the payment thereof as a matter of right
without necessity of a prior declaration of dividend."
There is no legal basis for this observation. Both Sec. 16 of the Corporation
Law and Sec. 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. Clearly, the respondent judge, in compelling the
petitioner to redeem the shares in question and to pay the corresponding
dividends, 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
Disposition: Petition is GRANTED.
Republic Planters Bank v. Agana
Petitioner: Republic Planters Bank
Respondent/s: Hon. Enrique Agana, Sr., as Presiding Judge, Robes-
Francisco Realty & Dev. Corporation and Adalia F. Robes
Topic: Redeemable Shares
Author: Villanueva
Doctrine: When the stock certificate does allow redemption, the option to do
so was clearly vested in the petitioner bank (corporation). 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.
Facts:
In 1961, private respondent Corporation secured a loan from petitioner in the
amount of P120,000.00. Instead of giving the legal tender totalling to the full
amount of the loan, which is P120,000.00, petitioner lent such amount partially
in the form of money and partially in the form of stock certificates (preferred
shares of stock). Two (2) certificates were issued, 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 private respondent 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. Receive a quarterly dividend of One Per Centum (1%),
cumulative and participating.
2. Such preferred shares may be redeemed, by the system
of drawing lots, at any time after two (2) years from the date
of issue at the option of the Corporation. . . .
In 1979, private respondents proceeded against petitioner and filed a
Complaint anchored on private respondents' alleged rights to collect dividends
under the preferred shares in question and to have petitioner redeem the
same under the terms and conditions of the stock certificates.
Petitioner filed a Motion to Dismiss which eventually denied by the trial court.
It ruled in favor of private respondents and ordered petitioner to pay private
respondents the face value of the stock certificates as redemption price, plus
1% quarterly interest thereon until full payment.
2
Issue: WON the petitioner cannot be compelled to redeem the preferred extent agreed upon before any dividends at all are paid to the holders of
shares issued to the private respondent. common stock. There is no guaranty, however, that the share will receive any
dividends. Preferences granted to preferred stockholders, moreover, do not
Ruling: YES. give them a lien upon the property of the corporation nor make them creditors
of the corporation, the right of the former being always subordinate to the latter.
Respondent judge failed to recognize was that while the stock certificate does
allow redemption, the option to do so was clearly vested in the petitioner Redeemable shares are shares usually preferred, which by their terms are
bank. The redemption therefore is clearly the type known as "optional". Thus, redeemable at a fixed date, or at the option of either issuing corporation, or the
except as otherwise provided in the stock certificate, the redemption rests stockholder, or both at a certain redemption price. Redemption by the
entirely with the corporation and the stockholder is without right to either corporation of its stock is, in a sense, a repurchase of it for cancellation. The
compel or refuse the redemption of its stock. Furthermore, the terms and present Code allows redemption of shares even if there are no unrestricted
conditions set forth therein use the word "may". It is a settled doctrine in retained earnings on the books of the corporation. This is a new provision
statutory construction that the word "may" denotes discretion, and cannot be which in effect qualifies the general rule that the corporation cannot purchase
construed as having a mandatory effect. We fail to see how respondent judge its own shares except out of current retained earnings. However, while
can ignore what, in his words, are the "very wordings of the terms and redeemable shares may be redeemed regardless of the existence of
conditions in said stock certificates" and construe what is clearly a mere option unrestricted retained earnings, this is subject to the condition that the
to be his legal basis for compelling the petitioner to redeem the shares in corporation has, after such redemption, assets in its books to cover debts and
question. liabilities inclusive of capital stock. Redemption, therefore, may not be made
where the corporation is insolvent or if such redemption will cause insolvency
or inability of the corporation to meet its debts as they mature.
The redemption of said shares cannot be allowed. As pointed out by the
petitioner, the Central Bank made a finding that said petitioner has been
suffering from chronic reserve deficiency, and that such finding resulted in a
directive by then Gov. G.S. Licaros of the Central Bank, to the President and
Acting Chairman of the Board of the petitioner 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.

Notes:
A preferred share of stock is one which entitles the holder thereof to certain
preferences over the holders of common stock. The preferences are designed
to induce persons to subscribe for shares of a corporation. Preferred shares
take a multiplicity of forms. The most common forms may be classified into
two: (1) preferred shares as to assets; and (2) preferred shares as to dividends.
The former is a share which gives the holder thereof preference in the
distribution of the assets of the corporation in case of liquidation; the latter is a
share the holder of which is entitled to receive dividends on said share to the

3

Govt v Phil Sugar estates
81 Government v. Phil. Sugar Estates (1918)
Doctrine:
 It is therefore necessary in order to secure a judicial forfeiture
of respondent’s charter to show a misuse of its franchises
justifying such. The object being to protect the public, and not
to redress private grievances, the misuse must be such as to
work or threaten a substantial injury to the public, or such as
to amount to a violation of the fundamental condition of the
contract by which the franchise was granted and thus defeat
the purpose of the grant; and ordinarily the wrong or evil must
be one remediable in no other form of judicial proceeding.
Facts:
The case involves a quo warranto proceeding initiated by the
government for the purpose of forfeiting the
franchise granted to defendant corporation. The government alleges
that Phil. Sugar estates continuously offended against the laws of the
Philippine Islands and had misused its corporate authority, franchises,
and privileges and had assumed privileges and franchises not granted.
In 1913, defendant entered into a contract with the Tayabas
Land Company for the purpose of engaging in the business of
purchasing lands along the right of way of the Manila Railroad
Company through the Province of Tayabas with a view to reselling
the same to the Manila Railroad Company at a profit.
Defendant admitted the existence of such contract but
countered that the Tayabas Land Company was only a partnership and
that the subject of the contract, money amounting to P304,459.42,
which defendant delivered to Tayabas was not an investment to the
capital of Tayabas, as the government alleges but was a loan extended
by it, to Tayabas. Such money was used by Tayabas to purchase land
along the right of way of the Manila Railroad Company which it
sought to resell to the Manila Railroad Company or any other person
offering an acceptable price.
The government finds this action of buying and selling lands
to the Manila Railroad Company as an abuse and a violation that
constitute or threaten a substantial injury to the public or such as to
amount to a violation of the fundamental conditions of the contract
(charter) by which the franchises were granted and thus defeat the
purpose of the grant. Under the law, the people have guaranteed the
payment of the interest upon cost of the construction of the railroad
which occupied or occupies at least some of the lands purchased by
the defendant.
Every additional dollar of increase in the price of the land
purchased by the railroad company added that much to the costs of
construction and thereby increased the burden imposed upon the
people. Hence, must be condemned by the courts through the
forfeiture of the franchise granted.
Issues:
1. W/N the contract entered into by defendant with Tayabas was
a contract of loan or a cuentas en participation (partnership
agreement)
2. W/N such contract is a ground to
forfeit the corporation franchise granted to
defendant. Held/Ratio:
1. Contract is one of Cuentas en participacion. The court
reasoned that the terms of the contract show not a contract of
loan as there was no date fixed for the return of the money and
there was no fixed return to be made for the use of the money.
The return was dependent solely upon the profits of the
business. It is possible for the defendant to receive a return
from the business even after all of the “capital” has been
returned. The “capital” was to be returned as soon as the land
was sold and apparently, from clause “decima,” there were to
be no profits until this “capital” was returned. The defendant
was not to receive anything for the use of said sum until after
the capital had been fully repaid, which is not consistent with
the idea of a loan. It is not impossible to provide that the
capital be repaid first but the usual method is to pay the
interest first. In the present instance after sufficient land had
been sold to repay the capital the remaining land unsold
represented the profit between the defendant and The Tayabas
 Land Company in the proportion of 25 to 75. The remaining
land, under the agreement, must be sold at a profit and the
result must be therefore a profit upon the profit. Defendant at
least has an equitable interest in the land itself; it has in fact
an equitable title to 25 percent of all the remaining land. If
these lands were to be registered, the defendant could demand
that its interest be noted to be register.
2. Yes. The very and sole purpose of the intervention of the
defendants in the purchase of the land from the original
owners was for the purpose of selling the same to the Railroad
Company at profit — at an increased price, thereby directly
increasing the burden of the people by way of additional
taxation. The purpose of the intervention of the defendant in
the transactions in question, was to enrich itself at the expense
of the taxpayers of the Philippine Islands, who had, by a
franchise granted, permitted the defendant to exist and do
business as a corporation. The defendant was not willing to
allow the Railroad Company to purchase the land of the
original owners. Its intervention with The Tayabas Land
Company was to obtain an increase in the price of the land in
a resale of the same to the railroad company. The conduct of
the defendant in the premises merits the severest
condemnation of the law
3.
Garcia v. Lim Chu Sing
(1934) — shareholders not
corporate creditors Doctrine:
A share of stock or the certificate thereof is not an
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 creditors of the corporation,
who presumably deal with it on the credit of its capital stock
Facts:
Lim Cuan Sy delivered to Mercantile Bank of China a
promissory note guaranteed by Lim Chu Sing as surety and
also secured by a chattel mortgage. It also has a stipulation that in case
of default, the whole amount will become due and demandable Lim
Cuan Sy failed to comply with his obligation and so the bank required
Lim Chu Sing as surety to deliver the promissory note (P19, 605.17)
with interest at 6% p.a.
Lim Chu Sing had been paying the monthly installments with
interest thereon, leaving a balance of P9,105.17, after which he
defaulted in the payment of the installments which made the
promissory note due and demandable. The Mercantile Bank of China
then foreclosed the chattel mortgage and privately sold the property
without the knowledge of Lim Chu Sing. Lim Chu Sing is also the
owner of shares of stock at the Mercantile Bank amounting to P10,000.
Mercantile Bank seeks to apply the amount of P10,000 representing
the value of his shares of stock to defendant’s indebtedness of
P9,105.17.
Issue: 1. W/N it is proper to compensate the indebtedness with the
value of the shares of stock
Held/Ratio:
1. No. The defendant-appellant Lim Chu Sing not being a creditor
of the Mercantile Bank of China, although the latter is a
creditor of the former, there is no sufficient ground to justify
a compensation. The shares of a banking corporation do not
constitute an indebtedness of the corporation to the
stockholder and, therefore, the latter is not a creditor of the
former for such shares. The indebtedness of a shareholder to a
banking corporation cannot be compensated with the amount
of his shares therein, there being no relation of creditor and
debtor with respect to such shares.

10 Bayla v. Silang Traffic
Co., Inc (1942) — contract of
sale not subscription Doctrine:
Whether a particular contract is a subscription or a sale of
stock is a matter of construction and depends upon its terms
and the intention of the parties
Section 61. Pre-incorporation subscription. - A subscription
for shares of stock of a corporation still to be formed shall be
irrevocable for a period of at least six (6) months from the date
of subscription, unless all of the other subscribers
consent to the revocation, or unless the incorporation
of said corporation fails to materialize within said period or
within a longer period as may be stipulated in the contract of
subscription: Provided, That no pre-incorporation
subscription may be revoked after the submission of the
articles of incorporation to the Securities and Exchange
Commission.
A subscription is the mutual agreement of the
subscribers to take and pay for stock of a corporation,
while a purchase and sale is merely an independent
agreement to buy shares of stock at a stipulated price.
Bayla was decided under the old Corporation Law. It laid
down the distinctions between a subscription contract and
a purchase agreement over unissued shares of stocks (see
p526 of Corp book). However, Section 60 of the
Corporation Code removed such distinctions and now
provides that all agreements pertaining to the purchase of
unissued shares of stock of a corporation would be
considered as subscription agreements and governed by
the principles of Corporate Law.
Facts:
Sofronio Bayla and other petitioners instituted this action in
the CFI of Cavite against Silang Traffic Corporation
in order to recover a sum of money they paid to the corporation on
account of shares of stock they each agreed to take and pay for under
the condition that if the subscriber fails to pay any of the installments
when due, or if they are levied upon by the creditors of the said
subscriber, the shares were to revert to the seller and the payments
already made will also be forfeited to the seller, and that the latter may
take possession without court proceedings.
The following people agreed to purchase the following
number of shares and up to April 30, 1937 had paid the following
amounts:
Sofronio Bayla 8 shares
Venancio Toledo 8 shares
Josefa Naval 15 shares
Paz Toledo 15shares
The Board of Directors of the Corporation issued a resolution
on August 1, 1937 rescinding the agreement, hence, Bayla and the
other petitioners instituted this action. The corporation alleged that the
resolution is not application to Bayla and the others because their
subscribed shares of stock had already automatically reverted to the
coporation and the installments made by them were already forfeited
and that the Aug. 1, 1937 resolution was cancelled by a subsequent
resolution.
Issues:
1. W/N the contract is a contract of subscription
2. W/N the failure of Bayla and the others to pay any
installment can automatically give rise to forfeiture of the
amounts and the reversion of the shares to the corporation
3. W/N the Aug. 1, 1937 resolution was valid
 Held/Ratio:
1. NO. The contract is one of sale not subscription.
The said agreement is entitled “Agreement for Installment
Sale of Shares in the Silang Traffic Co”, and while the
purchaser is designated as the “subscriber” and the
corporation “seller”, the agreement was entered into in 1935
long after the incorporation and organization of the
corporation which took place in 1927. The purchase was to be
payable in quarterly installments for five years. The lower
court failed to see the distinction between a subscription and
a purchase. “A subscription, properly speaking, is the mutual
agreement of the subscribers to take and pay for the stock of a
corporation, while a purchase is an independent agreement
between the individual and the corporation to buy shares of
stock from it at stipulated price.”
2. NO.
The contract actually provided for an interest of 6% p.a. on
deferred payments which would not have been present if the
intention of the parties was the automatic forfeiture and
cancellation of the contract. Also, the contract did not
expressly provide that demand shall not be necessary in order
that default may arise.
3. Yes.
Since the contract is one of purchase, there is no legal
impediment to its rescission by agreement of the parties. In
the first resolution, the rescission was made for the good of
the corporation and in order to terminate the then pending civil
case involving the validity of the sale of the shares in question
among others. Bayla and the others agreed to the rescission as
shown by their demand for the refund of the amounts they had
paid as provided in said resolution. But the subsequent
revocation of the rescission in the first resolution is invalid as
it was not agreed to by the parties.
Lingayen Gulf V baltazar
Tan v sycip
Tan v SEC
Tan vs. SEC, G.R. No. 95696, March 3, 1992
Doctrines:
Certificate of stock: 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.
Transfer of shares: “…delivery is not essential where it appears that
the persons sought to be held as stockholders are officers of the
corporation, and have the custody of the stock book . . .”
Facts:
Alfonso Tan was the president of Visayan Educational Supply
Corporation when it was incorporated. Initially, 400 shares of stock was
in his name, represented by Stock Certificate Number 2. But when two
other incorporators, Young and Ong assigned to the corporation their
shares, Alfonso sold 50 shares to his brother Angelo, and another
incorporator, Alfredo Uy, sold 50 shares to Teodora S. Tan. The above
sale was necessary in order to complete the membership requirement of
the Board of Directors.
Because of the mentioned transactions, Stock Certificate
Number 2 was cancelled, and the corresponding stock certificates 6 and
8 were issued, with certificate 6 representing 50 shares sold to Angelo,
and certificate 8 representing the 350 shares for the petitioner Alfonso
Tan.
A certain Mr. Buzon, was requested by Mr. Tan Su Ching to ask
that Alfonso Tan endorse the cancelled Stock Certificate Number 2.
However, Alfonso did not sign Stock Certificate Number 2 and only
returned Stock Certificate Number 8.
Later on, Alfonso Tan withdrew from the corporation because he
was dislodged by respondent Tan Su Ching as president. Part of the
condition of his withdrawal was that he be paid with stocks-in-trade
equivalent to 33% in lieu of stock value of his shares in the amount of
P35,000.00. Due to the withdrawal, the cancellation of Stock Certificate
2 and 8 was effected and recorded in the stock and transfer book. Alfonso
then filed a case with Cebu SEC, questioning the cancellation of his
aforesaid Stock Certificates 2 and 8.
Petitioner argues that he was deprived of his shares despite the
non-endorsement or surrender of Stock Certificates 2 and 8 which is
contrary to Section 63 of the Corporation Code which requires:
“…No transfer, however, shall be valid, except as between the parties,
until the transfer is recorded to the books of the corporation so as to show
the names of the parties to the transaction, the date of the transfer, and
the number of the certificates and the number of shares transferred.”
Issue:
Whether or not the cancellation of Stock Certificate 2 and the subsequent
issuance of Stock Certificate Number 8 was null and void because of the
non-endorsement of Stock Certificate Number 2 by Alfonso Tan.
Held:
No. The cancellation and the transfers of stock were valid.
There was a delivery of Stock Certificate No. 2 made by Alfonso
Tan to the corporation before it was replaced with Stock Certificate No.
6 for 50 shares to Angel Tan and Stock Certificate No. 8 for 350 shares
to the Alfonso.
From the facts deduced in the case, there was already delivery of
the unendorsed Stock Certificate No. 2, which made the issuance of Stock
Certificate Nos. 6 and 8 valid. All the acts required for the transferee to
exercise its rights over the acquired stocks were attendant and even the
corporation was protected from other parties, considering that the said
transfer was earlier recorded or registered in the corporate stock and
transfer book.
Furthermore, it is necessary to delineate the function of the stock
itself form the actual delivery or endorsement of the certificate of stock
itself because a certificate of stock is not necessary to render one a
stockholder in a corporation. 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 the
shareholder to the corporation.
The fact of the matter is, the new holder, Angel S. Tan has already
exercised his rights and prerogatives as stockholder and was even elected
as member of the board of directors in the respondent corporation with
the full knowledge and acquiescence of petitioner. Due to the transfer of
50 shares, Angel S. Tan was clothed with rights and responsibilities in the
board of the respondent corporation when he was elected as officer
thereof.
81 Makati Sports Club, Inc.9 v. Cheng
(2010) (treasurer accused fraud in selling
shares) Doctrines:
 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 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.
Facts:
On October of 1994, Makati Sports Club, Inc. (MSCI) 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 Class B shares, respectively.
Michelle Cheng was a treasurer and director of MSCI. In June of 1995,
 Joseph Hodreal (Hodreal) with wife Lolita expressed in a letter his
interest to buy a share and requested therein that he be included in the
waiting list. In November of 1995, Mc Foods expressed interest in
buying a share of MSCI, and one was acquired with the payment by
Mc Foods of P 1,800,000 through Urban Bank. On December 15,
1995, the Deed of Absolute Sale was executed by MSCI. On
December 27, 1995, Mc Foods sent a letter to MSCI giving advice of
its offer to resell the share. Mc Foods Stock Certificate No. A 2243
was issued to Mc Foods on January 5, 1996.
It appears that while the sale between the MSCI and Mc
Foods was still under negotiations, there were negotiations
between Mc Foods and Hodreal for the purchase by the latter of a
share of the MSCI. On November 24, 1995, Hodreal paid Mc Foods
P1,400,000. Another payment of P1,400,000 was made by Hodreal to
Mc Foods on December 27, 1995, to complete the purchase price of
P2,800,000. On February 7, 1996, MSCI was advised of the sale by Mc
Foods 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.
Evidence of fraud presented by MSCI, among others, are —
[a] letter of Hodreal where he expressed interest in buying one share
from MSCI 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
available Class A share at the price of P2,800,000. The purchase to be
validated by paying 50% immediately and the balance after thirty
days; [c] Head of the Membership Section of MSCI, Punzalan,
declared that she informed Cheng of the intention of Hodreal to
purchase one share and that Cheng asked if there was a quoted price
and for Hodreal’s telephone number, which the Punzalan gave to
Cheng; and [d] Cheng claimed Certificate A-2243 on behalf of Mc
Foods, per letter of authority dated January 26, 1996, executed by Mc
Foods through its President Ramon Sabarre in favor of Cheng.
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 at the expense of the
former. MSCI further claims that Cheng confabulated [this means
‘talked’] 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
Issues:
1. W/N Cheng, MC Foods, and Ramon Sabarre should pay the sum of P
1,000,000 representing the amount allegedly defrauded, together with
interest and damages, to MSCI.
Held/Ratio:
1. NO. MSCI, having the burden on proof, failed to prove with clear and
convincing evidence the existence of fraud. 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.
First, as a procedural infirmity, the issue is a question of facts, as it is a
question on the probative value of the evidence presented. Section 1 of
Rule 45 provides that a petition for review on certiorari shall raise only
questions of law. Furthermore, it does not fall under the exemptions
under Rule 45.
Second, although established by Punzalan’s affidavit that she informed
Cheng about Hodreal’s desire to purchase a Class “A” share and that
Cheng asked for Hodreal’s contact number, it is not clear when Punzalan
relayed the information to Cheng or if Cheng indeed initiated contact
with Hodreal to peddle Mc Foods’ purchased share. [Yun lang talaga sabi
ng case.]
Third, charged with ascertaining the compliance of all the requirements
for the purchase of MSCI’s shares of stock under Section 29 of MSCI’s
amended by-laws, the Membership Committee failed to question the
alleged irregularities attending Mc Foods’ purchase of one Class “A” that it was driven solely by the intent to speculate on the price of the
share at P1,800,000. If there was really any irregularity in the share of stock, it had all the right to negotiate and transact, at least on
transaction, this inaction of the Management Committee belies MSCI’s the anticipated and expected ownership of the share, with Hodreal.[25]
cry of foul play on Mc Foods’ purchase of the subject share of stock. In other words, there is nothing wrong with the fact that the first
installment paid by Hodreal preceded the payment of Mc Foods for the
Fourth, considering that Mc Foods tendered its payment of P1,800,000
same share of stock to MSCI because eventually Mc Foods became the
to MSCI on November 28, 1995, even assuming arguendo that it was
owner of a Class A share covered by Certificate A 2243. Upon payment
driven solely by the intent to speculate on the price of the share of stock,
by Mc Foods of P1,800,000.00 to MSCI and the execution of the Deed of
it had all the right to negotiate and transact, at least on the anticipated
Absolute Sale on December 15, 1995, it then had the right to demand
and expected ownership of the share, with Hodreal. In other words,
the delivery of the stock certificate in its name. The right of a transferee
there is nothing wrong with the fact that the first installment paid by
to have stocks transferred to its name is an inherent right flowing from
Hodreal preceded the payment of Mc Foods for the same share of stock
its ownership of the stocks.[26]
to MSCI because eventually Mc Foods became the owner of a Class “A”
share covered by Certificate A 2243. It is MSCIs stance that Mc Foods violated Section 30(e) of MSCIs
Amended By-Laws on its pre-emptive rights, which provides
Fifth, MSCI’s stance that Mc Foods violated Section 30(e) of MSCI’s
Amended By-Laws on its pre-emptive rights, which provides that “...the SEC. 30. x x x .
club shall have thirty days from receipt of written offer to purchase such
(e) Sale of Shares of Stockholder. Where the registered owner of share
share if the club has unrestricted revenue and with approval of 2/3 vote
of stock desires to sell his share of stock, he shall first offer the same in
of the Board…” , is untenable. When Mc Foods offered for sale one Class
writing to the Club at fair market value and the club shall have thirty (30)
“A” share of stock to MSCI for the price of P 2,800,000 for the latter to
days from receipt of written offer within which to purchase such share,
exercise its pre- emptive right, MSCI failed to repurchase Mc Foods’ Class
and only if the club has excess revenues over expenses (unrestricted
“A” share within the thirtyday pre-emptive period. Therefore Mc Foods
retained earning) and with the approval of two-thirds (2/3) vote of the
complied with the requirement. Neither can MSCI argue that Mc Foods
Board of Directors. If the Club fails to purchase the share, the
was not yet a registered owner of the share of stock when the latter
stockholder may dispose of the same to other persons who are qualified
offered it for resale, in order to void the transfer from Mc Foods to
to own and hold shares in the club. If the share is not purchased at the
Hodreal. The corporation’s obligation to register is ministerial upon the
price quoted by the stockholder and he reduces said price, then the Club
buyer’s acquisition of ownership of the share of stock. The corporation,
shall have the same pre-emptive right subject to the same conditions for
either by its board, its by-laws, or the act of its officers, cannot create
the same period of thirty (30) days. Any transfer of share, except by
restrictions in stock transfers. [See doctrine.]
hereditary succession, made in violation of these conditions shall be null
MSCI’s petition is denied. and void and shall not be recorded in the books of the Club.

CIN’s NOTE:
Further, considering that Mc Foods tendered its payment of
P1,800,000.00 to MSCI on November 28, 1995, even assuming arguendo
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.[27]

We disagree.
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 MSCIs
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 holders interest and status in the 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.[28]
Therefore, Mc Foods properly complied with the requirement of Section
30(e) of the Amended By-Laws on MSCIs 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
corporations obligation to register is ministerial upon the buyers
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.[29]
Moreover, MSCIs 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.
Fraud is deemed to comprise anything calculated to deceive, including
all acts, omissions, and concealment involving a breach of legal or
equitable duty, trust or confidence justly reposed, resulting in the
damage to another or by which an undue and unconscionable advantage
is taken of another.[30] It is a question of fact that must be alleged and
proved. It cannot be presumed and must be established by clear and
convincing evidence, not by mere preponderance of evidence.[31] The
party alleging the existence of fraud has the burden of proof.[32] On the
basis of the above disquisitions, this Court finds that petitioner has failed
to discharge this burden. No matter how strong the suspicion is on the
part of petitioner, such suspicion does not translate into tangible
evidence sufficient to nullify the assailed transactions involving the
subject MSCI Class A share of stock.
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated
June 25, 2007 of the Court of Appeals in CA-G.R. CV No. 80631, affirming
the decision dated August 20, 2003 of the Regional Trial Court, Branch
138, Makati City in Civil Case No. 01-837, is AFFIRMED. Costs against
petitioner.

De los Santos v Republic

Bitong V CA

Baltazar v. Lingayen Gulf Electric Power Co., Ungson et. al. (1965)
Doctrine:
• A corporation may, apply payment by them to the full par value
of shares of capital leaving its collection later of the accrued interest on
unpaid subscriptions, and that once such option has been exercised and
the corresponding stock certificates have been issued, the corporation
cannot, by a unilateral act, legally nullify and cancel the capital stock
certificates so issued.
Note: this ruling was before the Corporation Code. please see of the
corporation code Sec. 64. - No certificate of stock shall be issued to a
subscriber until the full amount of his subscription together with interest
and expenses (in case of delinquent shares), if any is due, has been paid.
But according to the CLV the principles in the case is still good, despite
what SEC says. see pages 563 - 564.
Facts:
This was a consolidation of three cases.
Plaintiffs Baltazar and Rose (Batazar Group) were incorporators of
Lingayen Gulf Electric Power Co, subscribed to 600 and 400 shares of the
capital stock, respectively. 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 certificates of stock, corresponding to the 535
shares. Of the 400 shares of stock subscribed by Rose, he had 375 shares
of fully paid stock, duly covered by certificates of stock issued to him.
The respondents Ungson, Estrada, Fernandez and Yuson ( Ungson
Group) were stockholders of the Corporation, all holding a total number
of fully paid-up shares of stock, of less than100 shares. and the
defendant Acena (part of the Ungson Group), was an incorporator and
stockholder, holding 600 shares of stock. Ungson, Estrada, Fernandez
and Yuzon, where Directors of the Corporation.
The Ungson group, passed three (3) resolutions which essentially says
that:
a. all watered stocks issued to Acena, Baltazar, Rose and Jubenville,
of no value and consequently cancelled
b. all unpaid subscriptions will have interest, payments should be
applied to the interest first
c. That shares of stock, issued to stock holder, but still has unpaid
subscribed shares, all of his stock even those paid are not entitled to
vote. (basically it prohibited Baltazar et. al. the power to vote until all
their subscriptions are paid.)
Baltazar and Rose filled a complaint to allow them to vote, their fully paid
up shares of stocks, and to declare said three resolutions illegal and
invalid. they had a tentative settlement. the lower court rendered a
decision, approving the agreement. The Ungsons did not agree with the
decision of the court hence this appeal.
Issue:
1. W/N a stockholder who subscribes shares of stock, and he pays
only partially, and he is issued certificates of stock, is he entitled to vote
those, even if he has not fully paid his subscription?
2. W/N paid shares of stock will be deprived of the right to vote,
until the entire subscribed shares of stock are fully paid, including
interest?
Held/Ratio:
1. Yes, he is entitled to vote on those issued certificates of stock
paid, Section 37, of the current law makes payment of the “par value” as
prerequisite for the issuance of certificates of par value stocks, and
makes payment of the “full subscription” as prerequisite for the issuance
of certificates of no par value stocks. No such distinction was contained
in section 36 of our Corporation Law of 1906, corresponding to section
37 now. The present law requires as a condition before a share holder
can vote his shares, that his full subscription be paid in the case of no par
value stock; and in case of stock corporation with par value, the
stockholder can vote the shares fully paid by him only, irrespective of the exercised and the corresponding stock certificates have been issued, the
unpaid delinquent shares. A corporation may now, in the absence of corporation cannot, by a unilateral act, legally nullify and cancel the
provisions in their by-laws to the contrary, apply payment made by , capital stock certificates so issued.
subscribers-stockholders, either as: (a) full payment for the
It is argued that the Baltazar group waived, under the agreement, the
corresponding number of shares of stock, the par value of each of which
right to enforce the voting power they were claiming to exercise, upon
is covered by such payment; or (b) as payment pro-rata to each and all
the principle of estoppel, However agreements estoppel cannot be
the entire number of shares subscribed for. In the cases at bar, the
predicated on acts which are prohibited by law or are against public
corporation had chosen to apply payments by its stockholders to definite
policy. (not important)
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 Santamaria v. HSBC (1951) (stocks negotiated in blank) Doctrine:
which no fully paid capital stock shares certificates have been issued, and • A buyer not obligated to look beyond the certificate to ascertain
only do not have voting rights by said declaration of delinquency. the ownership of the stock at the time it received the same
2. No, although the agreement, unilaterally cancelled all capital Facts:
stock shares certificates issued as fully paid up, upon payments made by
stockholders, when interests on unpaid subscription from date of In 1937, Mrs. Josefa T. Santamaria bought 10,000 shares of the Batangas
subscription were not paid. Art. 1253 NCC which provides that “if the Minerals, Inc., through the offices of
debt produces interest, payment of the principal shall not be deemed to
Woo, Uy-Tioco & Naftaly, a stock brokerage firm. It was endorsed in
have been made until the interests have been covered,” is merely
blank to her. She then used the certificate as a security for the purchase
directory, and not mandatory. In the present case, the Corporation had
of 10,000 shares of the Crown Mines, Inc. with R.J. Campos & Co.,
applied the payments made by the stockholders to the full par value of
another brokerage firm.
the shares of stock subscribed by them, instead of the accepted interest,
as shown by the capital stock shares certificate issued for the payments Two days later, she returned to RJ. Campos & Co. to pay for the shares
made, and the stockholders had accepted such certificates issued for and redeem her certificate only to find out that the firm was prohibited
such payments. This being the case, the said application of payments by the SEC from transacting business. Also, her stocks that were used as
must be deemed to have been agreed upon by the Corporation and the security have been transferred to HSBC.
stockholders, and cannot now be changed without the consent of the
When the RJ. Campos & Co. became insolvent, HSBC secured the stocks
stockholders concerned. The Corporation Law and the by-laws of the
by virtue of the document of hypothecation (probably to pay for its
Corporation do not contain any provision, prohibiting the application of
obligations.)
stockholders’ payments to the full par value of a corporation’s capital
stock, ahead of the payment of accrued interest for unpaid Issues:
subscriptions. Therefore, a corporation may, upon request of an
interested stockholder, as his option, apply payment by them to the full 1. W/N Santamaria has a right to recover the stocks from HSBC
par value of shares of capital leaving its collection later of the accrued Held/Ratio:
interest on unpaid subscriptions, and that once such option has been
1. No. In making said deposit, plaintiff did not take any precaution to
protect herself against the possible misuse of the shares represented by
the certificate of stock. Plaintiff could have asked the corporation that
had issued said certificate to cancel it and issue another in lieu thereof
in her name to apprise the holder that she was the owner of said
certificate. This she failed to do, and instead she delivered said
certificate, as it was, to R.J. Campos & Co., Inc., thereby clothing the
latter with apparent title to the shares represented by said certificate
including apparent authority to negotiate it by delivering it to said
company while it was indorsed in blank by the person or firm appearing
on its face as the owner thereof. The defendant Bank had no knowledge
of the circumstances under which the certificate of stock was delivered
to R.J. Campos & Co., Inc., and had a perfect right to assume that R.J.
Campos & Co., Inc. was lawfully in possession of the certificate.
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. Also, 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
Delos Santos v Republic
DELOS SANTOS V REPUBLIC
FACTS:
600,000 shares of stock of the Lepanto Consolidated Mining Co.,
Inc., (Lepanto), a corporation duly organized and existing under the laws
of the Philippines. Originally, 1/2 shares of stock were claimed by
Apolinario de los Santos, and the other half by Isabelo Astraquillo. During
the pendency of this case, the Astraquillo allegedly conveyed and
assigned his interest in and to de los Santos.Vicente Madrigal
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. They
nowcontend that De los Santos bought 55,000 shares from Juan
Campos, 300,000 shares from Carl Hess, 800,000 shares from Carl Hess
for the benefit of Astraquillo and delivered to stock broker Leonardo Recio
stock certificate No. 2279 55,000 shares to see Mr. DeWitt, who,
probably, would be interested in purchasing the shares.
DeWitt retained the shares reasoning that it was blocked by the
US and receipt was burned at Recio's dwelling. By virtue of vesting P-12,
dated February 18, 1945, title to the 1,600,000 shares of stock in dispute
was, however, vested in the Alien Property Custodian of the U.
S. Plaintiffs filed their respective claims with the Property Custodian and
Defendant Attorney General of the U. S., successor to the
Administrator contends, substantially, that, prior to the outbreak of the war
in the Pacific, shares of stock were bought by Vicente Madrigal, in trust
for, and for the benefit of, the Mitsui Bussan Kaisha a corporation
organized in accordance with the laws of Japan, the true owner thereof,
with branch office in the Philippines. On March, 1942, Madrigal delivered
stock certificates, with his blank indorsement thereon, to the Mitsuis,
which kept said certificates, in the files of its office in Manila, until the
liberation of the latter by the American forces early in 1945; that the
Mitsuis had never sold, or otherwise disposed of, said shares of stock;
and that the stock certificates aforementioned must have been stolen or
looted, therefore, during the emergency resulting from said liberation. The
CFI are in favor of plaintiffs, hence the defendants appeal.
Hess, during that period, operate as broker, for being American,
he was under Japanese surveillance, and that Hess had made, during the
occupation, no transaction involving mining shares, except when he sold
12,000 shares of the Benguet Consolidated, inherited from his mother,
sometime in 1943.
ISSUE: WON the plaintiffs are entitled to the shares
HELD: NO
The burden of proof is upon the plaintiffs. Section 35 of the
Corporation Law says that:
“The capital stock corporations shall be divided into shares for which
certificates signed by the president or the vice-president, countersigned
by the secretary or clerk and sealed with the seal of the corporation, shall
be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate
endorsed by the owner or his attorney in fact or other person legally
authorized to make the transfer. 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.
No shares of stock against which the corporation holds any unpaid claim
shall be transferable on the books of the corporation.”
Certificates of stock are not negotiable instruments consequently, a
transferee under a forged assignment acquires no title which can be
asserted against the true owner, unless his own negligence has been
such as to create an estoppel against him. If the owner of the certificate
has endorsed it in blank, and it is stolen from him, no title is acquired by
an innocent purchaser for value. Neither the absence of blame on the part
of the officers of the company in allowing an unauthorized transfer of
stock, nor the good faith of the purchaser of stolen property, will avail as
an answer to the demand of the true owner. The doctrine that a bona fide
purchaser of shares under a forged or unauthorized transfer acquires no
title as against the true owner does not apply where the circumstances
are such as to estop the latter from asserting his title. One of two innocent
parties must suffer by reason of a wrongful or unauthorized act, the loss
must fall on the one who first trusted the wrongdoer and put in his hands
the means of inflicting such loss. Negligence which will work an estoppel
of this kind must be a proximate cause of the purchase or advancement
of money by the holder of the property, and must enter into the transaction
itself. The negligence must be in or immediately connected with the
transfer itself. To establish this estoppel it must appear that the true owner
had conferred upon the person who has diverted the security the indicia
of ownership, or an apparent title or authority to transfer the title. So the
owner is not guilty of negligence in merely entrusting another with the
possession of his certificate of stock, if he does not, by assignment or
otherwise, clothe him with the apparent title. Nor is he deprived of his title
or his remedy against the corporation because he intrusts a third person
with the key of a box in which the certificate are kept, where the latter
takes them from the box and by forging the owner's name to a power of
attorney procures their transfer on the corporate books. . Nor is the mere
indorsement of an assignment and power of attorney in blank on a
certificate of stock, which is afterwards lost or stolen, such negligence as
will estop the owner from asserting his title as against a bona fide
purchaser from the finder or thief, or from holding the corporation liable
for allowing a transfer on its books, where the loss or theft of the certificate
was not due to any negligence on the part of the owner. Stock pledged to
a bank is endorsed in blank by the owner does not estop him from
asserting title thereto as against a bona fide purchaser for value who
derives his title from one who stole the certificate from the pledgee. And
this has also been held to be true though the thief was an officer of the
pledgee, since his act in wrongfully appropriating the certificate cannot be
regarded as a misappropriation by the bank to whose custody the
certificate was intrusted by the owner, even though the bank may be liable
to the pledger. Hence, as the undisputed principal or beneficiary of the
registered owner (Madrigal), the Mitsuis may claim his rights, which
cannot be exercised by the plaintiffs, not only because their alleged title
is not derived either from madrigal or from the Mitsuis, but, also, because
it is in derogation, of said rights. madrigal and the Mitsuis are notprivies
to the alleged sales by Campos and Hess to the plaintiffs, contrary to the
latter's pretense.
With the quasi-judicial topic- DE LOS SANTOS vs. REPUBLIC
Petitioner: APOLINARIO G. DE LOS SANTOS and ISABELO
ASTRAQUILLO
Respondents: J. HOWARD MCGRATH ATTORNEY GENERAL OF
THE UNITED STATES, SUCCESSOR TO THE PHILIPPINE ALIEN
PROPERTY ADMINISTRATION OF THE UNITED STATES REPUBLIC
OF THE PHILIPPINES
Doctrine: A certificate of stock is merely a quasi-negotiable instrument in
the sense that it may be transferred by endorsement, coupled with
delivery; but it is not negotiable because the holder thereof takes it without
prejudice to such rights or defenses as the registered owners or
transferor’s creditors may have under the law, except only insofar as such
rights or defenses are subject to limitations imposed by principles of
governing estoppel.
Facts:
 De los Santos bought 55,000 shares from Juan Campos, 300,000
shares from Carl Hess and 800,000 shares from Carl Hess (for
account and benefit of Astraquillo)
 By virtue of vesting P-12, title to the 1,600,000 shares of stock in
dispute was, however, vested in Alien Property Custodian of the
U.S. as Japanese property
 Hence, plaintiffs filed their respective claims with the Property
Custodian
 In due course, the Vested Property Claims Committee of the
Philippines Alien Property Administration made a
“determination” allowing such claims allowing said claims, which
were considered and heard jointly as Claim No. 535, but upon
personal review, the Philippine Alien Property Administration
made by said Committee and decreed that “title to shares in
question shall remain in the name of the Philippine Alien Property
Administrator”
 Consequently, plaintiffs instituted the present action to establish
title to the aforementioned shares of stock. In their complaint, they
pray that the judgment be rendered declaring them lawful owners
of the said shares of stock, with dividends, profits and rights as
may have accrued thereto; requiring the defendant to render
accounts and to transfer said shares of stock to plaintiffs’s name;
and sentencing the former to pay the costs
 The defendant herein is the Attorney General of the U.S.,
successor to the Administrator. He contends, substantially, that,
prior to the outbreak of the war in the Pacific, said shares of stock
were bought by Vicente Madrigal in trust for and for the benefit of
the Mitsui Bussan Kaisha, a corporation organized in accordance
with the laws of Japan, the true owner thereof, with branch office
in the Philippines; that Madrigal delivered the corresponding
stock certificates with his blank thereon to the Mitsuis which kept
said certificates in the files of its office in Manila until the
liberation of the latter by the American forces early in 1945; that
the Mitsuis had never sold, or otherwise disposed of shares of
stock and that the stock certificates aforementioned must have
been stolen or looted therefore during the emergency resulting
from said liberation.
 In as much as pursuant to the Philippine Property Act, all
property vested in the U.S., or any of its officials under the
Trading with Enemy Act, as amended located in the Philippines
at the time of such vesting or the proceeds thereof shall be
transferred to the Republic of the Philippines, the latter sought
permission and was allowed to intervene in this case and filed
answer adopting in substance the theory of the defendant
Issue/s: W/N the plaintiffs are entitled to the shares- No
Ruling+Ratio:
 Burden of proof is upon the plaintiffs
 Section 35 of the Corporation Law reads: The capital stock
corporations shall be divided into shares for which certificates
signed by the president or the vice-president, countersigned by
the secretary or clerk and sealed with the seal of the
corporation, shall be issued in accordance with the by-laws.
Shares of stock so issued are personal property and may be
transferred by delivery of the certificate endorsed by the owner
or his attorney in fact or other person legally authorized to make
the transfer.
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.
 No shares of stock against which the corporation holds any
unpaid claim shall be transferable on the books of the
corporation.
Disposition: The decision appealed from is hereby reversed, and the
complaint, accordingly, dismissed.
Additional Notes:
 Certificates of stock are not negotiable instruments (post, Par. 102),
consequently, a transferee under a forged assignment acquires no
title which can be asserted against the true owner, unless his own
negligence has been such as to create an estoppel against him
(Clarke on Corporations, Sec. Ed. p. 415). If the owner of the
certificate has endorsed it in blank, and it is stolen from him, no title
is acquired by an innocent purchaser for value
 Neither the absence of blame on the part of the officers of the
company in allowing an unauthorized transfer of stock, nor the good
faith of the purchaser of stolen property, will avail as an answer to
the demand of the true owner
 The doctrine that a bona fide purchaser of shares under a forged or
unauthorized transfer acquires no title as against the true owner
does not apply where the circumstances are such as to estop the
latter from asserting his title. . . .
 one of two innocent parties must suffer by reason of a wrongful or
unauthorized act, the loss must fall on the one who first trusted the
wrongdoer and put in his hands the means of inflicting such loss
 negligence which will work an estoppel of this kind must be a
proximate cause of the purchase or advancement of money by the
holder of the property, and must enter into the transaction itself
 the negligence must be in or immediately connected with the
transfer itself
 to establish this estoppel it must appear that the true owner had
conferred upon the person who has diverted the security the indicia
of ownership, or an apparent title or authority to transfer the title
 So the owner is not guilty of negligence in merely entrusting another
with the possession of his certificate of stock, if he does not, by
assignment or otherwise, clothe him with the apparent title.
 Nor is he deprived of his title or his remedy against the corporation
because he in trusts a third person with the key of a box in which
the certificate are kept, where the latter takes them from the box
and by forging the owner's name to a power of attorney procures
their transfer on the corporate books.
 Nor is the mere indorsement of an assignment and power of
attorney in blank on a certificate of stock, which is afterwards lost or
stolen, such negligence as will estop the owner from asserting his
title as against a bona fide purchaser from the finder or thief, or from
holding the corporation liable for allowing a transfer on its books,
where the loss or theft of the certificate was not due to any
negligence on the part of the owner
 stock pledged to a bank is endorsed in blank by the owner does not
estop him from asserting title thereto as against a bona fide
purchaser for value who derives his title from one who stole the
certificate from the pledgee. And this has also been held to be true
though the thief was an officer of the pledgee, since his act in
wrongfully appropriating the certificate cannot be regarded as a
misappropriation by the bank to whose custody the certificate was
intrusted by the owner, even though the bank may be liable to the
pledgor
 Hence, as the undisputed principal or beneficiary of the registered
owner (Madrigal), the Mitsuis may claim his rights, which cannot be
exercised by the plaintiffs, not only because their alleged title is
not derived either from madrigal or from the Mitsuis, but, also,
because it is in derogation, of said rights. Madrigal and the Mitsuis
are not privies to the alleged sales by Campos and Hess to the
plaintiffs, contrary to the latter's pretense.
Neugene v. CA (1999)
Doctrine:
• To constitute a valid transfer, a stock certificate must be
delivered and its delivery must be coupled with an intention of
constituting the person to whom the stock is delivered the transferred
(sic) thereof. Furthermore, in order that there is a valid transfer, the
person to whom the stock certificates are endrosed (sic) must be a bona
fide transferee and for value.
Facts:
NEUGENE had authorized capital stock of P3 MILLION (eventually
became P7 MILLION), P600K of which is subscribed and P150K of those
subscribed were paid up. On October 24, 1987, the private respondents,
Charles O. Sy, Arsenio Yang, Jr. and Lok Chun Suen, constituting 2/3 of
the total shares, sent notice to the directors of NEUGENE for a board
meeting to be held on November 30, 1987. They also sent notice for a
special stockholders’ meeting on the same day, November 30, 1987, to
consider the dissolution of NEUGENE in which they voted in
AFFIRMATIVE. Upon private respondents’s Petition for Dissolution, SEC
issued a Certificate of Dissolution but was reversed by the SEC Panel of
Hearing Officers. This was again reversed by the CA, upholding the
validity of NEUGENE’s dissolution, thus the petition.
Issue:
1. W/N the private respondents lacked the requisite number of shares of
stock when they voted for the resolution dissolving NEUGENE.
Held/Ratio:
1. NO. In the case at bar, Nicanor Martin and Leoncio Tan (petitioners)
were not bona fide transferees for value and in good faith. Petitioner
Johnson Lee alleged that petitioners Sy, Lok and Yang, Jr. indorsed and
delivered their stock certificates to Nicanor Martin and Leoncio Tan.
However, Johnson Lee testified that he acquired his shares of stock from
Johnny Uy, who in turn sold them to Nicanor Martin and Leoncio Tan.
Evidence shows that no consideration was paid by Leoncio Tan and
Nicanor Martin when they allegedly acquired the stock certificates from
the Uy Family. In fact the CA found that the certificates of stock of the
private respondents were stolen and therefore not validly transferred,
and the transfers of stock relied upon by petitioners were fraudulently
recorded in the Stock and Transfer Book of NEUGENE under the column
“Certificates Cancelled.” Johnson Lee failed to produce any document
evidencing the transaction or a receipt showing his payment for the
stocks. Therefore, it is clear that they were not bona fide transferees for
value and in good faith. Consequently, petitioners cannot be considered
stockholders for the purpose of determining the 2/3 votes of the
outstanding capital stock required to dissolve NEUGENE, in accordance
with Sec. 118 of the Corporate Code.
To constitute a valid transfer, a stock certificate must be delivered and
its delivery must be coupled with an intention of constituting the person
to whom the stock is delivered the transferred (sic) thereof.
Furthermore, in order that there is a valid transfer, the person to whom
the stock certificates are endrosed (sic) must be a bona fide transferee
and for value.
NEUGENE MARKETING INC., LEONCIO TAN,
NICANOR MARTIN, SONNY MORENO,
JOHNSON LEE and SECURITIES AND
EXCHANGE COMMISSION, petitioners,
vs.COURT OF APPEALS, ARSENIO YANG,
JR., CHARLES O. SY, LOK CHUN SUEN,
BAN HUA U. FLORES, BAN HA U. CHUA and
ROGER REYES, respondents.
DECISION
PURISIMA, J.:
At bar is a petition for review of the decision[1] of the Special
Fifth Division of the Court of Appeals which reversed the decision
of the Securities and Exchange Commission (SEC) annulling the
dissolution of Neugene Marketing, Inc. (NEUGENE, for short).
The SEC Hearing Panel gathered the fact, as follows:
"On January 27, 1978, NEUGENE was duly registered
with this Commission to engage in trading business for a
term of fifty (50) years with the following as
incorporators/directors, namely:
1. Johnson Lee (one of the petitioners);
2. Lok Chun Suen (one of the respondents);
3. Charles O. Sy (one of the respondents);
4. Eugenio Flores, Jr. (husband of respondent Ban Hua U.
Flores)
5. Arsenio Yang, Jr. (one of the respondents)
The authorized capital stock of NEUGENE is THREE
MILLION PESOS (P3,000,000.00) divided into THIRTY
THOUSAND (30,000) shares with a par value of ONE
HUNDRED PESOS (P100.00) each. Out of this authorized
capital stock, SIX HUNDRED THOUSAND PESOS
(P600,000.00) had been subscribed by the following TOTAL P150,000.00
subscribers, namely: ==========

NAME NO. OF AMOUNT The original shareholdings of the

SHARES SUBSCRIBED incorporators/stockholders of NEUGENE were increased
by ten percent (10%) each by virtue of stock dividend
Johnson Lee 600 P 60,000.00 declaration in the amount of SIXTY THOUSAND PESOS
(P60,000.00) made by its board of directors in a special
Lok Chun Suen 1,200 120,000.00 meeting held on June 7, 1980. x x x
Charles O. Sy 1,800 180,000.00 Again, on May 2, 1981, the Board of directors of
NEUGENE declared a stock dividend in the amount of
Eugenio Flores, Jr. 2,100 210,000.00 FORTY THOUSAND PESOS (P40,000.00) in proportion
to the shareholdings of the stockholders of record of
Arsenio Yang, Jr. 300 30,000.00 NEUGENE as of April 30, 1981. x x x
TOTAL 6,000 P600,000.00 xxxxxxxxx
==== =========
The outstanding capital stock of NEUGENE became
Out of the aforesaid subscription, ONE HUNDRED FIFTY SEVEN HUNDRED THOUSAND PESOS (P700,000.00)
THOUSAND PESOS (P150,000.00) had been paid by the represented by SEVEN THOUSAND (7,000) shares.
following subscribers as follows:
On May 15, 1986, Eugenio Flores, Jr. assigned,
NAME AMOUNT PAID UP transferred and conveyed his entire shareholdings of TWO
THOUSAND FOUR HUNDRED FIFTY (2,450) shares in
Johnson Lee P15,000.00 NEUGENE to the following, to wit:
Lok Chun Suen 30,000.00 Pet. Sonny Moreno 1,050 shares (Exh. B)
Charles O. Sy 45,000.00 Resp. Arsenio Yang, Jr.. 700 shares (Exh. C)
Eugenio Flores, Jr. 52,500.00 Resp. Charles O. Sy 700 shares (Exh. D)
Arsenio Yang, Jr. 7,500.00 TOTAL 2,450
====
Thus, immediately after the assignment of the entire
shareholdings of Eugenio Flores, Jr. to petitioner Sonny
Moreno and respondents Arsenio Yang, Jr., and Charles
O. Sy, the stockholders of record of NEUGENE, as
appearing in the Stock and Transfer Book (Exhibit A),
particularly Exhibits A-8 to A-12 thereof, were as follows:
NAME NO. OF SHARES
Johnson Lee 700
Lok Chun Suen 1,400
Sonny Moreno 1,050
Charles O. Sy 2,800
Arsenio Yang, Jr. 1,050 __
TOTAL 7,000[2]
=====
On October 24, 1987, the private respondents, Charles O. Sy,
Arsenio Yang, Jr. and Lok Chun Suen, holders of 5,250 shares of
NEUGENE (representing at least two-thirds (2/3) of the
outstanding capital stock of 7,000 shares)sent notice to the
directors of NEUGENE for a board meeting to be held on
November 30, 1987. They also sent notice for a special
stockholders meeting on the same day, November 30, 1987, to
consider the dissolution of NEUGENE.
At the said meetings held on November 30, 1987, the private
respondents, Charles O. Sy, Arsenio Yang, Jr. and Lok Chun Suen,
the directors and stockholders then present, voted for and approved
a resolution dissolving NEUGENE.
On March 1, 1988, acting upon private respondentss Petition
for Dissolution, SEC issued a Certificate of Dissolution of
NEUGENE.
On March 22, 1988, the petitioners brought an action to annul
or set aside the said SEC Certification on the Dissolution of
Neugene. In their Amended Petition, petitioners stated, among
others, that they are the majority stockholders of NEUGENE,
owning eighty percent (80%) of its outstanding capital stock, at the
time of the adoption and approval of the Resolution for the
Dissolution of NEUGENE, on November 30, 1987; that prior
thereto or on July 1, 1987, to be precise, the private respondents had
divested themselves of their stockholdings when they endorsed
their stock certificates in blank and delivered the same to the Uy
Family, the beneficial owners of NEUGENE; that at the meetings
held on February 11, 12 and 13, 1987, in order to settle family
squabbles, the Uy family agreed to award NEUGENEs stock
certificates to Johnny K. H. Uy, who, in turn, authorized Johnson
Lee to dispose of the same; and that Johnson Lee sold the said
shares of stock to the petitioners, Leoncio Tan and Nicanor Martin,
such that, as reflected in the Stock and Transfer Book of
NEUGENE, respondent Lok Chun Suen had assigned all of his
1,400 shares of stock to petitioner Nicanor Martin, respondents
Charles O. Sy assigned 2,100 shares out of his 2,800 shares of stock
to petitioner Leoncio Tan, and respondent Arsenio Yang, Jr.
assigned 350 shares of his 1,050 shares of stock to petitioner
Leoncio Tan; that in view of the said transfers of shares of stock,
private respondents Arsenio Yang, Jr., and Charles O. Sy (each the
holder of only 700 shares or 10% each of the outstanding capital
stock of NEUGENE) and Lok Chun Suen (who had ceased to be a
stockholder as of July 1, 1987) could no longer validly vote for the
dissolution of NEUGENE on November 30, 1987, under Section
118 of the Corporation Code, and all the proceedings of the
meetings held on November 30, 1987, which were improperly
called and held without a quorum, are null and void.[3]
On the other hand, the private respondents, Charles O. Sy,
Arsenio Yang, Jr. and Lok Chun Suen, theorized that the alleged
assignments of shares of stock in favor of petitioners were
simulated and fraudulently effected, as there never was any
agreement entered into by the Uy family to award NEUGENES
stock certificates to Johnny K.H. Uy, because subject stock
certificates of the private respondents covering their shares of stock
were endorsed in blank by them and delivered to the Uy family,
who were the beneficial owners of NEUGENE, for safe keeping
and the said certificates of stock were kept inside the confidential
vault of the Uy family at 225 D. Tuazon St., Quezon City, but the
same were stolen by the spouses, Johnny K. H. Uy and Magdalena
Go-Uy, without the knowledge and authority of the Uy family; that
petitioner Sonny Moreno, a co-conspirator in such fraudulent
transfer of stocks in question, recorded the simulated and fraudulent
assignments in the Stock and Transfer Book of the corporation,
which book he obtained from Johnny K.H. Uy and Magdalena Go-
Uy, together with other corporate records of NEUGENE, including
the stock certificates endorsed in blank by petitioner Johnson Lee
and respondents Arsenio Yang, Jr., Charles O. Sy and Lok Chun
Suen; that the petitioners, Nicanor Martin and Leoncio Tan, are co-
conspirators of Johnson Lee and Sonny Moreno in effecting the said
simulated and fraudulent transfer of sharesof stock; that the private
respondents never sold their shares of stock in NEUGENE to any
of the petitioners or other stockholders of record, prior to the
dissolution of the corporation, so that they (private respondents)
represented at least two-thirds (2/3) of the outstanding capital stock
of NEUGENE when they voted to dissolve NEUGENE, on
November 30, 1987.[4]
In its decision of June 19, 1990, the SEC Panel of Hearing
Officers nullified the Certification on the Dissolution of
NEUGENE issued by SEC, holding that the private respondents
were no longer holders of at least two-thirds (2/3) of the
outstanding capital stock of NEUGENE at the time they presented
the petition for dissolution, as required under Section 118 of the
Corporation Code. (Annex O) The said decision of the SEC Panel
of Hearing Officers was affirmed in toto by the SEC En Banc in a
Decision promulgated on January 14, 1993.[5] Portions of the
decision of the SEC Hearing Panel read:
The resolution to dissolve NEUGENE was adopted by only
two (2) of its incumbent directors, namely: respondents
Charles O. Sy and Arsenio Yang, Jr. Respondent Lok Chun
Suen had already ceased to be a stockholder of NEUGENE
as of July 1, 1987, by the endorsement and delivery and
cancellation of his stock certificates (Exhs. E, F, and G)
and the entries in the Stock and Transfer Book (Exhs. A, A-
1, to A-24). Hence, there was no quorum at said board of
directors meeting on November 30, 1987. There was no
quorum also at the November 30, 1987 meeting of the
stockholders of NEUGENE since only the following
stockholders, namely: respondents Charles O. Sy and
Arsenio Yang, Jr., who own 10% each of the stockholding
of NEUGENE, could be considered officially present at
said meeting. On this score alone, the case for the
petitioners should be upheld.
xxxxxxxxx
xxxxxxxxx
WHEREFORE, judgment is hereby rendered:
1. Declaring as null and void the Certificate of Filing of
Resolution of Voluntary Dissolution of NEUGENE
MARKETING, INC. issued by this Commission on March 1,
1988 for violation of Section 118 of the Corporation Code
of the Philippines;
2. Ordering the respondents, particularly respondent Roger Z.
Reyes or any other persons acting as trustees of NEUGENE
from representing himself/themselves from acting as such;
3. Directing the respondents, particularly respondents Ban Ha
U. Chua, Ban Hua U. Flores, Charles O. Sy and Arsenio
Yang, Jr., or whoever is in possession of the corporate books
and records of NEUGENE, to turn over the same to its
Secretary, petitioner Sonny Moreno, within ten (10) days
from the finality of this Decision; and to revert back to
NEUGENE the Cash on Hand appearing in the Balance
Sheet as of November 30, 1987 in the amount
of P860,591.98;
 4. Ordering the respondents to pay attorneys fees to the
petitioners in the amount of FOUR HUNDRED
THOUSAND PESOS (P400,000.00).[6]
xxxxxxxxx
On June 10, 1993, the aforesaid judgment of SEC was reversed
by the Court of Appeals. Upholding the validity of NEUGENEs
dissolution, the Court of Appeals found that at the time of
dissolution of NEUGENE on November 30, 1987, the private
respondents owned at least two-thirds (2/3) of NEUGENEs stocks,
it appearing that the certificates of stock of private respondents,
which were endorsed in blank, as earlier mentioned, were not
validly transferred to petitioners herein.
The Court of Appeals ratiocinated and concluded:
xxxxxxxxx
To constitute a valid transfer, a stock certificate must be
delivered and its delivery must be coupled with an
intention of constituting the person to whom the stock is
delivered the transferred (sic) thereof. (Fetcher Cyc Corp.,
Sec. 5484)
Furthermore, in order that there is a valid transfer, the
person to whom the stock certificates are endrosed (sic)
must be a bona fide transferee and for value.
In the case at bar, Nicanor Martin and Leoncio Tan were
not bona fide transferees for value and in good
faith. Private respondents alleged that petitioners Sy, Lok
and Yang, Jr. indorsed and delivered their stock
certificates to Nicanor Martin and Leoncio Tan. However,
private respondents Johnson Lee testified that he acquired
his shares of stock from Johnny Uy, who in turn sold them
to Nicanor Martin and Leoncio Tan (tsn, pp., 49-50, July
18, 1989).Likewise, evidence shows that no consideration
was paid by Leoncio Tan and Nicanor Martin when they
allegedly acquired the stock certificates from the Uy
Family. Johnson Lee failed to produce any document
evidencing the transaction or a receipt showing his
payment for the stocks. Therefore, it is clear that they were
not bona fide transferees for value and in good
faith. Consequently, they cannot be considered
stockholders for the purpose of determining the 2/3 votes
of the outstanding capital stock required to dissolve
Neugene, in accordance with Sec. 118 of the Corporate
Code.
xxx xxx xxx
After a careful examination of the documentary evidence,
We find that the supposed document evidencing the
partition and division of the properties of the Uy Family
(Exh. A), is a mere xerox copy whose original copy was
never produced before the hearing panel. Moreover, it
contained erasures and/or insertions, and it is written in
the Chinese language, with no official translation
submitted. Consequently, We find no basis for the
respondent Commissions finding that Neugene belongs to
Johnny K. H. Uy.
Considering the above findings, there is likewise no basis
for the Commissions ruling that the amount
of P860,591.98 should be returned by the petitioners to
Neugene. Lastly, the award of attorneys fees has no basis,
considering Our findings that private respondents have no
cause of action against the petitioners, hence, they are not
entitled to attorneys fees.
WHEREFORE, the decision dated January 14, 1992 of the
respondent Commission is hereby REVERSED and SET
ASIDE. No costs.[7]
In its Resolution dated December 9, 1993, the Court of Appeals
denied petitioners motion for reconsideration, and further ruled that
the transfers of stock in question could not be valid and effective
for the simple reason that there is a complete absence of proof that
the alleged transfers were recorded in the books of the
corporation. It relied on Section 63 of the Corporation Code of the
Philippines which provides that no transfers shall be valid except as
between the parties, until the transfer is recorded in the books of the
corporation.[8]
In the Petition under scrutiny, petitioners contend that the
Court of Appeals: "(1) misapprehended the facts of the case
and (2) failed to consider the evidence on record showing that the
private respondents were no longer holders of the necessary number
of shares of stock at the time of the dissolution of NEUGENE.[9]
The pivot of inquiry here is whether or not the private
respondents lacked the requisite number of shares of stock or had
divested themselves of their stockholdings as of November 30,
1987 when they voted for the resolution dissolving NEUGENE.
After a careful study, a finding in favor of private respondents
is indicated. In short, the Petition is barren of merit.
Entries in the Stock and Transfer Book of NEUGENE,
particularly on the right hand portion of Exhibits A-9, A-10 and A-
12, support the disquisition and conclusion arrived at by the Court
of Appeals that at the time of dissolution of NEUGENE on
November 30, 1987, the private respondents, Lok Chun Suen,
Charles O. Sy and Arsenio Yang, Jr., owned at least two-thirds (2/3)
of NEUGENEs outstanding capital stock, in sufficient compliance
with the germane provision of Section 118 of the Corporation Code
of the Philippines.
As shown in the Stock and Transfer Book of NEUGENE, the
right hand portion of Exhibit A-9, under the column Certificates
Issued, private respondents Lok Chun Suen is the holder of a total
of 1,400 shares of stock, issued on February 23, 1979, October 1,
1980 and May 2, 1981, respectively. (Records, p. 662) Exhibit A-
10, on its right hand portion and under the column Certificates
Issued reflects private respondents Charles O. Sy as the holder of a
total of 2,800 shares of stock, issued on the abovementioned dates
except those acquired from Eugenio Flores, Jr. which were issued
on May 15, 1986. (Records, p. 663) While the right hand portion of
Exhibit A-12, under the column Certificates Issued, shows that
private respondent Arsenio Yang, Jr. is the holder of 1,050 shares,
issued on the abovementioned dates, except those acquired from
Eugenio Flores, Jr. which were issued on May 15, 1986.(Records,
p. 665)
Therefore, the entries on the right hand portion of NEUGENES
Stock and Transfer Book, under the column Certificates Issued,
indubitably record the private respondents as the holders of 5,250
shares, constituting at least two-thirds (2/3) of NEUGENEs
outstanding capital stock of 7,000 shares.
Petitioners introduced in evidence the very same exhibits
pertaining to the Stock and Transfer Book of NEUGENE (more
specifically Exhibits A-9, A-10, and A-12) to prove that the private
respondents were no longer the majority stockholders at the time of
the dissolution of NEUGENE. It should be noted, however, that on
the left hand portion of the said exhibits, under the column
Certificates Cancelled, entries on July 1, 1987 disclose that all of
Lok Chun Suens 1,400 certificates of stock were cancelled, Charles
O. Sys 2, 100 shares out of 2, 800 shares were cancelled, and
Arsenio Yang, Jr.s 350 shares out of his 1, 050 shares were likewise
cancelled, thereby leaving Arsenio Yang, Jr. and Charles O. Sy the
holders of only 700 shares each or 10 % of the outstanding capital
stock of NEUGENE when its dissolution was approved and voted
for.
In light of the foregoing and after a careful examination of the
evidence on record, and a judicious study of the provisions of law
and jurisprudence in point, we are with the Court of Appeals on the
finding and conclusion that the certificates of stock of the private
respondents were stolen and therefore not validly transferred, and
the transfers of stock relied upon by petitioners were fraudulently
recorded in the Stock and Transfer Book of NEUGENE under the
column Certificates Cancelled.
Although well-established is the rule that the appellate court
will not generally disturb the factual findings by the trial court for
the reason that the trial court heard the testimonies of the witnesses
and observed their deportment and manner of testifying during the
trial and was afforded the singular chance to assess the probative
value of the evidence. The rule does not apply where, as in this case,
the SEC overlooked certain facts of substance and value which if
considered would affect the result of the case. (Tomas vs. CA, 185
SCRA 627 [1990]; People vs. Alforte, 219 SCRA 458 [1993])
In the case under consideration, records reveal that the SEC En
Banc and its Panel Of Hearing Officers misappreciated the true
nature of the relationship between the stockholders of NEUGENE
and the Uy family, who had the understanding that the beneficial
ownership of NEUGENE would remain with the Uy family, such
that subject shares of stock were, immediately upon issuance,
endorsed in blank by the shareholders and entrusted to the Uy
family, through Ban Ha Chua, for safekeeping. Such beneficial
ownership of the Uy family is admitted not only in the testimonies
of private respondents but also of the petitioners, Sonny Moreno
and Johnson Lee.[10]
Both the petitioners Johnson Lee (a member of the Uy family
himself), and Sonny Moreno, the corporate secretary, were aware
of the real import or significance of the indorsements in blank on
the stock certificates of the private respondents. Obviously, then,
they (Lee and Moreno) acted in bad faith in assigning subject
certificates of stock to the petitioners, Nicanor Martin and Leoncio
Tan, and in recording the said transfers in dispute in the Stock and
Transfer Book of NEUGENE.
Then, too, as nominees of the Uy family, the approval by the
private respondents, Charles O. Sy, Lok Chun Suen and Arsenio
Yang, Jr., Jr., was necessary for the validity and effectivity of the
transfer of the stock certificates registered under their (private
respondents) names. In the case under consideration, not only did
the transfers of stock in question lack the requisite approval, the
private respondents categorically declared under oath that subject
certificates of stock of theirs were stolen from the confidential vault
of the Uy family and illegally transferred to the names of petitioners
in the Stock and Transfer Book of NEUGENE.
As stressed by the Court of Appeals, there is no reliable
showing of any valuable consideration for the supposed transfer of
subject stocks to petitioners. Fundamental and crucial is the rule
that if a contract has no cause, it does not produce any effect
whatsoever and is inexistent or void from the beginning. The
complete absence of a cause or consideration renders the contract
absolutely void and inexistent. (Robleza vs. Court of Appeals, 174
SCRA 362 [1989]), citing Arts. 1352 and 1409 of the New Civil
Code)
All things studiedly evaluated in proper perspective, we are of
the irresistible conclusion that the private respondents herein are the
legitimate holders and owners of at least two-thirds (2/3) of the
outstanding capital stock of NEUGENE, with the corresponding
right to vote for its dissolution, in accordance with Section 118 of
the Corporation Code of the Philippines.
WHEREFORE,the Petition is DISMISSED for lack of merit
and the Decision of the Court of Appeals AFFIRMED, in its
entirety. No pronouncement as to costs.
SO ORDERED.
Guy v Guy
Teng v SEC
Lanuza v CA
Batangas Laguna Tayabas Bus Co, Inc. (BLTB) v. Bitanga (2001) sorry for
the length.
Doctrines:
o Under Sec 63 of the Corp Code, the sale of stocks shall not be
recognized as valid unless registered in the books of the corporation
insofar as 3rd persons, including the corporation was concerned — as
between the parties to the sale, the transfer shall be valid even if not
recorded in the books of the corporation.
o Until registration is completed, the transfer, though valid
between the parties, cannot be effective as against the corporation. The
purpose of registration is 2-fold, namely:
a. To enable the transferee to exercise all the rights of a
stockholder, including the right to vote and be voted for
b. To inform the corporation of any change in share ownership so
that it can ascertain the persons entitled to the rights and subject to the
liabilities of a stockholder.
o Puno’s dissent. Facts:
The Potencio family originally owned 87.5% of the outstanding capital
stock of BLTB.
On October 2007 some of the BLTB’s stockholders (Dolores, Max Joseph
& Mercedelin POTENCIANO, Delfin Yarro and Maya Industries, Inc.)
entered into a SALE AND PURCHASE AGREEMENT with Benjamin
BITANGA (representing BMB Property Holdings, Inc. as its President).
21,071,114 BLTB shares representing 47.98% of total outstanding capital
stock of BLTB were sold.
The payment scheme was agreed to be as follows:
Purchase Price P72,076,425
Downpayment upon signing of Agreement 44,354,723
BALANCE — payable on November 26, 1997 27,721,702
There was a stipulation that the downpayment was conditioned upon
the receipt by the buyer of certain documents upon signing of the
Agreement. It was also agreed upon that the management and
operation of BLTB shall be turned over to the buyer with the
understanding that in case the balance is not paid on the date agreed
upon, the management and control of BLTB shall revert back to the
sellers.
A month later, in a BLTB stockholder’s meeting, Benjamin BITANGA and
Monica Grace Lim were elected as directors replacing Dolores and Max
Joseph POTENCIANO. A few days thereafter, in another stockholders’
meeting, the other sellers also resigned from their positions as directors
and were replaced and Benjamin BITANGA was elected as Chairman of
the Board, President and CEO (there were other officers elected)
During the meeting of the BoD on April 14, 1998 the newly elected
directors scheduled the annual stockholders’ meeting. Before this
scheduled meeting, Michael POTENCIANO wrote Benjamin BITANGA
requesting for a postponement of the scheduled meeting, due to the
absence of the 30-day advance notice. No response was given to such
request but on the day of the meeting itself, a notice of postponement
was published in the Manila Bulletin. Many stockholders (representing
87% of the shares of BLTB) came due to the late notice of postponement
and a majority rejected the postponement. The POTENCIANO group
were re-elected to the BoD and a new set of officers were re- elected.
Inspite of this, the BITANGA group refused to relinquish their position
and continued to act as directors and officers of BLTB.
A series of cases* were filed, the last of which was before the CA who
rendered the herein assailed Decision, which upheld the Order of the
Hearing Panel, declaring void the stockholders’ meeting.
*. Bitanga group filed before the SEC a Complaint for Damages and
Injunction. Potenciano group then also filed a Complaint for Injunction
and Damages with Preliminary Injunction and TRO. The latter TRO was
approved and enjoined Bitanga from acting as officers and directors of

Issues:
1. W/N the CA committed grave abuse of discretion in upholding
the Order of the SEC En Banc resolved the main case.
2. W/N the CA committed grave abuse of discretion in upholding
that the Bitanga Group were denied their right to due process.
3. W/N the SEC En Banc committed error in jurisdiction as to entitle
Bitanga Group to the extraordinary remedy of
certiorari.
Held/Ratio:
The SC found petition impressed with merit.
1. YES, the Order merely delved on the propriety of granting a writ
of preliminary injunction against Bitanga Group.
Contrary to Bitanga Group’s assertion, there were still several issues still
awaiting resolution. As such, there is no merit to the contention that the
SEC En Banc’s ruling is a prejudgment of the main case.
2. YES, since the BITANGA GROUP were not deprived of due
process when the SEC En Banc issued its Order.
Due process in essence is simply an opportunity to be heard. Both parties
were able to present their case during the hearing on the prayer for
injunction. It is not material that the injunction order was allegedly
“issued with deliberate speed” even before Bitanga Group filed its
Comment to Potenciano Group’s Petition. Also, the Rules of Court do not
require that issues be joined before preliminary injunction may issue.
3. NO, since at the time of the SEC En Banc’s Order, the validity of
the BLTB stockholder’s meeting was sustained, in light of the time-
honored doctrine in corporation law that a transfer is not valid unless
recorded in the books of the corporation.
Until registration is completed, the transfer, though valid between the
parties, cannot be effective as against the corporation. The purpose of
registration is 2-fold, namely:
a. To enable the transferee to exercise all the rights of a
stockholder, including the right to vote and be voted for
b. To inform the corporation of any change in share ownership so
that it can ascertain the persons entitled to the rights and subject to the
liabilities of a stockholder.
Until challenged in a proper proceeding, a stockholder of record has a
right to participate in any meeting; his vote can be properly counted to
determine whether a stockholders’ resolution was approved, despite the
claim of the alleged transferee. On the other hand, a person who has
purchased stock, and who desires to be recognized as a stockholder for
the purpose of voting, must secure such a standing by having the transfer
recorded on the corporate books.
Until the transfer is registered, the transferee is not a stockholder but an
outsider.
PUNO, J dissenting
He found that the CA’s decision valid. Based on the facts, the assailed
stockholders’ meeting was void due to lack of quorum (Bitanga Group
owned 50.26% of the outstanding capital stock of BLTB).
BATANGAS LAGUNA TAYABAS BUS COMPANY, INC. vs Bitanga
G.R. No. 137934. August 10, 2001
Doctrine:
Until registration is accomplished, the transfer, though valid
between the parties, cannot be effective as against the
corporation.
Facts:
 The Potencianos together with Delfin C. Yorro, and Maya
Industries, Inc., sold their BLTB stocks to BMB Property Holdings
Inc. represented by its President Benjamin Bitanga.
During the meeting of the stockholders of BLTB, Bitanga and
Monina Grace Lim were elected as directors of the corporation,
replacing Dolores and Max Joseph Potenciano. Subsequently,
another stockholders meeting was held, wherein Laureano A. Siy
and Renato L. Leveriza were elected as directors, replacing
Candido Potenciano and Delfin Yorro who had both resigned as
such.
During a meeting of the Board of Directors, the newly
elected directors of BLTB scheduled the annual stockholders
meeting to be held at the principal office of BLTB in San Pablo,
Laguna. Before the scheduled meeting, Michael Potenciano wrote
Benjamin Bitanga, requesting for a postponement of the
stockholders meeting due to the absence of a thirty-day advance
notice. However, there was no response from Bitanga on whether
or not the request for postponement was favorably acted upon.
On the scheduled date of the meeting, a notice of
postponement of the stockholders meeting was published in the
Manila Bulletin. Inasmuch as there was no notice of postponement
prior to that, a total of two hundred eighty-six (286) stockholders,
representing 87% of the shares of stock of BLTB, arrived and
attended the meeting. The majority of the stockholders present
rejected the postponement and voted to proceed with the
meeting. The Potenciano group was re-elected to the Board of
Directors, and a new set of officers was thereafter elected.
However, the Bitanga group refused to relinquish their
positions and continued to act as directors and officers of BLTB.
The conflict between the Potencianos and the Bitanga group
escalated to levels of unrest and even violence among laborers and
employees of the bus company.
Issue:
Whether or not the absence of the Bitanga group rendered
the stockholders meeting invalid.
Held:
No. The transfer of the shares of the group of Dolores
Potenciano to the Bitanga group has not yet been recorded in the
books of the corporation. Hence, the group of Dolores Potenciano,
in whose names those shares still stand, were the ones entitled to
attend and vote at the stockholders meeting of the BLTB. Indeed,
until registration is accomplished, the transfer, though valid
between the parties, cannot be effective as against the
corporation. Thus, the unrecorded transferee, the Bitanga group
in this case, cannot vote nor be voted for. The purpose of
registration, therefore, is two-fold: to enable the transferee to
exercise all the rights of a stockholder, including the right to vote
and to be voted for, and to inform the corporation of any change
in share ownership so that it can ascertain the persons entitled to
the rights and subject to the liabilities of a stockholder. Until
challenged in a proper proceeding, a stockholder of record has a
right to participate in any meeting; his vote can be properly
counted to determine whether a stockholders’ resolution was
approved, despite the claim of the alleged transferee. On the other
hand, a person who has purchased stock, and who desires to be
recognized as a stockholder for the purpose of voting, must secure
such a standing by having the transfer recorded on the corporate
books. Until the transfer is registered, the transferee is not a
stockholder but an outsider.
BLTB. Bitanga group then seeks to annul the stockholders’ meeting. The
SEC Hearing Panel decided in favor of Bitanga and declared the
 stockholders’ meeting void. Potenciano filed a petition for certiorari with
the SEC En Banc which then set aside the Panel’s decision.
Furthermore, Sec 63 was intended to protect the interest of the
corporation and 3rd persons who may be prejudiced by the transfer of
the shares of stock. It follows therefore, that as between the parties to
the sale, the transfer shall be valid even if not recorded in the books of
the corporation.
Just in case, the dissent provided the reasons behind the registration
requirement are:
a. to enable the corporation to know at all times who its actual
stockholders are, because mutual rights and obligations exist between
the corporation and its stockholders;
b. to afford to the corporation an opportunity to object or refuse
its consent to the transfer incase it has any claim against the stock sought
to be transferred, or for any other valid reason; and
c. to avoid fictitious or fraudulent transfers.
81 Uson v. Diosomito (1935)
Doctrines:
All transfers not so entered on the books of the corporation
are absolutely void; not because they are without notice or
fraudulent in law or fact, but because they are made so by
statute.
Facts:
Uson filed a civil action for debt in the CFI against Diosomito.
Upon institution of the action, an attachment was
duly issued and levied upon the property of Diosomito, including 75
shares of the North Electric Co., Inc., which stood in his name on
the books of the company. Uson won the case. Diosomito was made
to pay P2,300. To satisfy the judgment, the sheriff sold the 75 shares
at a public auction. Uson was the highest bidder. H.P.L. Jollye now
claims to be the owner of the 75 shares. He presented a certificate of
stock issued to him by the company.
Apparently, Diosomito, the original owner of the shares, sold
the same to Barcelon and delivered to the latter the corresponding
certificates Nos. 2 and 19. Barcelon later sold the shares to Jollye. It
must be noted that the transfer of shares by Diosomito to Barcelon
was registered and noted on the books of the corporation 9 months
AFTER the attachment had been levied on the said shares.
Issues:
1. W/N a transfer of shares, not registered or noted on the books
of the corporation, is 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/Ratio:
1. NO. Section 35 of the (Old) Corporation Law states that: “No
transfer, however shall be valid, except as between the parties,
until the transfer is entered and noted upon the books of the
corporation as to show the names of the parties to the
transaction, the date of the transfer, the number of the
certificated, and the number of shares transferred.”
(Kung tanungin lang) US jurisprudence tells us three things.
First, no transfer of shares is valid for any purpose unless
registered on the books of the corporation. Second, no transfer
shall be valid except as between the parties until the transfer
is duly registered. And third, an unregistered transfer is valid
as against the lien of a subsequent attachment sued out by a
creditor of the assignor, whether such creditor has notice of
the transfer or not. This is because an attachment reaches only
such title or interest as the defendant may have in the property
at the time of the levy.
The SC decided to apply the ruling of the SC of Massachusetts and
Wisconsin: “all transfers of shares should be entered on the books of
the corporation. And it is equally clear to us that 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. All transfers not so entered on
the books are absolutely void; not because they are without notice
or fraudulent in law or fact, but because they are made so void by
statute
USON v DIOSOMITO G.R. No. L-42135 June 17, 1935
DOCTRINE: The failure to register a sale or disposition of shares of stock in the books of the
corporation would render the same invalid to all persons, including the attaching creditors of the
seller
FACTS:
Uson filed a civil action against Diosomito and that upon institution of said action an
attachment was duly issued and levied upon the property of the defendant Diosomito, including 75
shares of the North Electric Co., Inc., which stood in his name on the books of the company when the
attachment was levied on January 18, 1932.
Uson obtained judgment against the defendant Diosomito. To satisfy said judgment, the sheriff sold
said shares at public auction. The plaintiff Toribia Uson was the highest bidder and said shares were
adjudicated to her.
Respondent sold his shares to Barcelon. However Barcelon did not present these
certificates to the corporation for registration until the September 16, 1932. Barcelon transferred it
to defendant North Electric Company, Inc. to whom a new certificate was issued on February 13,
1933
It will be seen, therefore, that the transfer of said shares by Vicente Diosomito, the judgment debtor
in suit, to Barcelon was not registered and noted on the books of the corporation until September
16, 1932, which was some 9 months after the attachment had been levied on said shares in civil case
ISSUE:
W/N the transfer of the shares of a corporation, not registered or noted on the books of the
corporation, is valid as against a subsequent lawful attachment of said shares, regardless of whether
the attaching creditor had actual notice of said transfer or not
RULING: NO
Section 35 of the Corporation Law is as follows:
SEC. 35. The capital stock of stock corporations shall be divided into shares for which certificates
signed by the president or the vice-president, countersigned by the secretary or clerk and sealed with
the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of
the certificate indorsed by the owner or his attorney in fact or other person legally authorized to
make the transfer. 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.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable on the books of the corporation.
The sentence of the foregoing section immediately applicable in the present case is 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.
The court held that the language of the legislature is plain to the effect that the right of the owner of
the shares of stock of a Philippine corporation to transfer the same by delivery of the certificate,
whether it be regarded as statutory on common law right, is limited and restricted by the express
provision that "no transfer, however, shall be valid, except as between the parties, until the transfer
is entered and noted upon the books of the corporation." Therefore, the transfer of the 75 shares in
the North Electric Company, Inc., made by the defendant Diosomito to the defendant Barcelon was
not valid as to the plaintiff-appellee, Toribia Uson, on January 18, 1932, the date on which she
obtained her attachment lien on said shares of stock which still stood in the name of Diosomito on
the books of the corporation.
Fua Cun v. Summers (1923) (assignee has better right over corporation)
Doctrines:
• Chattel mortgages on shares of stock and other choses in action
are valid as between the parties and that the recording of the mortgage
will furnish constructive notice to third parties.
• A bank can have no lien on its own stock for the indebtedness of
the stockholders even when the by-laws provide that the shares shall be
transferable only on the books of the corporation and that no such
transfer shall be made if the holder of the shares is indebted to the
corporation.
• It’s upon the recording in the transfer book that solidifies the
fact of ownership Facts:
Chua Soco subscribed for 500 shares of stock of China Bank at P100 per
share, he paid 25,000 representing half of the subscription for which a
receipt was issued. Subsequently, Chua Soco issued a promissory note in
favor of the plaintiff, Fua Cun or Tua Cun (whichever you fancy), and
secured the note with a chattel mortgage on the said shares of stock.
There came the a point that Chua Soco became indebted to China Bank
and failed to pay such which lead to the attachment of the same shares
of stock in favor of the bank. Fua Cun contested this and claims that he
acquired the right to the 250 fully paid shares and he must be given
priority over the ownership plus damages.
Issues:
1. W/N Fua Cun is the owner of the 250 shares
2. Who has a better right on these shares? Held/Ratio:
1. NO. The Court erred in holding Fua Cun as owner of the 250
shares. The right of the plaintiff consists of an equity on the whole 500
shares upon payment of the unpaid portion of the subscription price.
Upon payment of the whole price, he becomes entitled to the issuance
of certificate for the said 500 shares.
2. FUA CUN has a better right. There can be no doubt that an equity
in shares of stock may be assigned and that the assignment is valid as
between the parties and as to persons to whom notice is brought home.
Such an assignment exists here, though it was made for the purpose of
securing a debt. And such endorsement was accompanied by the
delivery of the receipt to the plaintiff and further strengthened by the
execution of the chattel mortgage, which mortgage, at least, operated
as a conditional equitable assignment.
The bank has no lien unless by virtue of the attachment. Wherein such
attachment was levied after the bank has received notice of the
assignment of Chua Soco’s interest to Fua Cun—therefore subject to his
rights, not of the bank’s.
FUA CUN vs. RICARDO SUMMERS,
G.R. No. L-19441 March 27, 1923
FUA CUN (alias Tua Cun), plaintiff-appellee,
RICARDO SUMMERS, in his capacity as Sheriff ex-oficio of the City of
Manila, and the CHINA BANKING CORPORATION, defendants-
appellants.
TOPIC: PLEDGE, MORTGAGE AND OTHER ENCUMBRANCES
Author: Pasion
Doctrine: an equity in shares of stock may properly be made the subject
of a chattel mortgage, quære, but such chattel mortgage will at least
operate as a conditional equitable assignment.
FACTS:
Chua Soco subscribed five hundred shares of stock at PhP 100/share of
the defendant China Bank Corporation paying the sum of P25,000 as 50%
of its subscription price.
Consequently, 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. This note was
secured by the certificate of stock. He then endorsed the receipt (of the
25k payment) and delivered it to the mortgagee. The plaintiff thereupon
took the receipt to the manager of the defendant Bank and informed him
of the transaction with Chua Soco, but was told to await action upon the
matter by the Board of Directors.
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 was attached and the receipt seized by the sheriff. The
attachment was levied after the defendant bank had received notice of
the facts that the receipt had been endorsed over to the plaintiff.
Fua Cun thereupon brought the present action maintaining that by virtue
of the payment of the one-half of the subscription price of five hundred
shares Chua Soco in effect became the owner of two hundred and fifty
shares and praying that his, the plaintiff's, lien on said shares, by virtue of
the chattel mortgage, be declared to hold priority over the claim of the
defendant Banking Corporation; that the defendants be ordered to deliver
the receipt in question to him; and that he be awarded the sum of P5,000
in damages for wrongful attachment.
The trial court rendered judgment in favor of the plaintiff declaring that
Chua Soco, through the payment of the P25,000, acquired the right to two
hundred and fifty shares fully paid up, upon which shares the plaintiff
holds a lien superior to that of the defendant Banking Corporation and
ordering that the receipt be returned to said plaintiff. From this judgment
the defendants appeal.
ISSUE:
Whether or not an equity shares can be a subject to chattel mortgage or
can be assigned:
HELD:
Yes.
An equity in shares of stock may be assigned, the assignment becoming
effective as between the parties and as to third parties with notice. An
equity in shares of stock may properly be made the subject of a chattel
mortgage, quære, but such chattel mortgage will at least operate as a
conditional equitable assignment. However, An attachment levied upon
assigned rights or interests in an action against the assignor after the
attaching creditor has received notice of the assignment creates no lien
as against the assignee.
Other Notes:
 A banking corporation has no lien upon its own stock for the
indebtedness of the stockholders even when the by-laws provide
that the shares shall be transferable only upon the books of the
corporation and that no such transfer shall be made if the holder
of the shares is indebted to the corporation.
 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.
81 Monserrat v. Ceron (1933)
Doctrines:
Only the transfer or absolute conveyance of the ownership of
the title to shares needs to be entered and noted upon the books
of the corporation. Hence, inasmuch as a chattel mortgage is
not a complete and absolute alienation of the dominion and
ownership thereof, its entry and notation upon the books of
the corporation is not a necessary requisite to its validity.
Facts:
Monserrat was the president and manager of Manila Yellow
Taxicab Co., Inc., and the owner of P1,200 common
shares of stock thereof. Monserrat assigned to Ceron a usufruct of half
of the common shares of stock. Certificate of Stock No. 7 was then
issued in the name of Ceron. It was also recorded on the Stock and
Transfer Book of the company. However, such assignment only gave
Ceron the right to enjoy, during his lifetime, the profits which might
be derived from the shares assigned him, prohibiting him from selling,
mortgaging encumbering or otherwise exercising any act implying
absolute ownership of all the shares. Monserrat had reserved for
himself and his heirs the right to vote derived from said shares of stock
and to recover the ownership thereof at the termination of the usufruct.
Ceron mortgaged to Matute 600 common shares of stock.
Ceron also endorsed to Matute the Certificate of Stock. Ceron showed
Matute the Stock and Transfer Book of the company. Matute saw that
the stocks were in the name of Ceron, free from any lien or
encumbrance. When Ceron mortgaged the stocks, he did not inform
Matute of Monserrat’s reservation.
Issues:
1. W/N it is necessary to enter upon the books of the corporation
a mortgage constituted on common shares of stock in order
for the mortgage to be valid?
Held/Ratio:
1. NO. Section 35 of the (old) corporation law does not
require an entry except of transfers of shares of stock in
order that such transfers may be valid against third
persons.
 Transfer means an act by which property of one person is
vested in another and transfer of shares implies any means
whereby one may be divested of and another acquire
ownership of stock.
A chattel mortgage refers to personal property given as
security for payment of a debt. Such personal property has to
be delivered. But the transfer is not absolute, being a mere
security. A chattel mortgage is not a transfer because there is
no intent of passing the rights the transferor has to the
transferee. A chattel mortgage is not the transfer referred to in
the (old) corporation law, which transfer should be entered
and noted upon the books of a corporation in order to be valid.
Only the transfer or absolute conveyance of the ownership of
the title to shares needs to be entered and noted upon the books
of the corporation. Hence, inasmuch as a chattel mortgage is
not a complete and absolute alienation of the dominion and
ownership thereof, its entry and notation upon the books of
the corporation is not a necessary requisite to its validity.
In addition, Matute was in good faith. There was nothing in the stock
book regarding Monserrat’s reservation. Matute was a conditional
purchaser in good faith
MONSERRAT v. CERON (1933)
Petitioner: Enrique Monserrat
Respondents: Carlos G. Ceron, et al, Erma Inc., Sheriff of Manila
Author: Plan
Topic: Capital Stock; Shares of Stock; Transfers, Encumbrance and
other Dealings with Shares; Effects of Non-Registration of Transfers in
STB; Pledge
When the shares are covered by a stock certificate issued in the name of
the usufructuary by the original owner with the agreement between them
that they should not be disposed or sold, but the registered owner had
pledged the shares by endorsement and delivery of the certificate to one
who took them in good faith and for value, the latter shall be preferred
since registration of a security arrangement covering shares of stock does
not require, for its validity and bringing effect on the world, to be registered
in stock and transfer book.
Facts:
- Plaintiff Monserrat, was the president and manager of the Manila
Yellow Taxicab Co. Inc., and the owner of P1,200 common
shares of stock thereof.
- In 1930, in consideration of the interest shown and the financial
aid extended him in the organization of the corporation by
defendant Ceron, plaintiff assigned to the defendant the usufruct
of half of the aforesaid common shares of stock (the
corresponding certificate of stock No. 7, having been issued in
the name of the defendant, Ceron).
- (Usufruct) Said assignment or transfer only gave the transferee
the right to enjoy, during his lifetime, the profits which might be
derived from the shares assigned him, prohibiting him from
selling, mortgaging, encumbering, alienating or otherwise
exercising any act implying absolute ownership of all or any of the
shares in question, the transferor having reserved for himself and
his heirs the right to vote derived from said shares of stock and
to recover the ownership thereof at the termination of the
usufruct. Stock certificate No. 7 was recorded in the name of the
defendant, Ceron on page 22 of the Stock and Transfer Book.
- (Mortgage) In 1931, defendant Ceron mortgaged to Matute,
president of defendant corporation Erma Inc. some of the
common shares of stock in question. When Ceron mortgaged the
shares in question to Matute, he did not inform Matute of the
existence of the usufruct, and the latter never had any knowledge
thereof.
Issue:
 W/N it is necessary to enter upon the books of the corporation a
mortgage constituted on common shares of stock in order that
such mortgage may be valid and may have force and effect as
against third persons. – No.
 W/N Erma acted in good faith and must be protected as an
innocent purchaser of the shares. – Yes.
Held: YES.
No.
- Corporation Code provides in SEC. 35. … No transfer, however,
shall be valid, except as between the parties, until the transfer is
entered and noted upon the books of the corporation…
- Although a chattel mortgage, accompanied by delivery of the
mortgaged thing, transfers the title and ownership thereof to the
 mortgage creditor, such transfer is not absolute but constitutes a
mere security for the payment of the mortgage debt, the transfer
in question becoming null and void from the time the mortgage
debtor complies with his obligation to pay his debt.
- Taking into consideration the essence of chattel mortgage, it has
been held that "transfer" is the act by which owner of a thing
delivers it to another with the intent of passing the rights which he
has in it to the latter, and a chattel mortgage is not within the
meaning of such term.
- Therefore, the chattel mortgage is not the transfer referred to in
the Corporation Code, which transfer should be entered and
noted in the STB in order to be valid, and which, as has already
been said, means the absolute and unconditional conveyance of
the title and ownership of a share of stock.
Yes.
- Evidence shows that when Matute went to the office of Ceron to
examine the STB, for the purpose of ascertaining the actual
status of said shares of stock, Ceron as the secretary and in
charge of said STB, showed it to him. Matute found nothing but
that the shares in question were recorded therein in the name of
said Carlos G. Ceron, free from all liens and encumbrances and
made no reference to the usufruct, for fear he might not succeed
in obtaining the loan he applied for.
- The inspection took place on Feb 1931, while the annotation of
the mortgage was only done on May 1931, the same date on
which the shares were to have been sold at public auction to
Erma, in view of Ceron's default in the payment of the loan.
- Defendant Erma Inc., as a conditional purchaser of the shares of
stock in question given as security for the payment of his credit,
acquired in good faith defendant Ceron's right and title to the
shares of stock in question and as such conditional purchaser in
good faith, it is entitled to the protection of the law.
Disposition: Judgement reversed. Defendants are absolved from the
complaint.
FACTS
1. 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.
2. 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 registered of deeds of Manila on 23 June 1931, and in the
office of the said corporation on 30 September 1931.
3. On 28 November 1931, Chua Chiu assigned all his right and interest in
said mortgage to the Chua Guan and the assignment in the office of the
register of deeds in the City of Manila on 28 December 1931, and in the
office of the said corporation on 4 January 1932.
4. Co Toco defaulted in the payment of said debt at maturity and Chua
Guan foreclosed said mortgage and delivered the certificates of stock and
copies of the mortgage and assignment to the sheriff of the City of Manila
in order to sell 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 P14,390, the sheriff executed in his favor a
certificate of sale of said shares.
5. The plaintiff tendered the certificates of stock standing in the name of
Co Toco to the proper officers of the corporation for cancellation and
demanded that they issue new certificates in the name of Chua Guan. The
officers (the individual defendants) refused and still refuse to issue said
new shares in the name of Chua Guan.
6. An action for writ of mandamus was filed with the CFI Nueva Ecija,
praying that the defendants transfer the said 5,894 shares of stock to the
plaintiff by cancelling the old certificates and issuing new ones in their
stead.
7. The parties entered into a stipulation in which the defendants admitted
all of the allegations of the complaint and the plaintiff admitted all of the
special defenses in the answer of the defendants, and on this stipulation
they submitted the case for decision.
8. As special defense, the defendants refused to cancel said certificates
(Co Toco’s) and to issue new ones in the name of Chua Guan because
prior to the date of the latter’s demand (4 February 1933), 9 attachments
had been issued and served and noted on the books of the corporation
against Co Toco’s shares and Chua Guan objected to having these
attachments noted on the new certificates which he demanded.
9. 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 registration of said chattel mortgage in the registry of
chattel mortgages in the office of the register of deeds of Manila, under
date of July 23,1931, give constructive notice to the said attaching
creditors.
HELD:
YES. The attaching creditors are entitled to priority over the defectively
registered mortgage of the appellant.
RATIO:
1. Section 4 of Act No. 1508 provides two ways for executing a valid
chattel mortgage which shall be effective against third persons:
a. The possession of the property mortgage must be delivered to and
retained by the mortgagee
b. Without such delivery, the mortgage must be recorded in the proper
office or offices of the register or registers of deeds.
2. As to the proper place of registration of such a mortgage. - Section 4
provides that in such a case the mortgage resides at the time of making
the same or, if he is a non-resident, in the province in which the
property is situated; and it also provides that if the property is situated
in a different province from that in which the mortgagor resides the
mortgage shall be recorded both in the province of the mortgagor's
residence and in the province where the property is situated.
3. With respect to a chattel mortgage of shares of stock of a corporation
- Registration in the province of the owner's domicile should be
sufficient, those who lend on such security would be confronted with
the practical difficulty of being compelled not only to search the records
of every province in which the mortgagor might have been domiciled
but also every province in which a chattel mortgage by any former
owner of such shares might be registered. It was not the intention of the
legislature to put this almost prohibitive impediment upon the
hypothecation of shares of stock in view of the great volume of business
that is done on the faith of the pledge of shares of stock as collateral.
4. It is a general rule that for purposes of execution, attachment and
garnishment, it is not the domicile of the owner of a certificate but the
domicile of the corporation which is decisive.
5. The only safe way to accomplish the hypothecation of share of stock
of a Philippine corporation is for the creditor to insist on the assignment
and delivery of the certificate and to obtain the transfer of the legal title
to him on the books of the corporation by the cancellation of the
certificate and the issuance of a new one to him.
6. To the debtor, this may be unsatisfactory because it leaves the
creditor as the ostensible owner of the shares and the debtor is forced to
rely upon the honesty and solvency of the creditor. The mere possession
and retention of the debtor's certificate by the creditor gives some
security to the creditor against an attempted voluntary transfer by the
debtor, provided the by-laws of the corporation expressly enact that
transfers may be made only upon the surrender of the certificate.
6. Section 35 of the Corporation Law (Act No. 1459) - shares of stock
"may be transferred by delivery of the certificate endorsed by the owner
or his attorney in fact or other person legally authorized to make the
transfer." The use of the verb "may" does not exclude the possibility
that a transfer may be made in a different manner, thus leaving the
creditor in an insecure position even though he has the certificate in his
possession. Moreover, the shares 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
7. Loans upon stock securities should be facilitated in order to foster
economic development. The transfer by endorsement and delivery of a
certificate with intention to pledge the shares covered thereby should be
sufficient to give legal effect to that intention and to consummate the
juristic act without necessity for registration.
CASE LAW/ DOCTRINE:
1. It is a general rule that for purposes of execution, attachment and
garnishment, it is not the domicile of the owner of a certificate but
the domicile of the corporation which is decisive.
2. Loans upon stock securities should be facilitated in order to foster
economic development. The transfer by endorsement and delivery
of a certificate with intention to pledge the shares covered thereby
should be sufficient to give legal effect to that intention and to
consummate the juristic act without necessity for registration.
Chua Guan v. Samahang Magsasaka (1935)
Facts:
Toco, a resident of Manila, owns 5,894 shares of capital stock with
Samahang Magsasaka Inc., which has principal office in Nueva Ecija. It
was represented by 9 certificates having a par value of P 5 per share.
Toco, mortgaged the said shares to Chiu to guarantee his debt of P
20,000. The stocks were delivered to Chiu and were registered in the
register of deeds in Manila. Chiu then subsequently assigned all his
rights and interest to Chua Guan and registered it in the register of
deeds in Manila and in the office of the corporation.
When Toco defaulted in payment, the shares were foreclosed by Chua
Guan who was thereafter declared as the highest bidder. However,
when he tendered the certificates of cancellation and issuance of new
shares in his name, the officers of the Corporation refused.
The officers refused because apparently prior to Chua Guan’s demand,
and even before the notice of mortgage of Chiu, several attachments
against the shares covered by the certificates had been recorded in its
books. (The corporation received the notice of mortgage only after 2
years from date of registration)
Chua Guan filed a writ of mandamus to require the officers to transfer
the shares of stock to him by cancelling the old certificates and issuing
new ones in their stead.
Issues:
1. W/N the mortgage takes priority over the writ of attachments
2. W/N the Registration in the Register of Deeds in Manila
constitute constructive notice to the attaching creditors Held/Ratio:
1. No. The writ of attachments takes priority over the mortgage.
The Corporation received the writ of attachments on the shares prior
to the notice of registration of the mortgage. The basis for notice is the
actual notice because there was no valid constructive notice (see no. 2)
2. No, The Chattel Mortgage Law provides that to execute a valid
chattel mortgage, the mortgage must be recorded in the register of
deeds.
It is the general rule that the situs of shares is the domicile of the
owner. However, It is also generally held that for the purpose of
execution, attachment, and garnishment, it is the domicile of the
corporation that is decisive.
Going by these principles, it is deemed reasonable that chattel
mortgage of shares be registered both at the owner’s domicile and in
the province where the corporation has its principal office. Thus, the
mortgage should have been registered in the Register of Deeds of
Manila and Nueva Ecija. (It should be understood that the property
mortgaged is not the certificate but the participation and share of the
owner in the assets of the corporation.)
Note: the registration of the chattel mortgage in the office of the corp.
is not necessary and has no legal effect.
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.
THE BACHRACH MOTOR CO., INC., plaintiff-appellant, vs. MARIANO
LACSON LEDESMA, TALISAY-SILAY MILLING CO., INC., and THE
PHILIPPINE NATIONAL BANK, defendant-appellees.
G.R. No. L-42462 August 31, 1937
Topic: Validity of pledge of shares of stock over third person
Author: Reyes
Doctrine:
A contract of pledge of stock dividends should be deemed legally
entered into and should produce all its effects and consequences,
provided it appears to have been in some manner perfected and that the
things pledged have been delivered OR if the creditor has not received
them or has not retained them in his custody, provided that the contract
of pledge appears in a notarial document and is inscribed in the
registry of deeds of the province."
Facts:
On 27 February 1930, certificate No. 772 covering the 6,300 stock
dividends owned by Ledesma on Talisay-Silay Milling Co., Inc. was given
as pledged and delivered as security to PNB.
On 11 August 1930, the parties were notified of the garnishment obtained
by Bachrach (plaintiff) in a civil case it won against Ledesma. Said
garnishment attached all right or title to an interest which Ledesma might
have in any bonus, dividend, shares of stock, money or other property he
is entitled to receive from the Talisay-Silay Milling Co., Inc.
However, on 25 February 1931, the Talisay-Silay Milling Co., Inc., in
conformity with the pledge, cancelled certificate No. 772 and in lieu
thereof issued certificate No. 1155 in favor of said bank.
Now, plaintiff questions the right of the defendant PNB over the certificate
of the shares of stocks. It claims preferred rights over the stocks on the
ground of the garnishment it obtained and that the earlier pledge executed
in favor of PNB is ineffective as it was not made in a public instrument.
Issue:
Whether or not a contract of pledge that does not appear in a public
instrument may bind third persons.
Ruling: YES
On plaintiff’s claim of preferred right, it is settled that it cannot claim
preferred rights over the stock dividends as the contract of pledge was
executed PRIOR to the notice to the parties of the garnishment.
On plaintiff’s claim of ineffectivity of the contract of pledge: Initially, Article
1865 of the Civil Code provides that in order that a pledge may be
effective as against third person, evidence of its date must appear in a
public instrument in addition to the delivery of the thing pledged to the
creditor. However, section 4 of the Chattel Mortgage Law, implicitly
modified article 1865 of the Civil Code in the sense that a contract of
pledge, to be effective as against third persons, need not appear in public
instruments provided the thing pledged or mortgaged be delivered or
placed in the possession of the creditor. Thus, the standing rule is that: A
contract of pledge should be deemed legally entered into and should
produce all its effects and consequences, provided it appears to
have been in some manner perfected and that the things pledged
have been delivered, and in a contrary case, and even if the creditor
has not received them or has not retained them in his custody,
provided that the contract of pledge or appears in a notarial
document and is inscribed in the registry of deeds of the province.
Thus, the court held that the pledge of the 6,300 stock dividends in
favor of PNB is valid against the plaintiff for the reason that the
certificate was delivered to the creditor bank, notwithstanding the
fact that the contract does not appear in a public instrument
Bachrach Motors v. Lacson Ledesma (1937)
Doctrine:
• Certificates of stock or of stock dividends, under the corporation
law, are quasi-negotiable instruments in the sense that they may be
given in pledge or mortgage to secure an obligation.
Facts:
Bacharach Motors and PNB are both creditors of Lacson Ledesma.
Lacson has 6,300 stocks of Talisay—Silay Milling in his name. As security
for his debts with PNB, Bachrach mortgaged various real properties and
pledged the certificate of stocks of the said shares. The certificate was
delivered to PNB but was not duly notarized. Alternatively, Bachrach
Motors filed a civil case against Lacson and subsequently obtained a
favourable judgment. Thus, a writ of execution was issued against the
properties of Lacson including the said stocks. (Note: the stock dividends
were pledged to the Bank more than 5 months prior to the attachment)
Bachrach now claims that his right over the Talisay-Silang certificate of
stocks should be preferred as against PNB’s right because the pledge
could not legally exist. Bachrach argues that because the certificate is
not the actual shares themselves, it is understood that a certificate of
stocks or of stock dividends cannot be the subject matter of the contract
of pledge.
Issues:
1. W/N the certificate of stocks or of stock dividends may be
pledged
2. W/N the pledge of certificate of stocks even when not embodied
in a public instrument may bind 3rd parties Held/Ratio:
1. Yes. Certificates of stock or of stock dividends, under the
corporation law, are quasi negotiable instruments in the sense that they
may be given in pledge or mortgage to secure an obligation. Modern
commercial practice has been towards the trend of placing them near
the plane of commercial paper. They may pass from hand to hand and
whenever accompanied by duly executed Deeds of Assignment and
powers of attorney (w/c may be in blank), they confer good title.
2. Yes. Section 4 of the Chattel mortgage Law implicitly modified
Article 1865 of the civil code in the sense that a contract of pledge and
that of chattel mortgage to be effective as against third persons, need
not appear in a public instrument. Provided, that the thing pledged or
mortgaged be delivered or placed in the possession of the creditor.
Nava v. Peers Marketing Corproration (1927)
Facts:
Teofilo Po subscribed to 80 shares of Peers Marketing at P100/share. Po
paid 25% of the amount of his subscription. Po then sold to Nava 20 of
his 80 shares. Nava requested the officers of Peers Marketing to register
the sale in the books of the corporation but the corporation refused
because Po was delinquent in the payment of the balance of his
subscription. Nava filed a mandamus action to compel the corporation
to register the shares in Nava’s name. The respondents (executive VP
and secretary) pleaded the defense that no shares of stock which holds
an unpaid claim are transferable in the books of the corporation.
Issue:
1. W/N the officers of Peers Marketing can be compelled by mandamus
to register the sale in the books of the corporation
Held/Ratio:
1. NO. The transfer made by Po to Nava is not the “alienation, sale, or
transfer of stock” that is supposed to be recorded in the stock and
transfer book, as contemplated in section 52 of the Corporation Law. As
a rule, the shares which may be alienated are those which are covered
by certificates of stock. As prescribed in section 35, 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 assignZZment or indorsement thereof”. There
should be compliance with the mode of transfer prescribed by law.
Also, A corporation cannot release an original subscriber from paying for
his shares without a valuable consideration or without the unanimous
consent of the stockholders. In this case, there is no clear legal duty on
the part of the officers of the corporation to register the twenty shares
in Nava’s name, Hence, there is no cause of action for mandamus. In this
case no stock certificate was issued to Po. Without 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. The delivery of the stock certificate, which represents the
shares to be alienated , is essential for the protection of both the
corporation and its stockholders
Cited: Baltazar case: There is no parallelism between this case and the
Baltazar case. It is noteworthy that in the Baltazar case the stockholder,
an incorporator, was the holder of a certificate of stock for the shares
the par value of which had been paid by him. The issue was whether the
said shares had voting rights although the incorporator had not paid fully
the total amount of his subscription. That is not the issue in this case.
MR Holdings Ltd v. Bajar
Commercial Law – Corporation Law – License Requirement – Foreign
Corporation – Being an assignee does not automatically mean “doing
business”
FACTS:
Marcopper Mining Corporation was unable to pay its loans from the
Asian Development Bank (ADB). Later, ADB transferred all its rights to
collect from Marcopper to MR Holdings, Ltd. In order to pay MR
Holdings, Marcopper assigned all its assets to MR Holdings and
executed therefor a Deed of Assignment in MR Holdings favor.
Being a mere assignee does not constitute “doing business” in the
Philippines. MR Holdings, a foreign corporation, cannot be said to be
doing business simply because it became an assignee of Marcopper.
MR Holdings was not doing anything else other than being a mere
assignee. The only time that MR Holdings is considered to be doing
business here is that if it continues the business of Marcopper – which
it did not.
Therefore, since it is not doing business here, pursuant to the rules
above, it can sue without any license before Philippine courts on an
isolated transaction or on a cause of action entirely independent of any
business transaction.
Anent the issue of bad faith, the same was not proven. It appears that
the deed of assignment was an earlier agreement incidental to the loan
agreement between ADB and Marcopper which precedes the action
brought by Solidbank against Marcopper.

Meanwhile, another creditor of Marcopper, Solidbank Corporation, won

a case against Marcopper. The court then issued a writ of execution
directing Sheriff Carlos Bajar to levy Marcopper’s assets.
MR Holdings then filed an opposition asserting that it is now the owner
of Marcopper’s assets hence, Bajar cannot levy them. The lower court
denied MR Holdings on the ground that the Deed of Assignment was
made in bad faith and that MR Holdings was a foreign corporation doing
business without a license in the Philippines (by virtue of the Deed of
Assignment) and as such cannot sue in the Philippines.
ISSUE:
Whether or not MR Holdings may sue on this particular transaction.
HELD:
Yes. The Supreme Court emphasized the following rules when it comes
to foreign corporations doing business here in the Philippines:
1.if a foreign corporation does business in the Philippines without a
license, it cannot sue before the Philippine courts;
2.if a foreign corporation is not doing business in the Philippines, it
needs no license to sue before Philippine courts on an isolated
transaction or on a cause of action entirely independent of any business
transaction;
3.if a foreign corporation does business in the Philippines with the
required license, it can sue before Philippine courts on any transaction.
NEMESIO GARCIA, petitioner, vs. NICOLAS JOMOUAD, Ex-Officio
Provincial Sheriff of Cebu, and SPOUSES JOSE ATINON & SALLY
ATINON, respondents. Issue:

WON a a bona fide transfer of the shares of a corporation, not

A bona fide transfer of the shares of a corporation, not registered or noted registered or noted in the books of the corporation, is valid as against
in the books of the corporation, is not valid as against a subsequent lawful
a subsequent lawful attachment of said shares, regardless of whether
attachment of said shares, regardless of whether the attaching creditor
had actual notice of said transfer or not. All transfers not so entered on the attaching creditor had actual notice of said transfer or not.
the books of the corporation are absolutely void not because they are Ruling: No.
without notice or fraudulent in law or fact, but because they are made so
void by statute. In Uson vs. Diosomito The Court held that the attachment prevails
over the unrecorded transfer.
Facts
In applying the jurisprudence in this case, the Court held that the
Petitioner filed an action for injunction with prayer for preliminary transfer of the subject certificate made by Dico to petitioner was not valid
injunction against respondents spouses Jose and Sally Atinon and as to the spouses Atinon, the judgment creditors, as the same still stood
Nicolas Jomouad, e.x-oficio sheriff of Cebu. The action stemmed from an in the name of Dico, the judgment debtor, at the time of the levy on
earlier case for collection of sum of money filed by the spouses Atinon execution. In addition, as correctly ruled by the CA, the entry in the
against Jaime Dico. In that case (collection of sum of money), the trial minutes of the meeting of the Club's board of directors noting the
court rendered judgment ordering Dico to pay the spouses Atinon the sum resignation of Dico as proprietary member thereof does not constitute
of P900,000.00 plus interests. After said judgment became final and compliance with Section 63 of the Corporation Code. Said provision of
executory, respondent sheriff proceeded with its execution. law strictly requires the recording of the transfer in the books of the
corporation, and not elsewhere, to be valid as against third parties.
In the course thereof, the Proprietary Ownership Certificate
(POC) No. 0668 in the Cebu Country Club, which was in the name of In addition, as correctly ruled by the CA, the entry in the minutes
Dico, was levied on and scheduled for public auction. Claiming ownership of the meeting of the Club's board of directors noting the resignation of
over the subject certificate, petitioner filed the aforesaid action for Dico as proprietary member thereof does not constitute compliance with
injunction with prayer for preliminary injunction to enjoin respondents from Section 63 of the Corporation Code. Said provision of law strictly requires
proceeding with the auction. the recording of the transfer in the books of the corporation, and not
elsewhere, to be valid as against third parties.
Petitioner avers that Dico, the judgment debtor of the spouses
Atinon, was employed as manager of his (petitioner's) Young Auto
Supply. In order to assist him in entertaining clients, petitioner "lent" his Disposition: Petition is denied.
POC, then bearing the number 1459, in the Cebu Country Club to Dico
so the latter could enjoy the "signing" privileges of its members. The Club
issued POC No. 0668 in the name of Dico. Thereafter, Dico resigned as
manager of petitioner's business. Upon demand of petitioner, Dico
returned POC No. 0668 to him. Dico then executed a Deed of Transfer,
dated 18 November 1992, covering the subject certificate in favor of
petitioner. The Club was furnished with a copy of said deed but the
transfer was not recorded in the books of the Club because petitioner
failed to present proof of payment of the requisite capital gains tax.