Mercrev Stockholders Digests

8/10/2019 Mercrev Stockholders Digests

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Y. SHARES OF STOCK/STOCK CERTIFICATES

MENDOZA, ROXANNE


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STOCKHOLDERS OF F. GUANZON AND SONS, INC.,vs.REGISTER OF DEEDS OFMANILA,

While shares of stock constitute personal property they do not represent property of the corporation. A share of stock only typifiesan aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to lawand equity. A certificate of liquidation which results in the transfer and distribution of the assets of the corporation to theshareholder is in the nature of conveyance.

FACTS:

The five stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the assets ofthe corporation reciting, among other things, that by virtue of a resolution of the stockholders dissolving thecorporation, they have distributed among themselves in proportion to their shareholdings, as liquidatingdividends, the assets of said corporation, including real properties located in Manila.

The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied registration onseven grounds, of which the following were disputed by the stockholders:

3. The number of parcels not certified to in the acknowledgment;

5. P430.50 Reg. fees need be paid;

6. P940.45 documentary stamps need be attached to the document;

7. The judgment of the Court approving the dissolution and directing the disposition of the assets of thecorporation need be presented.

The Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6.

The stockholders interposed the present appeal.

ISSUE:Whether the certificate of liquidation is in the nature of a transfer or conveyance and therefore mustcontain a statement of the number of parcel of land involved in the distribution in the acknowledgmentappearing therein. YES

HELD:

Appellants contend that the certificate of liquidation is not a conveyance or transfer but merely a distributionof the assets of the corporation which has ceased to exist for having been dissolved. Not being a conveyancethe certificate need not contain a statement of the number of parcel of land involved in the distribution in theacknowledgment appearing therein. Hence the amount of documentary stamps to be affixed thereon should

only be P0.30 and not P940.45, as required by the register of deeds. Neither is it correct to require appellantsto pay the amount of P430.50 as registration fee.

The Commissioner of Land Registration, however, entertained a different opinion. He concurred in the viewexpressed by the register of deed to the effect that the certificate of liquidation in question, though it involvesa distribution of the corporation's assets, in the last analysis represents a transfer of said assets from thecorporation to the stockholders. Hence, in substance it is a transfer or conveyance.

The court agrees with the opinion of these two officials. A corporation is a juridical person distinct from themembers composing it. Properties registered in the name of the corporation are owned by it as an entity


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separate and distinct from its members. While shares of stock constitute personal property they do notrepresent property of the corporation. The corporation has property of its own which consists chiefly of realestate (Nelson v. Owen,). A share of stock only typifies an aliquot part of the corporation's property, or theright to share in its proceeds to that extent when distributed according to law and equity (Hall & Faley v.

Alabama Terminal), but its holder is not the owner of any part of the capital of the corporation. Nor is heentitled to the possession of any definite portion of its property or assets. The stockholder is not a co-owner

or tenant in common of the corporate property (Halton v. Hohnston).

It is clear that the act of liquidation made by the stockholders of the F. Guanzon and Sons, Inc. of the latter'sassets is not and cannot be considered a partition of community property, but rather a transfer or conveyanceof the title of its assets to the individual stockholders. Indeed, since the purpose of the liquidation, as well asthe distribution of the assets of the corporation, is to transfer their title from the corporation to thestockholders in proportion to their shareholdings, and this is in effect the purpose which they seek toobtain from the Register of Deeds of Manila, that transfer cannot be effected without the correspondingdeed of conveyance from the corporation to the stockholders. It is, therefore, fair and logical to consider thecertificate of liquidation as one in the nature of a transfer or conveyance.


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PHILIPPINE NATIONAL BANK,plaintiff-appellee,vs.

BITULOK SAWMILL, INC., DINGALAN LUMBER CO., INC., SIERRA MADRE LUMBERCO., INC., NASIPIT LUMBER CO., INC., WOODWORKS, INC., GONZALO PUYAT, TOMAS

B. MORATO, FINDLAY MILLAR LUMBER CO., INC., ET AL., INSULAR LUMBER CO.,ANAKAN LUMBER CO., AND CANTILAN LUMBER CO., INC.,defendants-appellees.

A corporation has no power to release an original subscriber from paying for his shares without a valuable consideration for suchrelease. This is because subscriptions to the capital of the corporation constitutes a fund to which creditors have a right to look forsatisfaction of their claims and that an assignee in insolvency can maintain an action upon any unpaid stock subscription in orderto realize assets for the payment of debts.

FACTS:

The Philippine Lumber Distributing Agency, Inc. was organized sometime in the early part of 1947

upon the initiative and insistence of the late President Manuel Roxas of the Republic of the Philippines whofor the purpose, had called several conferences between him and the subscribers and organizers of thePhilippine Lumber Distributing Agency, Inc.The purpose was praiseworthy, to insure a steady supply oflumber, which could be sold at reasonable prices to enable the war sufferers to rehabilitate their devastatedhomes. He convinced the lumber producers to form a lumber cooperative and to pool their sources togetherin order to wrest, particularly, the retail trade from aliens who were acting as middlemen in the distribution oflumber. At the beginning, the lumber producers were reluctant to organize the cooperative agency as theybelieved that it would not be easy to eliminate from the retail trade the alien middlemen who had been in thisbusiness from time immemorial, but because the late President Roxas made it clear that such a cooperativeagency would not be successful without a substantial working capital which the lumber producers could notentirely shoulder, and as an inducement he promised and agreed to finance the agency by making theGovernment invest P9.00 by way of counterpart for every peso that the members would invest therein.

This was the assurance relied upon that the amount thus contributed by such lumber producers wasnot enough for the operation of its business especially having in mind the primary purpose of putting an endto alien domination in the retail trade of lumber products. Nor was there any appropriation by the legislatureof the counterpart fund to be put up by the Government, namely, P9.00 for every peso invested by defendantlumber producers. Accordingly, "the late President Roxas instructed the Hon. Emilio Abello, then ExecutiveSecretary and Chairman of the Board of Directors of the Philippine National Bank, for the latter to grant saidagency an overdraft in the original sum of P250,000.00 which was later increased to P350,000.00, which wasapproved by said Board of Directors of the Philippine National Bank on July 28, 1947, payable on or before

April 30, 1958, with interest at the rate of 6% per annum, and secured by the chattel mortgages on the stockof lumber of said agency."The Philippine Government did not invest the P9.00 for every peso coming fromdefendant lumber producers. The loan extended to the Philippine Lumber Distributing Agency by the

Philippine National Bank was not paid. Hence, these suits.ISSUE:

Whether or not PNB may compel the lumber producers to pay the balance of their subscriptions?

HELD:


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It is established doctrine that subscriptions to the capital of a corporation constitute a fund to whichcreditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintainan action upon any unpaid stock subscription in order to realize assets for the payment of its debt.... Acorporation has no power to release an original subscriber to its capital stock from the obligation of payingfor his shares, without a valuable consideration for such release; and as against creditors a reduction of thecapital stock can take place only in the manner and under the conditions prescribed by the statute or thecharter or the articles of incorporation.

It would be unwarranted to ascribe to the late President Roxas the view that the payment of thestock subscriptions, as thus required by law, could be condoned in the event that the counterpart fund to beinvested by the Government would not be available. Even if such were the case, however, and such a promise

were in fact made, to further the laudable purpose to which the proposed corporation would be devoted andthe possibility that the lumber producers would lose money in the process, still the plain and specific wordingof the applicable legal provision as interpreted by this Court must be controlling. It is a well-settled principlethat with all the vast powers lodged in the Executive, he is still devoid of the prerogative of suspending theoperation of any statute or any of its terms.


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AQUILINO RIVERA, ISAMU AKASAKO and FUJIYAMA HOTEL & RESTAURANT,INC., petitioners,

vs.THE HON. ALFREDO C. FLORENDO, as Judge of the Court of First Instance of Manila (Branch

XXXVI), LOURDES JUREIDINI and MILAGROS TSUCHIYA, respondents.

Mandamus will not lie where the shares of stock are not indorsed by the registered owner who is specifically objecting to theregistration thereof in the corporate books.

FACTS:

Petitioner corporation was organized and register under Philippine laws with a capital stock ofP1,000,000.00 divided into 10,000 shares of P100.00 par value each by the herein petitioner Rivera and four(4) other incorporators. Sometime thereafter petitioner Rivera increased his subscription from the original1,250 to a total of 4899 shares.

Subsequently, Isamu Akasako, a Japanese national and co-petitioner who is allegedly the real owner

of the shares of stock in the name of petitioner Aquilino Rivera, sold 2550 shares of the same to privaterespondent Milagros Tsuchiya for a consideration of P440,000.00 with the assurance that Milagros Tsuchiyawill be made the President and Lourdes Jureidini a director after the purchase. Aquilino Rivera who was inJapan also assured private respondents by overseas call that he will sign the stock certificates because IsamuAkasako is the real owner. However, after the sale was consummated and the consideration was paid with areceipt of payment therefor shown, Aquilino Rivera refused to make the indorsement unless he is also paid.

It also appears that the other incorporators sold their shares to both respondent Jureidini andTsuchiya such that both respondents became the owners of a total of 3300 shares or the majority out of 5,649outstanding subscribed shares of the corporation, and that there was no dispute as to the legality of thetransfer of the stock certificate Exhibits "B-1" to "B-4" to Jureidini, all of which bear the signatures of thepresident and the secretary as required by the Corporation Law with the proper indorsements of therespective owners appearing thereon. Exhibits "B-1" to "B-4" are specifically indorsed to her while Exhibits

"B-2" and "B-3" are indorsed in blank. Aquilino Rivera admitted the genuineness of an the signatures of theofficers of the corporation and of an the indorsee therein.

Nonetheless, private respondents attempted several times to register their stock certificates with thecorporation but the latter refused to register the same. Thus, private respondents filed a special civil action formandamus and damages with preliminary mandatory injunction and/or receivership naming hereinpetitioners as respondents.

ISSUE:

Whether or not mandamus will lie for the registration of the shares of stocks in the corporate books?

HELD:

Mandamus will not lie in the instant case where the shares of stock in question are not even indorsedby the registered owner Rivera who is specifically resisting the registration thereof in the books of thecorporation. Under the above ruling, even the shares of stock which were purchased by private respondentsfrom the other incorporators cannot also be the subject of mandamus on the strength of mere indorsementof the supposed owners of said shares in the absence of express instructions from them. The rights of theparties will have to be threshed out in an ordinary action.


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GLORIA M. DE ERQUIAGA, administratrix of the estate of the late SANTIAGO DE ERQUIAGA& HON. FELICIANO S. GONZALES, petitioners,

vs.HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO, JOSES V. REYNOSO,JR., EERNESTO , SYLVIA REYNOSO, LOURDES REYNOSO, CECILE REYNOSO, EDNA

REYNOSO, ERLINDA REYNOSO & EMILY REYNOSO, respondents.

A stockholder acquires voting rights only when the shares of stock to be voted are registered in his name in the books of thecorporation. Until registration is accomplished, the transfer though valid between the parties cannot be effective against thecorporation.

FACTS:

Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the ErquiagaDevelopment Corporation which owns the Hacienda San Jose in Irosin, Sorsogon (p. 212, Rollo). OnNovember 4,1968, he entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100 shares (or100%) of Erquiaga Development Corporation for P900,000 payable in installments on definite dates fixed inthe contract but not later than November 30, 1968. Because Reynoso failed to pay the second and third

installments on time, the total price of the sale was later increased to P971,371.70 payable on or beforeDecember 17, 1969. The difference of P71,371.70 represented brokers' commission and interest.

As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to Erquiaga whothereupon transferred all his shares (3,100 paid-up shares) in Erquiaga Development Corporation to Reynoso,as well as the possession of the Hacienda San Jose, the only asset of the corporation. However, as provided inparagraph 3, subparagraph (c) of the contract to sell, Reynoso pledged 1,500 shares in favor of Erquiaga assecurity for the balance of his obligation (p. 100, Rollo). Reynoso failed to pay the balance of P561,321.70 onor before December 17, 1969, as provided in the promissory notes he delivered to Erquiaga. So, on March 2,1970, Erquiaga, through counsel, formally informed Reynoso that he was rescinding the sale of his shares inthe Erquiaga Development Corporation.

ISSUE:

Whether or not the respondent buyer of the shares of stock may exercise voting rights?

HELD:

Until registration is accomplished, the transfer, though valid between the parties, cannot be effectiveas against the corporation. Thus, the unrecorded transferee cannot enjoy the status of a stockholder; hecannot vote nor be voted for, and he will not be entitled to dividends. The Corporation will be protected

when it pays dividend to the registered owner despite a previous transfer of which it had no knowledge. Thepurpose of registration therefore is two-fold; to enable the transferee to exercise all the rights of astockholder, and to inform the corporation of any change in share ownership so that it can ascertain thepersons entitled to the rights and subject to the liabilities of a stockholder.


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EMBASSY FARMS, INC., petitioner,vs.

HON. COURT OF APPEALS (INTERMEDIATE APPELLATE COURT), HON. ZENAIDA S.BALTAZAR, Judge of the Regional Trial Court, Branch CLVIII, (158), Pasig, Metro Manila,

VOLTAIRE B. CRUZ, Deputy Sheriff, Branch CLVIII, Regional Trial Court, Pasig, Metro Manilaand EDUARDO B. EVANGELISTA, respondents.

PARAS,J.:

For an effective transfer of shares of stock the mode and manner of transfer as prescribed by law must be followed. As providedunder the Corporation Code of the Philippines, shares of stock may be transferred by delivery to the transferee of the certificateproperly indorsed.

FACTS:

It appears on record that sometime on August 2, 1984, Alexander G. Asuncion (AGA for short) andEduardo B. Evangelists (EBE for short) entered into a Memorandum of Agreement. Under said agreementEBE obligated himself to transfer to AGA 19 parcels of agricultural land registered in his name with anaggregate area of 104,447 square meters located in Loma de Gato, Marilao, Bulacan, together with the stocks,

equipment and facilities of a piggery farm owned by Embassy Farms, Inc., a registered corporation whereinninety (90) percent of its shares of stock is owned by EBE. EBE also obligated himself to cede, transfer andconvey "in a manner absolute and irrevocable any and all of his shares of stocks" in Embassy Farins Inc. to

AGA or his nominees "until the total of said shares of stock so transferred shall constitute 90% of the paid-in-equity of said corporation" within a reasonable time from signing of the document. Likewise, EBEobligated to turnover to AGA the effective control and management of the piggery upon the signing of theagreement.

On the other hand, AGA obligated himself, upon signing of the agreement to pay to EBE the total sum ofclose to P8,630,000.00. Within reasonable time from signing of the agreement AGA obligated himself toorganize and register a new corporation with an authorized capital stock of P10,000,000.00 which uponregistration will take over all the rights and liabilities of AGA.

Pursuant to clause 8 of the Memorandum of Agreement, on August 2, 1984, EBE turned over to AGA theeffective control and management of the piggery at Embassy Farms. Likewise, in accordance with clause 15of the Memorandum of Agreement EBE served as President and Chief Executive of the Embassy Farms

with a monthly salary of P15,000. EBE also endorsed in blank all his shares of stock including that of his wifeand three nominees with minor holdings in Embassy Farms Inc. Out of the total 3,125 shares of stocks EBEhas 2,725 shares, his wife Epifania has 250 shares, while Angel Santos, Armando Martin and Teofilo Mesinahad 50 shares, each registered in their names. Said shares of 3,125 correspond to the paid subscriptionbecause as reflected in the Articles of Incorporation (Annexes "B") EBE subscribed 10,900 shares, EpifaniaEvangelista 1,000 shares, while Angel Santos, Armando Martin and Teofilo Mesina had 200 shares eachsubscription in the capital stocks of the corporation. However, despite the indorsement, EBE retainedpossession of said shares and opted to deliver to AGA only upon full compliance of the latter of hisobligations under the Memorandum of Agreement.

Notwithstanding the non-delivery of the shares of stocks, in a Deed of Transfer of Shares of Stock datedAugust 1984, but notarized on June 20, 1985, AGA transferred a total of 8,602 shares to several persons.

For failure to comply with his obligations, EBE intimated the institution of appropriate legal action.

On April 10, 1986, AGA preempted EBE by filing an action for rescission of the Memorandum ofAgreement with damages. The case alleged among others, EBE's misrepresentation on the piggery businesssince said business is actually losing and EBE's failure to execute the deeds of conveyance of the 19 parcels ofland.


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ALFONSO S. TAN, Petitioner,vs.

SECURITIES AND EXCHANGE COMMISSION, VISAYAN EDUCATIONAL SUPPLY CORP.,TAN SU CHING, ALFREDO B. UY, ANGEL S. TAN and PATRICIA AGUILAR, Respondents.

PARAS,J.:

FACTS:Respondent corporation was registered on October 1, 1979. As incorporator, petitioner had four hundred(400) shares of the capital stock standing in his name at the par value of P100.00 per share, evidenced byCertificate of Stock No. 2. He was elected as President and subsequently reelected, holding the position assuch until 1982 but remained in the Board of Directors until April 19, 1983 as director.

On January 31, 1981, while petitioner was still the president of the respondent corporation, two otherincorporators, namely, Antonia Y. Young and Teresita Y. Ong, assigned to the corporation their shares,represented by certificate of stock No. 4 and 5 after which, they were paid the corresponding 40% corporatestock-in-trade.

Petitioner's certificate of stock No. 2 was cancelled by the corporate secretary and respondent Patricia Aguilarby virtue of Resolution No. 1981 (b), which was passed and approved while petitioner was still a member of

the Board of Directors of the respondent corporation.

Due to the withdrawal of the aforesaid incorporators and in order to complete the membership of the five (5)directors of the board, petitioner sold fifty (50) shares out of his 400 shares of capital stock to his brother

Angel S. Tan. Another incorporator, Alfredo B. Uy, also sold fifty (50) of his 400 shares of capital stock toTeodora S. Tan and both new stockholders attended the special meeting, Angel Tan was elected director andon March 27, 1981, the minutes of said meeting was filed with the SEC. These facts stand unchallenged.

Accordingly, as a result of the sale by petitioner of his fifty (50) shares of stock to Angel S. Tan on April 16,1981, Certificate of Stock No. 2 was cancelled and the corresponding Certificates Nos. 6 and 8 were issued,signed by the newly elected fifth member of the Board, Angel S. Tan as Vice-president, upon instruction of

Alfonso S. Tan who was then the president of the Corporation.

With the cancellation of Certificate of stock No. 2 and the subsequent issuance of Stock Certificate No. 6 in

the name of Angel S. Tan and for the remaining 350 shares, Stock Certificate No. 8 was issued in the name ofpetitioner Alfonso S. Tan, Mr. Buzon, submitted an Affidavit (Exh. 29), alleging that:

9. That in view of his having taken 33 1/3 interest, I was personally requested by Mr. Tan Su Ching torequest Mr. Alfonso Tan to make proper endorsement in the cancelled Certificate of Stock No. 2 andCertificate No. 8, but he did not endorse, instead he kept the cancelled (1981) Certificate of Stock No.2 and returned only to me Certificate of Stock No. 8, which I delivered to Tan Su Ching.

10. That the cancellation of his stock (Stock No. 2) was known by him in 1981; that it was Stock No.8, that was delivered in March 1983 for his endorsement and cancellation. (Ibid, p. 18)

From the same Affidavit, it was alleged that Atty. Ramirez prepared a Memorandum of Agreement withrespect to the transaction of the fifty (50) shares of stock part of the Stock Certificate No. 2 of petitioner,

which was submitted to its former owner, Alfonso Tan, but which he purposely did not return.

On January 29, 1983, during the annual meeting of the corporation, respondent Tan Su Ching was elected asPresident while petitioner was elected as Vice-president. He, however, did not sign the minutes of saidmeeting which was submitted to the SEC on March 30, 1983. When petitioner was dislodged from hisposition as president, he withdrew from the corporation on February 27, 1983, on condition that he be paid

with stocks-in-trade equivalent to 33.3% in lieu of the stock value of his shares in the amount of P35,000.00.After the withdrawal of the stocks, the board of the respondent corporation held a meeting on April 19, 1983,effecting the cancellation of Stock Certificate Nos. 2 and 8 in the corporate stock and transfer book 1 andsubmitted the minutes thereof to the SEC on May 18, 1983.


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Five (5) years and nine (9) months after the transfer of 50 shares to Angel S. Tan, brother of petitionerAlfonso S. Tan, and three (3) years and seven (7) months after effecting the transfer of Stock Certificate Nos.2 and 8 from the original owner (Alfonso S. Tan) in the stock and transfer book of the corporation, the latterfiled the case before the Cebu SEC Extension Office, more specifically on December 3, 1983, questioning forthe first time, the cancellation of his aforesaid Stock Certificates Nos. 2 and 8.

ISSUE:Whether or not the deprivation of his shares despite the non-endorsement or surrender of his StockCertificate Nos. 2 and 8, was without the process contrary to the provision of Section 63 of the CorporationCode

HELD:

Petitioner further claims that "(T)he cancellation and transfer of petitioner's shares and Certificate of StockNo. 2 as well as the issuance and cancellation of Certificate of Stock No. 8 (Exh. M) was patently andpalpably unlawful, null and void, invalid and fraudulent." And, that Section 63 of the Corporation Code ofthe Philippines is "mandatory in nature", meaning that without the actual delivery and endorsement of thecertificate in question, there can be no transfer, or that such transfer is null and void.

These arguments are all motivated by self-interest, using foreign authorities that are slanted in his favor andeven misquoting local authorities to prop up his erroneous posture and all these attempts are intended tostifle justice, truth and equity.

Moreover, it is safe to infer from the facts deduced in the instant case that, there was already delivery of theunendorsed Stock Certificate No. 2, which is essential to the issuance of Stock Certificate Nos. 6 and 8 toangel S. Tan and petitioner Alfonso S. Tan, respectively. What led to the problem was the return of thecancelled certificate (No. 2) to Alfonso S. Tan for his endorsement and his deliberate non-endorsement.

For all intents and purposes, however, since this was already cancelled which cancellation was also reported tothe respondent Commission, there was no necessity for the same certificate to be endorsed by the petitioner.

All the acts required for the transferee to exercise its rights over the acquired stocks were attendant and eventhe corporation was protected from other parties, considering that said transfer was earlier recorded or

registered in the corporate stock and transfer book.

Following the doctrine enunciated in the case of Tuazon v. La Provisora Filipina, where this Court held, that:

But delivery is not essential where it appears that the persons sought to be held asstockholders are officers of the corporation, and have the custody of the stock book . . . (67Phi. 36).

Furthermore, there is a necessity to delineate the function of the stock itself from the actual delivery orendorsement of the certificate of stock itself as is the question in the instant case. A certificate of stock is notnecessary to render one a stockholder in corporation.

Nevertheless, a certificate of stock is the paper representative or tangible evidence of the stock itself and ofthe various interests therein. The certificate is not stock in the corporation but is merely evidence of the

holder's interest and status in the corporation, his ownership of the share represented thereby, but is not inlaw the equivalent of such ownership. It expresses the contract between the corporation and the stockholder,but is not essential to the existence of a share in stock or the nation of the relation of shareholder to thecorporation. (13 Am. Jur. 2d, 769)

Under the instant case, the fact of the matter is, the new holder, Angel S. Tan has already exercised his rightsand prerogatives as stockholder and was even elected as member of the board of directors in the respondentcorporation with the full knowledge and acquiescence of petitioner. Due to the transfer of fifty (50) shares,

Angel S. Tan was clothed with rights and responsibilities in the board of the respondent corporation when hewas elected as officer thereof.


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G.R. No. 74306 March 16, 1992

ENRIQUE RAZON, petitioner,vs.

INTERMEDIATE APPELLATE COURT and VICENTE B. CHUIDIAN, in his capacity asAdministrator of the Estate of the Deceased JUAN T. CHUIDIAN, respondents.

G.R. No. 74315 March 16, 1992

VICENTE B. CHUIDIAN, petitioner,vs.

INTERMEDIATE APPELLATE COURT, ENRIQUE RAZ0N, and E. RAZON,INC., respondents.

GUTIERREZ, JR., J.:

FACTS:

The main issue in these consolidated petitions centers on the ownership of 1,500 shares of stock in E. Razon,Inc. covered by Stock Certificate No. 003 issued on April 23, 1966 and registered under the name of Juan T.

Chuidian in the books of the corporation. The then Court of First Instance of Manila declared that EnriqueRazon, the petitioner in G.R. No. 74306 is the owner of the said shares of stock. The then Intermediate

Appellate Court, however, reversed the trial court's decision and ruled that Juan T. Chuidian, the deceasedfather of petitioner Vicente B. Chuidian in G.R. No. 74315 is the owner of the shares of stock. EnriqueRazon wanted the appellate court's decision reversed and the trial court's decision affirmed while VicenteChuidian asked that all cash and stock dividends and all the pre-emptive rights accruing to the 1,500 shares ofstock be ordered delivered to him. Both parties filed separate motions for reconsideration. The appellatecourt denied both motions.

In his complaint, Vicente B. Chuidian prayed that defendants Enrique B. Razon, E. Razon, Inc., GeronimoVelasco, Francisco de Borja, Jose Francisco, Alfredo B. de Leon, Jr., Gabriel Llamas and Luis M. de Razon beordered to deliver certificates of stocks representing the shareholdings of the deceased Juan T. Chuidian inthe E. Razon, Inc. with a prayer for an order to restrain the defendants from disposing of the said shares of

stock, for a writ of preliminary attachment v. properties of defendants having possession of shares of stockand for receivership of the properties of defendant corporation .

In their answer, defendants alleged that all the shares of stock in the name of stockholders of record of thecorporation were fully paid for by defendant, Razon; that said shares are subject to the agreement betweendefendants and incorporators; that the shares of stock were actually owned and remained in the possession ofRazon. Appellees also alleged that neither the late Juan T. Chuidian nor the appellant had paid any amount

whatsoever for the 1,500 shares of stock in question.

Sometime in 1962, Enrique Razon organized the E. Razon, Inc. for the purpose of bidding for the arrastreservices in South Harbor, Manila. The incorporators consisted of Enrique Razon, Enrique Valles, Luisa M. deRazon, Jose Tuason, Jr., Victor Lim, Jose F. Castro and Salvador Perez de Tagle.

On April 23, 1966, stock certificate No. 003 for 1,500 shares of stock of defendant corporation was issued in

the name of Juan T. Chuidian.

On the basis of the 1,500 shares of stock, the late Juan T. Chuidian and after him, the plaintiff-appellant, wereelected as directors of E. Razon, Inc. Both of them actually served and were paid compensation as directorsof E. Razon, Inc.

From the time the certificate of stock was issued on April 1966 up to April 1971, Enrique Razon had notquestioned the ownership by Juan T. Chuidian of the shares of stock in question and had not brought anyaction to have the certificate of stock over the said shares cancelled.


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The certificate of stock was in the possession of defendant Razon who refused to deliver said shares to theplaintiff, until the same was surrendered by defendant Razon and deposited in a safety box in Philippine Bankof Commerce.

Defendants allege that after organizing the E. Razon, Inc., Enrique Razon distributed shares of stockpreviously placed in the names of the withdrawing nominal incorporators to some friends including Juan T.Chuidian

Stock Certificate No. 003 covering 1,500 shares of stock upon instruction of the late Chuidian on April 23,1986 was personally delivered by Chuidian on July 1, 1966 to the Corporate Secretary of Attorney Silverio B.de Leon who was himself an associate of the Chuidian Law Office. Since then, Enrique Razon was inpossession of said stock certificate even during the lifetime of the late Chuidian, from the time the lateChuidian delivered the said stock certificate to defendant Razon until the time of defendant Razon. Byagreement of the parties delivered it for deposit with the bank under the joint custody of the parties asconfirmed by the trial court in its order of August 7, 1971.

Thus, the 1,500 shares of stook under Stock Certificate No. 003 were delivered by the late Chuidian toEnrique because it was the latter who paid for all the subscription on the shares of stock in the defendantcorporation and the understanding was that he (defendant Razon) was the owner of the said shares of stockand was to have possession thereof until such time as he was paid therefor by the other nominal

incorporators/stockholders.

In G.R. No. 74306, petitioner Enrique Razon assails the appellate court's decision on its allegedmisapplication of the dead man's statute rule under Section 20(a) Rule 130 of the Rules of Court. Accordingto him, the "dead man's statute" rule is not applicable to the instant case. Moreover, the private respondent,as plaintiff in the case did not object to his oral testimony regarding the oral agreement between him and thedeceased Juan T. Chuidian that the ownership of the shares of stock was actually vested in the petitionerunless the deceased opted to pay the same; and that the petitioner was subjected to a rigid cross examinationregarding such testimony.

ISSUE:Whether the ownership of the 1,500 shares of stock in E. Razon, Inc. belongs to Razon or to the lateChuidian.

HELD:

E. Razon, Inc. was organized in 1962 by petitioner Enrique Razon for the purpose of participating in thebidding for the arrastre services in South Harbor, Manila. The incorporators were Enrique Razon, Enrique

Valles, Luisa M. de Razon, Jose Tuazon, Jr., Victor L. Lim, Jose F. Castro and Salvador Perez de Tagle. Thebusiness, however, did not start operations until 1966. According to the petitioner, some of the incorporators

withdrew from the said corporation. The petitioner then distributed the stocks previously placed in the namesof the withdrawing nominal incorporators to some friends, among them the late Juan T. Chuidian to whomhe gave 1,500 shares of stock. The shares of stock were registered in the name of Chuidian only as nominalstockholder and with the agreement that the said shares of stock were owned and held by the petitioner butChuidian was given the option to buy the same. In view of this arrangement, Chuidian in 1966 delivered tothe petitioner the stock certificate covering the 1,500 shares of stock of E. Razon, Inc. Since then, thePetitioner had in his possession the certificate of stock until the time, he delivered it for deposit with thePhilippine Bank of Commerce under the parties' joint custody pursuant to their agreement as embodied inthe trial court's order.

The petitioner maintains that his aforesaid oral testimony as regards the true nature of his agreement with thelate Juan Chuidian on the 1,500 shares of stock of E. Razon, Inc. is sufficient to prove his ownership over thesaid 1,500 shares of stock.

The petitioner's contention is not correct.


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In the instant case, there is no dispute that the questioned 1,500 shares of stock of E. Razon, Inc. are in thename of the late Juan Chuidian in the books of the corporation. Moreover, the records show that during hislifetime Chuidian was elected member of the Board of Directors of the corporation which clearly shows thathe was a stockholder of the corporation. (See Section 30, Corporation Code) From the point of view of thecorporation, therefore, Chuidian was the owner of the 1,500 shares of stock. In such a case, the petitioner

who claims ownership over the questioned shares of stock must show that the same were transferred to him

by proving that all the requirements for the effective transfer of shares of stock in accordance with thecorporation's by laws, if any, were followed or in accordance with the provisions of law.

The petitioner failed in both instances. The petitioner did not present any by-laws which could show that the1,500 shares of stock were effectively transferred to him. In the absence of the corporation's by-laws or rulesgoverning effective transfer of shares of stock, the provisions of the Corporation Law are made applicable tothe instant case.

The law is clear that in order for a transfer of stock certificate to be effective, the certificate must be properlyindorsedand that title to such certificate of stock is vested in the transferee by the delivery of the duly indorsedcertificate of stock. (Section 35, Corporation Code) Since the certificate of stock covering the questioned1,500 shares of stock registered in the name of the late Juan Chuidian was never indorsed to the petitioner,the inevitable conclusion is that the questioned shares of stock belong to Chuidian. The petitioner's

asseveration that he did not require an indorsement of the certificate of stock in view of his intimatefriendship with the late Juan Chuidian cannot overcome the failure to follow the procedure required by law orthe proper conduct of business even among friends. To reiterate, indorsement of the certificate of stock is amandatory requirement of law for an effective transfer of a certificate of stock.

Moreover, the preponderance of evidence supports the appellate court's factual findings that the shares ofstock were given to Juan T. Chuidian for value. Juan T. Chuidian was the legal counsel who handled the legalaffairs of the corporation. We give credence to the testimony of the private respondent that the shares ofstock were given to Juan T. Chuidian in payment of his legal services to the corporation. Petitioner Razonfailed to overcome this testimony.

In G.R. No. 74315, petitioner Vicente B. Chuidian insists that the appellate court's decision declaring hisdeceased father Juan T. Chuidian as owner of the 1,500 shares of stock of E. Razon, Inc. should haveincluded all cash and stock dividends and all the pre-emptive rights accruing to the said 1,500 shares of stock.

The petition is impressed with merit.

The cash and stock dividends and all the pre-emptive rights are all incidents of stock ownership.

The rights of stockholders are generally enumerated as follows:

. . . [F]irst, to have a certificate or other evidence of his status as stockholder issued to him; second, to vote atmeetings of the corporation; third, to receive his proportionate share of the profits of the corporation; andlastly, to participate proportionately in the distribution of the corporate assets upon the dissolution or

winding up. (Purdy's Beach on Private Corporations, sec. 554) (Pascual v. Del Saz Orozco, 19 Phil. 82, 87)

WHEREFORE, judgment is rendered as follows:

a) In G.R. No. 74306, the petition is DISMISSED. The questioned decision and resolution of the then

Intermediate Appellate Court, now the Court of Appeals, are AFFIRMED.b) In G.R. No. 74315, the petition is GRANTED. The questioned Resolution insofar as it denied thepetitioner's motion to clarify the dispositive portion of the decision of the then Intermediate Appellate Court,now Court of Appeals is REVERSED and SET ASIDE. The decision of the appellate court is MODIFIEDin that all cash and stock dividends as, well as all pre-emptive rights that have accrued and attached to the1,500 shares in E. Razon, Inc., since 1966 are declared to belong to the estate of Juan T. Chuidian.


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RURAL BANK OF SALINAS, INC. v. COURT OF APPEALSG.R. No. 96674, 26 June 1992, SECOND DIVISION (J. Paras)

On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a SpecialPower of Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the

latter full power and authority to sell or otherwise dispose of and/or mortgage 473 shares of stockof the Bank registered in his name (represented by the Bank's stock certificates nos. 26, 49 and 65), toexecute the proper documents therefor, and to receive and sign receipts for the dispositions.

On February 27, 1980, and pursuant to said Special Power of Attorney, Melania Guerrero, asAttorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in favor ofprivate respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco Guerrero, Jr. (5shares).

Almost four months later, or two (2) days before the death of Clemente Guerrero on June 24,1980, Melania Guerrero, pursuant to the same Special Power of Attorney, executed a Deed of Assignment forthe remaining one (1) share of stock in favor of Francisco Guerrero, Sr.

Subsequently, Melania Guerrero presented to Rural Bank of Salinas the two (2) Deeds of Assignment forregistration with a request for the transfer in the Bank's stock and transfer book of the 473 shares of stock soassigned, the cancellation of stock certificates in the name of Clemente G. Guerrero, and the issuance of newstock certificates covering the transferred shares of stocks in the name of the new owners thereof. However,petitioner Bank denied the request of Melania Guerrero.

On December 5, 1980, Melania Guerrero filed with the Securities and Exchange Commission" (SEC)an action for mandamus against Rural Bank of Salinas, its President and Corporate Secretary.

Petitioners filed their Answer with counterclaim on December 19, 1980 alleging the upon the death ofClemente G. Guerrero, his 473 shares of stock became the property of his estate, and his property and that ofhis widow should first be settled and liquidated in accordance with law before any distribution can be effectedso that petitioners may not be a party to any scheme to evade payment of estate or inheritance tax and inorder to avoid liability to any third persons or creditors of the late Clemente G. Guerrero.

The SEC Hearing Officer rendered a Decision granting the writ of Mandamus prayed for by the privaterespondents and directing petitioners to cancel stock certificates nos. 26, 49 and 65 of the Bank, all in thename of Clemente G. Guerrero, and to issue new certificates in the names of private respondents,except Melenia Guerrero. On appeal, the SEC En Banc affirmed the decision of the Hearing Officer.Petitioner filed a petition for review with the Court of Appeals but said Court likewise affirmed the decisionof the SEC.

ISSUE: whether or not the respondent court erred in sustaining the Securities and ExchangeCommission when it compelled by Mandamus the Rural Bank of Salinas to register in its stock and

transfer book the transfer of 473 shares of stock to private respondents

HELD: No.

The right of a transferee/assignee to have stocks transferred to his name is an inherent rightflowing from his ownership of the stocks. Thus:

Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie tocompel the officers of the corporation to transfer said stock in the books of the corporation" (26, Cyc. 347,Hyer vs. Bryan, 19 Phil. 138; Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).


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The corporation's obligation to register is ministerial.

In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try todecide the question of ownership. (Fletcher, Sec. 5528, page 434).

The duty of the corporation to transfer is a ministerial one and if it refuses to make suchtransaction without good cause, it may be compelled to do so by mandamus. (See. 5518, 12 Fletcher 394)

For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock andtransfer book, which duty is ministerial on its part, is to render nugatory and ineffectual the spiritand intent of Section 63 of the Corporation Code. Thus, respondent Court of Appeals did not errin upholding the Decision of respondent SEC affirming the Decision of its Hearing Officer directing theregistration of the 473 shares in the stock and transfer book in the names of private respondents. At allevents, the registration is without prejudice to the proceedings in court to determine the validity of the Deedsof Assignment of the shares of stock in question.


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MANUEL A. TORRES, JR. v. COURT OF APPEALSG.R. No. 120138, 5 September 1997, FIRST DIVISION (J. Kapunan)

The 1987 annual stockholders meeting and election of directors of Tormil corporation was scheduled on 25March 1987 in compliance with the provisions of its by-laws.

Pursuant thereto, Judge Torres assigned from his own shares, one (l) share each to petitionersTobias, Jocson, Jurisprudencia, Azura and Pabalan. These assigned shares were in the nature of"qualifying shares," for the sole purpose of meeting the legal requirement to be able to elect them(Tobias and company) to the Board of Directors as Torres' nominees.

The reason behind the aforestated action was to remedy the "inequitable lopsided set-up obtainingin the corporation, where, notwithstanding his controlling interest in the corporation, the late Judgeheld only a single seat in the nine-member Board of Directors and was, therefore, at the mercy ofthe minority, a combination of any two (2) of whom would suffice to overrule the majoritystockholder in the Board's decision making functions."

Petitioners insist that the assignment of "qualifying shares" to the nominees of the late Judge Torres

(herein petitioners) does not partake of the real nature of a transfer or conveyance of shares ofstock as would call for the "imposition of stringent requirements (with respect to the) recording ofthe transfer of said shares." Anyway, petitioners add, there was substantial compliance with the above-statedrequirement since said assignments were entered by the late Judge Torres himself in the corporation'sstock and transfer book on 6 March 1987, prior to the 25 March 1987 annual stockholders meeting and

which entries were confirmed on 8 March 1987 by petitioner Azura who was appointed Assistant CorporateSecretary by Judge Torres.

Petitioners further argue that:10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to penalize the late Judge

Torres by invalidating the questioned entries in the stock and transfer book, simply because heinitially made those entries (they were later affirmed by an acting corporate secretary) and becausethe stock and transfer book was in his possession instead of the elected corporate secretary, if thebackground facts herein-before narrated and the serious animosities that then reigned between thedeceased Judge and his relatives are to be taken into account;xxx xxx xxxxxx xxx xxx10.12. Indeed it was a practice in the corporate respondent, a family corporation with only a measlynumber of stockholders, for the late judge to have personal custody of corporate records; aspresident, chairman and majority stockholder, he had the prerogative of designating an actingcorporate secretary or to himself make the needed entries, in instances where the regular secretary, whois a mere subordinate, is unavailable or intentionally defaults, which was the situation that obtainedimmediately prior to the 1987 annual stockholders meeting of Tormil, as the late Judge Torres had soindicated in the stock and transfer book in the form of the entries now in question.

ISSUE: Whether or not the assignment of shares of stock is valid and qualified the transferees to be directors

HELD: No.

In the absence of (any) provision to the contrary, the corporate secretary is the custodian ofcorporate records. Corollary, he keeps the stock and transfer book and makes proper and necessaryentries therein.

Contrary to the generally accepted corporate practice, the stock and transfer book of TORMIL was not keptby Ms. Maria Cristina T. Carlos, the corporate secretary but by respondent Torres, the President and


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Chairman of the Board of Directors of TORMIL. In contravention to the above cited provision, thestock and transfer book was not kept at the principal office of the corporation either but at the placeof respondent Torres.

These being the obtaining circumstances, any entries made in the stock and transfer book on March8, 1987 by respondent Torres of an alleged transfer of nominal shares to Pabalan and Co. cannot

therefore be given any valid effect. Where the entries made are not valid, Pabalan and Co. cannottherefore be considered stockholders of record of TORMIL. Because they are not stockholders, theycannot therefore be elected as directors of TORMIL. To rule otherwise would not only encourage

violation of clear mandate of Sec. 74 of the Corporation Code that stock and transfer book shall bekept in the principal office of the corporation but would likewise open the flood gates of confusion in thecorporation as to who has the proper custody of the stock and transfer book and who are the realstockholders of records of a certain corporation as any holder of the stock and transfer book, thoughnot the corporate secretary, at pleasure would make entriestherein.

The fact that respondent Torres holds 81.28% of the outstanding capital stock of TORMIL is of no momentand is not a license for him to arrogate unto himself a duty lodged to the corporate secretary.


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CHINA BANKING CORPORATION v. COURT OF APPEALSG.R. No. 117604, 26 March 1997, FIRST DIVISION (J. Kapunan)

On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private respondent ValleyGolf & Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitionerChina Banking Corporation (CBC, for brevity).

On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge agreement berecorded in its books. In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executedby Calapatia in petitioner's favor was duly noted in its corporate books.

On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was securedby the aforestated pledge agreement still existing between Calapatia and petitioner. Due to Calapatia'sfailure to pay his obligation, petitioner, on 12 April 1985, filed a petition for extrajudicial foreclosurebefore a Notary Public requesting the latter to conduct a public auction sale of the pledged stock.

On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings andrequested that the pledged stock be transferred to its (petitioner's) name and the same be recorded in

the corporate books.

However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede to petitioner's request inview of Calapatia's unsettled accounts with the club.

Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioneremerged as the highest bidder at P20,000.00 for the pledged stock. Consequently, petitioner was issued thecorresponding certificate of sale.

On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission(SEC) for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stockcertificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and fordamages, attorney's fees and costs of litigation.

On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI,stating in the main that "(c)onsidering that the said share is delinquent, (VGCCI) had valid reason not totransfer the share in the name of the petitioner in the books of (VGCCI) until liquidation of delinquency."SEC denied the motion for reconsideration. The Court of Appeals rendered its decision nullifying andsetting aside the orders of the SEC and its hearing officer on ground of lack of jurisdiction over the subjectmatter and, consequently, dismissed petitioner's original complaint. The Court of

Appeals declared that the controversy between CBC and VGCCI is not intra-corporate.

ISSUES: (1) whether or not the nature of the controversy between petitioner and private respondentcorporation is intra-corporate.

(2) Whether or not VGCCI had the right to sell the share in question in accordance with the expressprovision found in its by-laws due to Calapatia's failure to settle his delinquent accounts

HELD:(1)

As to the first query, there is no question that the purchase of the subject share or membership certificate atpublic auction by petitioner (and the issuance to it of the corresponding Certificate of Sale)


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transferred ownership of the same to the latter and thus entitled petitioner to have the said share registeredin its name as a member of VGCCI.

By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and,therefore, the conflict that arose between petitioner and VGCCI aptly exemplies an intra-corporatecontroversy between a corporation and its stockholder under Sec. 5(b) of P.D. 902-A.

(2)

Finally, Sec. 63 of the Corporation Code which provides that "no shares of stock against which thecorporation holds any unpaid claim shall be transferable in the books of the corporation" cannot beutilized by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaidsubscription, and not to any indebtedness which a subscriber or stockholder may owe thecorporation arising from any other transaction." In the case at bar, the subscription for the share inquestion has been fully paid as evidenced by the issuance of Membership Certificate No. 1219. WhatCalapatia owed the corporation were merely the monthly dues. Hence, the aforequoted provision does notapply.


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NORA A. BITONGv. COURT OF APPEALS, et al.G.R. No. 123553, 13 July 1998, FIRST DIVISION (Belosillo,J.)

A mere typewritten statement advising a stockholder of the extent his ownership in a corporation without qualificationand/or authentication cannot be considered a formal certificate of stock.

Nora Bitong, the former Treasurer and a member of the Board of Directors of Mr. & Ms. PublishingCo., Inc. (Company) from October 1976 to April 1989, filed a derivative suit with the Securities andExchange Commission (SEC) allegedly for the benefit of the Company against Eugenia Apostol, Presidentand Chairperson of the Board of Directors of the Company, and Jose Apostol for the irregularitiescommitted from 1983 to 1987 in the Company. Bitong further claimed that all transactions and agreementsentered into by the Company were not supported by any bond and/or stockholders resolution.

The petition sought to, among others, hold Eugenia and Jose Apostol liable for damages suffered bythe Company and the other stockholders, including Bitong, by reason of their improper and fraudulent acts indirecting the affairs of the Company. Bitong contends that she became the registered and beneficial owner of

997 shares of stock ofMr. & Ms.after she acquired them from JAKAthrough a deed of sale executed in1983 and recorded in the Stock and Transfer Book ofMr. & Ms.under Certificate of Shares of Stock No.008. She pointed out that Senator Enrile decided thatJAKAshould completely divest itself of its holdingsinMr. & Ms.and this resulted in the sale to her ofJAKAs interest and holdings in that publishing firm.

Private respondents Apostol spouses, stockholders Magsanoc and Nuyda, and the Company, on theother hand, refuted the allegations of Bitong, asserting that the original stockholders of Company., that is,

JAKA Investments Corporation (JAKA), Luis Villafuerte, Ramon Siy, the Apostols and Ex Libris,continued to be virtually the same up to 1989. Thereafter it was agreed among them that, they being closefriends, the Company would be operated as a partnership or a close corporation and no shares of stock wouldbe sold to third parties without first offering the shares to the other stockholders so that transfers would belimited to and only among the original stockholders. Apostol, et al. further contended that Bitong, beingmerely a holder-in-trust of JAKA shares, only represented and continued to represent JAKA in the board.

They further argued that Bitong was not the true party to this case, the real party being JAKA, whichcontinued to be the true stockholder of the Company; hence, Bitong did not have the personality to initiateand prosecute the derivative suit which, consequently, must be dismissed.

The SEC Hearing Panel dismissed the derivative suit and gave credence to the assertion ofrespondent Eugenia D. Apostol that the Company was operated like a close corporation where importantmatters were discussed and approved through informal consultations at breakfast conferences.

The SECEn Banc, however, reversed the decision of the Hearing Panel, prompting Apostol spouses,et al.to file a petition for review before the Court of Appeals.

The Court of Appeals rendered a decision reversing the SEC En Banc and held that from the

evidence on record, Bitong was not the owner of any share of stock in the Company and therefore not thereal party-in-interest to prosecute the complaint she had instituted against private respondents.

ISSUE:

Whether there was a valid transfer of stocks in favor of Bitong which would give her legal personalityto sue as a stockholder

RULING: NO.


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Bitong contends that she was a holder of the proper certificates of shares of stock and that the

transfer was recorded in the Stock and Transfer Book ofMr. & Ms.She invokes Sec. 63 of The CorporationCodewhich provides that no transfer shall be valid except as between the parties until the transfer is recordedin the books of the corporation, and upon its recording the corporation is bound by it and is estopped todeny the fact of transfer of said shares. Bitong alleges that even in the absence of a stock certificate, a

stockholder solely on the strength of the recording in the stock and transfer book can exercise all the rights asstockholder, including the right to file a derivative suit in the name of the corporation. And, she need notpresent a separate deed of sale or transfer in her favor to prove ownership of stock.

Section 63 of The Corporation Code expressly provides -

Sec. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shallbe divided into shares for which certificates signed by the president or vice president,countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shallbe issued in accordance with the by-laws. Shares of stock so issued are personal property and may betransferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-factor other person legally authorized to make the transfer. No transfer however shall be valid except as

between the parties until the transfer is recorded in the books of the corporation showing the namesof the parties to the transaction, the date of the transfer, the number of the certificate or certificatesand the number of shares transferred x x x x

This provision above quoted envisions a formal certificate of stock which can be issued only uponcompliance with certain requisites. First, the certificates must be signed by the president or vice-president,countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A meretypewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/orauthentication cannot be considered as a formal certificate of stock. Second, delivery of the certificate is an essentialelement of its issuance. Hence, there is no issuance of a stock certificate where it is never detached from thestock books although blanks therein are properly filled up if the person whose name is inserted therein has nocontrol over the books of the company. Third, the par value, as to par value shares, or the full subscription asto no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where theperson requesting the issuance of a certificate is a transferee from a stockholder.

The certificate of stock itself once issued is a continuing affirmation or representation that the stockdescribed therein is valid and genuine and is at least prima facie evidence that it was legally issued in theabsence of evidence to the contrary. However, this presumption may be rebutted. Similarly, books andrecords of a corporation which include even the stock and transfer book are generally admissible in evidencein favor of or against the corporation and its members to prove the corporate acts, its financial status andother matters including ones status as a stockholder. They are ordinarily the best evidence of corporate actsand proceedings.

Xxx for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of thestock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons

legally authorized to make the transfer; and, (c) to be valid against third parties, the transfer must be recordedin the books of the corporation. At most, in the instant case, petitioner has satisfied only the thirdrequirement. Compliance with the first two requisites has not been clearly and sufficiently shown.

Considering that the requirements provided under Sec. 63 of The Corporation Code should bemandatorily complied with, the rule on presumption of regularity cannot apply. The regularity and validity ofthe transfer must be proved. As it is, even the credibility of the stock and transfer book and the entriesthereon relied upon by petitioner to show compliance with the third requisite to prove that she was astockholder since 1983 is highly doubtful.


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MARSH THOMSON v. COURT OF APPEALS and the AMERICAN CHAMBER OFCOMMERCE OF THE PHILIPPINES

G.R. No. 116631, 28 October 1998, FIRST DIVISION (Quisumbing,J.)

Authority granted to a corporation to regulate the transfer of its stock does not empower it to restrict the right of astockholder to transfer his shares, but merely authorizes the adoption of regulations as to the formalities and procedure to be

followed in effecting transfer.

Petitioner Marsh Thomson (Thomson) was the Executive Vice-President and, later on, theManagement Consultant of private respondent, the American Chamber of Commerce of the Philippines, Inc.(AmCham) for over ten years, 1979-1989. While Thomson was still working with AmCham, his superior, A.Lewis Burridge, retired as AmCham's President. Before Burridge decided to return to his home country, he

wanted to transfer his proprietary share in the Manila Polo Club (MPC) to Thomson. However, through theintercession of Burridge, AmCham paid for the share but had it listed in Thomson's name. This was madeclear in an employment advice. Burridge transferred said proprietary share to Thomson, as confirmed in aletter of notification to the Manila Polo Club.

Upon his admission as a new member of the MPC, Thomson paid the transfer fee from his own

funds; but AmCham subsequently reimbursed this amount. MPC issued Proprietary Membership Certificatein favor of Thomson. Thomson, however, failed to execute a document recognizing AmCham's beneficialownership over said share. Following AmCham's policy and practice, there was a yearly renewal ofemployment contract between the Thomson and AmCham. Separate letters of employment advice mentionedthe MPC share. Thomson never complied with follow-up requests, asking him to execute such documents asare necessary to acknowledge that the Chamber is the beneficial owner of his membership in the Club. When

Thomson's contract of employment was up for renewal in 1989, he notified AmCham that he would nolonger be available as Executive Vice President. Still, AmCham asked Thomson to stay on for another six (6)months. Thomson accepted and indicated his acceptance of the consultancy arrangement with a counter-proposal in his letter, retention of the Polo Club share, subject to my reimbursing the purchase price to theChamber. AmCham rejected petitioner's counter-proposal.

Pending the negotiation for the consultancy arrangement, AmCham executed a Release andQuitclaim, stating that "AMCHAM, its directors, officers and assigns, employees and/or representatives dohereby release, waive, abandon and discharge J. MARSH THOMSON from any and all existing claims thatthe AMCHAM, its directors, officers and assigns, employees and/or representatives may have against J.MARSH THOMSON." The quitclaim, expressed in general terms, did not mention specifically the MPCshare. AmCham sent a letter to Thomson demanding the return and delivery of the MPC share which it ownsand placed in Thomson's name. Failing to get a favorable response, AmCham filed a complaint against

Thomson to return the Manila Polo Club share to AmCham and transfer said share to the nominee ofAmCham. RTC ruled in favor of Thomson on the ground that the Articles of Incorporation and By-laws ofManila Polo Club prohibit artificial persons, such as corporations, to be club members. CA reversed andordered Thomson to transfer the MPC share to the nominee of AmCham.

ISSUE:

Whether the order that Thomson should transfer said share to AmCham's nominee violates theprohibition on corporate membership under the MPC AOI and by-laws

RULING: NO.


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Thomson contends that the Articles of Incorporation and By-laws of Manila Polo Club prohibitcorporate membership. However, AmCham does not insist nor intend to transfer the club membership in itsname but rather to its designated nominee. For as properly ruled by the Court of Appeals:

The matter prayed for does not involve the transfer of said share to the appellant, anartificial person. The transfer sought is to the appellant's nominee. Even if the MPC By-

Laws and Articles prohibit corporate membership, there would be no violation of saidprohibition for the appellant's nominee to whom the said share is sought to be transferred

would certainly be a natural person. . . .As to whether or not the transfer of said share the appellant's nominee would bedisapproved by the MPC, is a matter that should be raised at the proper time, which is onlyif such transfer is disapproved by the MPC.

The Manila Polo Club does not necessarily prohibit the transfer of proprietary shares by its members.The Club only restricts membership to deserving applicants in accordance with its rules, when the amendedArticles of Incorporation states that: "No transfer shall be validexcept between the parties, and shall be registeredin the Membership Book unless made in accordance with these Articles and the By-Laws". Thus, as betweenparties herein, there is no question that a transfer is feasible. Moreover, authority granted to a corporation to

regulate the transfer of its stock does not empower it to restrict the right of a stockholder to transfer hisshares, but merely authorizes the adoption of regulations as to the formalities and procedure to be followedin effecting transfer.

In this case, the petitioner was the nominee of the private respondent to hold the share and enjoy theprivileges of the club. But upon the expiration of petitioner's employment as officer and consultant of

AmCham, the incentives that go with the position, including use of the MPC share, also ceased to exist. Itnow behooves petitioner to surrender said share to private respondent's next nominee, another naturalperson. Obviously this arrangement of trust and confidence cannot be defeated by the petitioner's citation ofthe MPC rules to shield his untenable position, without doing violence to basic tenets of justice and fairdealing. Petition for Review on Certiorariis DENIED.


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NEMESIO GARCIA v. NICOLAS JOMOUAD, et al.

G.R. No. 133969, 26 January 2000, FIRST DIVISION (Kapunan,J.)

Section 63 of the Corporation Code provides that no transfer shall be valid except as between the parties, until thetransfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, thenumber of certificate or certificates and the number of shares transferred. Said provision of law strictly requires the recording of thetransfer in the books of the corporation and not elsewhere, to be valid as against third parties. The unrecorded transfer of aproprietary ownership certificate is not valid as against the judgment creditor of the transferor who can therefore levy the sharespursuant to a judgment despite the unrecorded transfer.

Nemesio Garcia filed an action for injunction against respondent-spouses Jose and Sally Atinon andNicolas Jomouad, ex-officiosheriff of Cebu. Said action stemmed from an earlier case for collection of sum ofmoney filed by the spouses Atinon against Jaime Dico. In that case, the trial court rendered judgmentordering Dico to pay the spouses Atinon. After said judgment became final and executory, Sheriff Jomouadproceeded with its execution. In the course thereof, the Proprietary Ownership Certificate (POC) in the CebuCountry Club, which was in the name of Dico, was levied on and scheduled for public auction. Claiming

ownership over the subject certificate, Garcia filed the aforesaid action for injunction to enjoin Jomouad andSpouses Atinon from proceeding with the auction.Garcia avers that Dico, the judgment debtor of the spouses

Atinon, was employed as manager of his (Garcia's) Young Auto Supply. In order to assist him in entertainingclients, Garcia "lent" his POC in the Cebu Country Club to Dico so the latter could enjoy the "signing"privileges of its members. The Club issued POC in the name of Dico. Thereafter, Dico resigned as managerof Garcia's business. Upon demand of Garcia, Dico returned POC to him. Dico then executed a Deed of

Transfer covering the subject certificate in favor of Garcia. The Club was furnished with a copy of said deedbut the transfer was not recorded in the books of the Club because Garcia failed to present proof of paymentof the requisite capital gains tax. Lower court dismissed Garcias complaint for injunction. CA affirmed theRTC decision.

ISSUE:

Whether a bona fidetransfer of the shares of a corporation, not registered or noted in the books of thecorporation, is valid as against a subsequent lawful attachment of said shares, regardless of whether theattaching creditor had actual notice of said transfer or not

RULING: NO.

Sec. 63 of the Corporation Code reads:

Sec. 63 Certificate of stock and transfer of shares.The capital stock of corporations shall be divided intoshares for which certificates signed by the president or vice-president, countersigned by the secretaryor assistant secretary, and sealed with the seal of the corporation shall be issued in accordance withthe by-laws. Shares of stock so issued are personal property and may be transferred by delivery of thecertificate or certificates indorsed by the owner or his attorney-in-fact or other person legallyauthorized to make the transfer. No transfer, however, shall be valid, except as between the parties,

until the transfer is recorded in the books of the corporation showing the names of the parties to thetransaction, the date of the transfer, the number of the certificate or certificates and the number ofshares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in thebooks of the corporation.

The sole issue in this case is similar to that raised in Uson vs. Diosomito xxx. In that case, we held that theattachment prevails over the unrecorded transferstating thus


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[w]e think that the true meaning of the language is, and the obvious intention of the legislature inusing it was, that all transfers of shares should be entered, as here required, on the books of thecorporation. And it is equally clear to us that all transfers of shares not so entered are invalid as toattaching or execution creditors of the assignors, as well as to the corporation and to subsequentpurchasers in good faith, and, indeed, as to all persons interested, except the parties to such transfers.

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 void by statute.

Applying the foregoing jurisprudence in this case, we hold that the transfer of the subject certificatemade by Dico to petitioner was not valid as to the spouses Atinon, the judgment creditors, as the same stillstood in the name of Dico, the judgment debtor, at the time of the levy on execution. XXX the entry in theminutes of the meeting of the Club's board of directors noting the resignation of Dico as proprietary memberthereof does not constitute compliance with Section 63 of the Corporation Code. Said provision of lawstrictly requires the recording of the transfer in the books of the corporation, and not elsewhere, to be valid asagainst third parties. Accordingly, the CA committed no reversible error in rendering the assailed decision.PETITION DENIED.


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THE RURAL BANK OF LIPA CITY, INC. vs.COURT OF APPEALS

For a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed by law. The requirements are:(a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or otherpersons legally authorized to make the transfer; and (c) To be valid against third parties, the transfer must be recorded in thebooks of the corporation. A deed of assignment of shares without requisite endorsement and delivery is only valid between the

parties. It does not necessarily make the transfer effective as against the corporation. Consequently, the petitioners, as mereassignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends, insofar as theassigned shares are concerned. Parenthetically, the private respondents cannot, as yet, be deprived of their rights as stockholders,until and unless the issue of ownership and transfer of the shares in question is resolved with finality.

Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed aDeed of Assignment, wherein he assigned his shares, as well as those of eight (8) other shareholders under hiscontrol, in favor of the stockholders of the Bank. Sometime thereafter, Spouses Villanueva executed an

Agreement wherein they acknowledged their indebtedness to the Bank in the amount of P4,000,000.00, andstipulated that said debt will be paid out of the proceeds of the sale of their real property described in the

Agreement. They assured the Board that their debt would be paid; otherwise, the Bank would be entitled toliquidate their shareholdings, including those under their control. In such an event, should the proceeds of

the sale of said shares fail to satisfy in full the obligation, the unpaid balance shall be secured by othercollateral sufficient therefor.

When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board sentthem a letter demanding: (1) the surrender of all the stock certificates issued to them; and (2) the delivery ofsufficient collateral to secure the balance of their debt. The Villanuevas ignored the banks demands,

whereupon their shares of stock were converted into Treasury Stocks.

The stockholders of the Bank met to elect the new directors and set of officers. The Villanuevas werenot notified of said meeting. Not being notified, the spouses questioned the legality of the said stockholdersmeeting and the validity of all the proceedings therein. In reply, the new set of officers of the Bank said thatthe Villanuevas were no longer entitled to notice of the said meeting since they had relinquished their rightsas stockholders in favor of the Bank. Hence, a petition was filed for the annulment of the stockholdersmeeting and election of directors and officers. The SEC issued an order enjoining the petitioners from actingas directors and officers of the bank and a temporary restraining order preventing petitioners from holdingthe stockholders meeting and electing the board of directors and officers of the Bank.

A petition for Certiorariand Annulment with Damages was filed by the Rural Bank. SEC en bancdeniedthe petition. A subsequent motion for reconsideration was likewise denied. Hence, a petition for review wasthus filed before the Court of Appeals which dismissed the petition for lack of merit.

Hence, the instant petition.

ISSUE:

Whether or not there was a valid transfer of stocks.

HELD:

We find no merit in the instant petition.

The Corporation Code specifically provides:


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BATANGAS LAGUNA TAYABAS BUS COMPANY, INC., et al. vs.BENJAMIN M. BITANGA, et al.

For a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed by law. The requirements are:(a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or otherpersons legally authorized to make the transfer; and (c) To be valid against third parties, the transfer must be recorded in the

books of the corporation. A deed of assignment of shares without requisite endorsement and delivery is only valid between theparties. It does not necessarily make the transfer effective as against the corporation. Consequently, the petitioners, as mereassignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends, insofar as theassigned shares are concerned. Parenthetically, the private respondents cannot, as yet, be deprived of their rights as stockholders,until and unless the issue of ownership and transfer of the shares in question is resolved with finality.

The Potencianos, Delfin C. Yorro, and Maya Industries, Inc., entered into a Sale and PurchaseAgreement, whereby they sold to BMB Property Holdings, Inc., represented by its President, BenjaminBitanga, their shares of stock in BLTB representing 47.98% of the total outstanding capital stock of BLTB.Barely a month after the Agreement was executed, Bitanga and Monina Grace Lim were elected as newdirectors.

During a meeting of the Board, the newly elected directors scheduled the annual stockholdersmeeting. Before the scheduled meeting, Michael Potenciano wrote Bitanga, requesting for a postponement ofthe stockholders meeting due to the absence of a thirty-day advance notice. However, there was no responseon whether or not the request for postponement was favorably acted upon. On the scheduled date of themeeting, a notice of postponement of the stockholders meeting was published in the ManilaBulletin. Inasmuch as there was no notice of postponement prior to that, a total of 286 stockholders arrivedand attended the meeting. The majority of the stockholders present rejected the postponement and voted toproceed with the meeting. The Potenciano group was re-elected to the Board of Directors, however, theBitanga group refused to relinquish their positions and continued to act as directors and officers of BLTB.

The Bitanga group filed with the SEC a Complaint for Damages and Injunction which, however, wasdenied. Likewise, the Potenciano group filed a Complaint for Injunction and Damages with PreliminaryInjunction and Temporary Restraining Order with the SEC which issued a TRO enjoining the Bitanga groupfrom acting as officers and directors of BLTB.

The Bitanga group filed another complaint which was granted. It declared that the stockholders meetingwas void on the grounds that, first, Michael Potenciano had himself asked for its postponement due toimproper notice; and, second, there was no quorum, since BMB Holdings, Inc., represented by the Bitangagroup, which then owned 50.26% of BLTBs shares having purchased the same from the Potenciano group,

was not present at the said meeting.

The Potenciano group filed a petition for certiorari with the SEC En Banc. The SEC En Banc set asidethe Order of the Hearing Panel and issued the writ of preliminary injunction prayed for. The Bitanga groupimmediately filed a petition for certiorari with the Court of Appeals which reversed the assailed Orders of theSEC En Banc and reinstating the Order of the Hearing Panel. The Court of Appeals denied the Motions for

Reconsideration.

Hence, this petition.

ISSUE:

Whether or not the SEC En Banc committed error in jurisdiction as to entitle the Bitanga group to theextraordinary remedy of certiorari. (No)


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HELD:

Petition is GRANTED.

In the Order of the SEC En Banc, the validity of the BLTB stockholders meeting held was sustained, inlight of the time-honored doctrine in corporation law that a transfer of shares is not valid unless recorded in

the books of the corporation. The SEC En Banc went on to rule that

It is not disputed that the transfer of the shares of the group of Dolores Potenciano to the Bitanga group hasnot yet been recorded in the books of the corporation. Hence, the group of Dolores Potenciano, in whosenames those shares still stand, were the ones entitled to attend and vote at the stockholders meeting of theBLTB. This being the case, the Hearing Panel committed grave abuse of discretion in holding otherwise andin concluding that there was no quorum in said meeting.

Based on the foregoing premises, the SEC En Banc issued a writ of preliminary injunction against theBitanga group. In so ruling, the SEC En Banc merely exercised its wisdom and competence as a specializedadministrative agency specifically tasked to deal with corporate law issues. We are in full accord with the SECEn Banc on this matter. 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 inthis case, cannot vote nor be voted for. The purpose of registration, therefore, is two-fold: to enable thetransferee to exercise all the rights of a stockholder, including the right to vote and to be voted for, and toinform the corporation of any change in share ownership so that it can ascertain the persons entitled to therights and subject to the liabilities of a stockholder. Until challenged in a proper proceeding, a stockholder ofrecord has a right to participate in any meeting; his vote can be properly counted to determine whether astockholders resolution was approved, despite the claim of the alleged transferee. On the other hand, aperson 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 thetransfer is registered, the transferee is not a stockholder but an outsider.


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VICENTE C. PONCEvs. ALSONS CEMENT CORPORATION,and FRANCISCO M. GIRON, JR.

Pursuant to Section 63 of the Corporation Code, a transfer of shares of stocks not recorded in the stock and transfer book of thecorporation is non-existent as far as the corporation is concerned. Without such recording, the transferee may not be regarded bythe corporation as one among its stockholders and the corporation may legally refuse the issuance of stock certificates in the name

of the transferee even when there has been compliance with the requirements of Section 64 of the Corporation Code. The situationwould be different if the petitioner was himself the registered owner of the stock which he sought to transfer to a third party, forthen he would be entitled to the remedy of mandamus.It has been made clear that before a transferee may ask for the issuance ofstock certificates, he must first cause the registration of the transfer and thereby enjoy the status of a stockholder insofar as thecorporation is concerned. A corporate secretary may not be compelled to register transfers of shares on the basis merely of anindorsement of stock certificates. With more reason, in our view, a corporate secretary may not be compelled to issue stockcertificates without such registration.

Petitioner and Fausto Gaid, an incorporator of Victory Cement Corporation (now ACC), having239,500 shares in said corporation, executed a Deed of Undertaking and Indorsement whereby the latteracknowledges that the former is the owner of said shares and he was therefore assigning/endorsing the sameto the petitioner. From the time of incorporation of ACC up to the present, no certificates of stock were

issued in the name of Fausto G. Gaid and/or the petitioner despite repeated demands. Thus, petitioner filed acomplaint with the SEC for mandamus and damages against Alsons Cement Corporation and its corporatesecretary Francisco M. Giron, Jr.

Respondents moved to dismiss the complaint on the ground of failure to state a cause of action, whichthe SEC granted. Petitioner appealed. The Commission En Banc reversed the appealed Order. Their motionfor reconsideration having been denied, herein respondents appealed to the Court of Appeals.

In its decision, the Court of Appeals held that in the absence of any allegation that the transfer of theshares between Fausto Gaid and Vicente C. Ponce was registered in the stock and transfer book of ALSONS,Ponce failed to state a cause of action. Petitioners motion for reconsideration was likewise denied.

Hence, the instant petition for review.

ISSUE:

1)

Whether or not registration of a transfer of shares of stocks in the stock and transfer book isrequired.

2)

Whether or not a corporate secretary may be compelled to register transfer of shares on thebasis of an indorsement of stock certificates.

HELD: Petition is DENIED.

1. The Corporation Code states that:

SEC. 63. Certificate of stock and transfer of shares.The capital stock of stock corporations shall be divided intoshares for which certificates signed by the president or vice-president, countersigned by the secretary orassistant secretary, 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 orcertificates indorsed by the owner or his attorney-in-fact or other person

Documents

Mercrev Stockholders Digests