Shares of Stock Cases

8/19/2019 Shares of Stock Cases

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ONG YONG VS. TIU

FACTS:

1994: construction of the Masagana Citimall in Pasay City was threatened with stoppage, when itsowner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became

heavily indebted to the Philippine National Bank (PNB) for P190M

To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong Yong, Juanita

Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in

FLADC.

Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in FLADC

Ongs: subscribe to 1,000,000 shares

Tius: subscribe to an additional 549,800 shares in addition to their already existing subscription of

450,200 shares Tius: nominate the Vice-President and the Treasurer plus 5 directors

Ongs nominate the President, the Secretary and 6 directors (including the chairman) to the board of

directors of FLADC and right to manage and operate the mall.

Tius: contribute to FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land P30M

(for 300K shares) and P49.8M (for 49,800 shares)

Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for their

subscription to 1M shares)

February 23, 1996: Tius rescinded the Pre-Subscription Agreement

February 27, 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking confirmationof their rescission of the Pre-Subscription Agreement

SEC: confirmed recission of Tius

Ongs filed reconsideration that their P70M was not a premium on capital stock but

an advance loan

SEC en banc: affirmed it was a premium on capital stock

CA: Ongs and the Tius were in pari delicto (which would not have legally entitled them to rescission)

but, "for practical considerations," that is, their inability to work together, it was best to separate the

two groups by rescinding the Pre-Subscription Agreement, returning the original investment of the

Ongs and awarding practically everything else to the Tius. ISSUE: W/N Specific performance and NOT recission is the remedy

HELD: YES. Ongs granted.

did not justify the rescission of the contract

providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer,

respectively, had no bearing on their obligations under the Pre-Subscription Agreement since the

obligation pertained to FLADC itself

failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions also pertained to the corporation and not to the Ongs


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the principal objective of both parties in entering into the Pre-Subscription Agreement in 1994 was to

raise the P190 million

law requires that the breach of contract should be so "substantial or fundamental" as to defeat the

primary objective of the parties in making the agreement

since the cash and other contributions now sought to be returned already belong to FLADC, an

innocent third party, said remedy may no longer be availed of under the law.

Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be

formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that

the parties refer to it as a purchase or some other contract

allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of

Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable shares by the

corporation, regardless of the existence of unrestricted retained earnings,25 and (3) dissolution and

eventual liquidation of the corporation.

They want this Court to make a corporate decision for FLADC.

The Ongs' shortcomings were far from serious and certainly less than substantial; they were in fact

remediable and correctable under the law. It would be totally against all rules of justice, fairness and

equity to deprive the Ongs of their interests on petty and tenuous grounds.

PHILIPPINE TRUST VS. RIVERA

G.R. No. L-19761 January 29, 1923

PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperativa NavalFilipina," plaintiff-appellee,vs.MARCIANO RIVERA, defendant-appellant.

Araneta and Zaragoza for appellant.Ross and Lawrence for appellee.

STREET, J .:

This action was instituted on November 21, 1921, in the Court of First Instance of Manila, by thePhilippine Trust Company, as assignee in insolvency of La Cooperativa Naval Filipina, againstMarciano Rivera, for the purpose of recovering a balance of P22,500, alleged to be due upondefendant's subscription to the capital stock of said insolvent corporation. The trial judge havinggiven judgment in favor of the plaintiff for the amount sued for, the defendant appealed.

It appears in evidence that in 1918 the Cooperativa Naval Filipina was duly incorporated underthe laws of the Philippine Islands, with a capital of P100,000, divided into one thousand shares ofa par value of P100 each. Among the incorporators of this company was numbered thedefendant Mariano Rivera, who subscribed for 450 shares representing a value of P45,000, theremainder of the stock being taken by other persons. The articles of incorporation were duly

registered in the Bureau of Commerce and Industry on October 30 of the same year.


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In the course of time the company became insolvent and went into the hands of the PhilippineTrust Company, as assignee in bankruptcy; and by it this action was instituted to recover one-half of the stock subscription of the defendant, which admittedly has never been paid.

The reason given for the failure of the defendant to pay the entire subscription is, that not longafter theCooperativa Naval Filipina had been incorporated, a meeting of its stockholders

occurred, at which a resolution was adopted to the effect that the capital should be reduced by50 per centum and the subscribers released from the obligation to pay any unpaid balance oftheir subscription in excess of 50 per centum of the same. As a result of this resolution it seemsto have been supposed that the subscription of the various shareholders had been cancelled tothe extent stated; and fully paid certificate were issued to each shareholders for one-half of hissubscription. It does not appear that the formalities prescribed in section 17 of the CorporationLaw (Act No. 1459), as amended, relative to the reduction of capital stock in corporations wereobserved, and in particular it does not appear that any certificate was at any time filed in theBureau of Commerce and Industry, showing such reduction.

His Honor, the trial judge, therefore held that the resolution relied upon the defendant waswithout effect and that the defendant was still liable for the unpaid balance of his subscription. In

this we think his Honor was clearly right.

It is established doctrine that subscription to the capital of a corporation constitute a find to whichcreditors have a right to look for satisfaction of their claims and that the assignee in insolvencycan maintain an action upon any unpaid stock subscription in order to realize assets for thepayment of its debts. (Velasco vs. Poizat, 37 Phil., 802.) A corporation has no power to releasean original subscriber to its capital stock from the obligation of paying for his shares, without avaluable consideration for such release; and as against creditors a reduction of the capital stockcan take place only in the manner an under the conditions prescribed by the statute or thecharter or the articles of incorporation. Moreover, strict compliance with the statutory regulationsis necessary (14 C. J., 498, 620).

In the case before us the resolution releasing the shareholders from their obligation to pay 50 percentum of their respective subscriptions was an attempted withdrawal of so much capital fromthe fund upon which the company's creditors were entitled ultimately to rely and, having beeneffected without compliance with the statutory requirements, was wholly ineffectual.

The judgment will be affirmed with cost, and it is so ordered.

VELASCO VS. POIZAT

G.R. No. L-11528 March 15, 1918

MIGUEL VELASCO, assignee of The Philippine Chemical Product Co. (Ltd.), plaintiff-appellant,vs.JEAN M. POIZAT, defendant-appellee.

Vicente Rodriguez for appellant. A. J. Burke for appellee.

STREET, J .:


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From the amended complaint filed in this cause upon February 5, 1915, it appears that theplaintiff, as assignee in insolvency of "The Philippine Chemical Product Company" (Ltd.) isseeking to recover of the defendant, Jean M. Poizat, the sum of P1,500, upon a subscriptionmade by him to the corporate stock of said company. It appears that the corporation in questionwas originally organized by several residents of the city of Manila, where the company had itsprincipal place of business, with a capital of P50,000, divided into 500 shares. The defendant

subscribed for 20 shares of the stock of the company, an paid in upon his subscription the sum ofP500, the par value of 5 shares . The action was brought to recover the amount subscribed uponthe remaining shares.

It appears that the defendant was a stock holder in the company from the inception of theenterprise, and for sometime acted as its treasurer and manager. While serving in this capacityhe called in and collected all subscriptions to the capital stock of the company, except theaforesaid 15 shares subscribed by himself and another 15 shares owned by Jose R. Infante.

Upon July 13, 1914, a meeting of the board of directors of the company was held at which amajority of the stock was presented. Up[on this occasion two resolutions, important to be herenoted, were adopted. The first was a proposal that the directors, or shareholders, of the company

should make good by new subscriptions, in proportion to their respective holdings, 15 shareswhich had been surrendered by Infante. It seems that this shareholder had already paid 25 percent of his subscription upon 20 shares, leaving 15 shares unpaid for, and an understanding hadbeen reached by him and the management by which he was to be released from the obligation ofhis subscription, it being understood that what he had already paid should not be refunded. Accordingly the directors present at this meeting subscribed P1,200 toward taking up his shares,leaving a deficiency of P300 to be recovered by voluntary subscriptions from stockholders notpresent at the meeting.

The other proposition was o the effect that Juan [Jean] M. Poizat, who was absent, should berequired to pay the amount of his subscription upon the 15 shares for which he was still indebtedto the company. The resolution further provided that, in case he should refuse to make such

payment, the management of the corporation should be authorized to undertake judicialproceedings against him. When notification of this resolution reached Poizat through the mail itevoked from him a manifestation of surprise and pain, which found expression in a letter writtenby him in reply, dated July 27, 1914, and addressed to Velasco, as treasurer and administrator.In this letter Poizat states that he had been given to understand by some member of the board ofdirectors that he was to be relieved from his subscription upon the terms conceded to Infante;and he added:

My desire to be relieved from the payment of the remaining 75 per cent arises from thepoor opinion which I entertain of the business and the faint hope of ever recovering anymoney invested. In consequence, I prefer to lose the whole of the 25 per cent I havealready paid rather than to continue investing more money in what I consider to be

ruinous proposition.

Within a short while the unfavorable opinion entertained by Poizat as to the prospect of thecompany was found to be fully justified, as the company soon went into voluntary insolvency,Velasco being named as the assignee. He qualified at once by giving bond, and was dulyinducted into the office of assignee upon November 25, 1914, by virtue of a formal transferexecuted by the clerk in pursuance of section 32 of Act No. 1956.

The answer of the defendant consisted of a general denial and a so-called special defense,consisting of a concatenation of statements more appropriate for a demurrer than as material fora special defense. The principal contention is that the call made by the board of directors of thecompany on July 13, 1914 , was not made pursuant to the requirements of sections 37 and 38 of

the Corporation Law (Act No. 1459), and in particular that the action was instituted before theexpiration of the 30 days specified in section 38.


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. . . a court of equity may enforce payment of the stock subscriptions, although therehave been no calls for them by the company. (Hatch vs. Dana, 101 U. S., 205.)

It is again insisted that the plaintiffs cannot recover because the suit was not preceded bya call or assessment against no right of action accrues. In a suit by a solvent goingcorporation to collect a subscription, and in certain suits provided by the statute this

would be true; but it is now quite well settled that when the corporation becomesinsolvent, with proceedings instituted by creditors to wind up and distribute its assets, nocall or assessment is necessary before the institution of suits to collect unpaid balanceson subscription. (Ross-Meehan Shoe F. Co. vs. Southern Malleable Iron Co., 72 Fed.,957, 960;see also Henry vs. Vermillion etc. R. R. Co., 17 Ohio, 187, and Thompson onCorporations 2d ed., vol. 3, sec. 2697.)

It evidently cannot be permitted that a subscriber should escape from his lawful obligation byreason of the failure of the officers of the corporation to perform their duty in making a call; andwhen the original model of making the call becomes impracticable, the obligation must be treatedas due upon demand. If the corporation must be treated still an active entity, and this actionshould be dismissed for irregularity in the making of the call, other steps could be taken by the

board to cure the defect and another action could be brought; but where the company is beingwound up, no such procedure would be practicable. The better doctrine is that when insolvencysupervenes all unpaid subscriptions become at once due and enforceable.

The printed bill of exceptions in this cause does not contain the original complaint, nor does itstate who was plaintiff therein or the date when the action was instituted. It may, however, begathered from the papers transmitted to this court that the action was originally instituted in thename of the Philippine Chemical Product Co. (Ltd.), prior to its insolvency, and that later theassignee was substituted as plaintiff and then filed the amended complaint, with the permissionof the court. Now, if we concede that no right of action existed when the original complaint wasfiled, a right of action certainly existed when the assignee filed his amended complaint; and asthe bill of exceptions fails to show that any exception was taken to the action of the court in

allowing the amended complaint to be filed, no objection would be here entertained on theground that the action was prematurely brought.

The circumstance that the board of directors in their meeting of July 13, 1914, resolved torelease Infante from his obligation upon a subscription for 15 shares is no wise prejudicial to theright of the corporation or its assignee to recover from Poizat upon a subscription made by him.In releasing Infante the board transcended its powers, and he no doubt still remained liable onsuch of his shares as were not taken up and paid for by other persons.

The general doctrine is that the corporation has no legal capacity to release an originalsubscriber to its capital stock from the obligation of paying for his shares, in whole or inpart, . . . (10 Cyc., 450.)

The suggestion contained in Poizat's letter of July 27, 1914, to the effect that he understood thathe was to be relieved upon the same terms as Infante is, for the same reason, of no merit asmatter of defense, even if an agreement to that effect had been duly proved.

From what has been said it is manifest that the defendant is liable for P1,500, the amount of hissubscription upon the unpaid shares. Under section 36 of the Corporation Law he is also liablefor interest at the lawful rate from the date of his subscription, unless relieved from this liability bythe by-laws of the company. These by-laws have not been introduced in evidence and there is noproof showing the exact date upon which the subscription was made, though it is alleged in theoriginal complaint that the company was organized upon March 23, 1914. This allegation is notadmitted in the agreed statement of facts. The defendant, however, inferentially admits in his

letter of July 27, 1914, that his subscription had been made prior to July 13, 1914. It resulted thatin our opinion he should be held liable for interest from that date.


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The judgment of the lower court is therefore reversed, and judgment will be rendered in favor ofthe plaintiff and against the defendant for the sum of one thousand five hundred pesos (P1,500),with interest from July 13, 1014, and costs of both instances. So ordered.

EDWARD A. KELLER VS. COB GROUP MARKETING INC.

G.R. No. L-68097 January 16, 1986

EDWARD A. KELLER & CO., LTD., petitioner-appellant,vs.COB GROUP MARKETING, INC., JOSE E. BAX, FRANCISCO C. DE CASTRO, JOHNNY DELA FUENTE, SERGIO C. ORDOÑEZ, TRINIDAD C. ORDOÑEZ, MAGNO C. ORDOÑEZ,ADORACION C. ORDOÑEZ, TOMAS C. LORENZO, JR., LUIZ M. AGUILA-ADAO, MOISES P.ADAO, ASUNCION MANAHAN and INTERMEDIATE APPELLATE COURT, respondents-appellees.

Sycip, Salazar, Feliciano & Hernandez Law Office for petitioner.

Vicente G. Gregorio for private respondents.

Roberto P. Vega for respondent Asuncion Manahan.

AQUINO, C.J .:

This case is about the liability of a marketing distributor under its sales agreements with theowner of the products. The petitioner presented its evidence before Judges Castro Bartolomeand Benipayo. Respondents presented their evidence before Judge Tamayo who decided thecase.

A review of the record shows that Judge Tamayo acted under a misapprehension of facts and hisfindings are contradicted by the evidence. The Appellate Court adopted the findings of JudgeTamayo. This is a case where this Court is not bound by the factual findings of the AppellateCourt. (See Director of Lands vs. Zartiga, L-46068-69, September 30, 1982, 117 SCRA 346,355).

Edward A. Keller & Co., Ltd. appointed COB Group Marketing, Inc. as exclusive distributor of itshousehold products, Brite and Nuvan in Panay and Negros, as shown in the sales agreementdated March 14, 1970 (32-33 RA). Under that agreement Keller sold on credit its products toCOB Group Marketing.

As security for COB Group Marketing's credit purchases up to the amount of P35,000, one Asuncion Manahan mortgaged her land to Keller. Manahan assumed solidarily with COB GroupMarketing the faithful performance of all the terms and conditions of the sales agreement (Exh.D).

In July, 1970 the parties executed a second sales agreement whereby COB Group Marketing'sterritory was extended to Northern and Southern Luzon. As security for the credit purchases up

to P25,000 of COB Group Marketing for that area, Tomas C. Lorenzo, Jr. and his father Tomas,Sr. (now deceased) executed a mortgage on their land in Nueva Ecija. Like Manahan, the


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Lorenzos were solidarily liable with COB Group Marketing for its obligations under the salesagreement (Exh. E).

The credit purchases of COB Group Marketing, which started on October 15, 1969, limited up toJanuary 22, 1971. On May 8, the board of directors of COB Group Marketing were apprised byJose E. Bax the firm's president and general manager, that the firm owed Keller about

P179,000. Bax was authorized to negotiate with Keller for the settlement of his firm's liability(Exh. 1, minutes of the meeting).

On the same day, May 8, Bax and R. Oefeli of Keller signed the conditions for the settlement ofCOB Group Marketing's liability, Exhibit J, reproduced as follows:

This formalizes our conditions for the settlement of C.O.B.'s account with EdwardKeller Ltd.

1. Increase of mortgaged collaterals to the full market value (estimated by Edakat P90,000.00).

2. Turn-over of receivables (estimated outstandings P70,000.00 to P80,000.00).

3. Turn-over of 4 (four) trucks for outright sale to Edak, to be credited againstC.0.B.'s account.

4. Remaining 8 (eight) trucks to be assigned to Edak, C.O.B will continueoperation with these 8 trucks. They win be returned to COB after settlement of fullaccount.

5. C.O.B has to put up securities totalling P200,000.00. P100,000.00 has to beliquidated within one year. The remaining P100,000.00 has to be settled within

the second year.

6. Edak wig agree to allow C.O.B. to buy goods to the value of the differencebetween P200,000.00 and their outstandings, provided C.O.B. is in a position toput up securities amounting to P200,000.00.

Discussion held on May 8, 1971.

Twelve days later, or on May 20, COB Group Marketing, through Bax executed two secondchattel mortgages over its 12 trucks (already mortgaged to Northern Motors, Inc.) as security forits obligation to Keller amounting to P179,185.16 as of April 30, 1971 (Exh. PP and QQ).However, the second mortgages did not become effective because the first mortgagee, Northern

Motors, did not give its consent. But the second mortgages served the purpose of beingadmissions of the liability COB Group Marketing to Keller.

The stockholders of COB Group Marketing, Moises P. Adao and Tomas C. Lorenzo, Jr., in aletter dated July 24, 1971 to Keller's counsel, proposed to pay Keller P5,000 on November 30,1971 and thereafter every thirtieth day of the month for three years until COB Group Marketing'smortgage obligation had been fully satisfied. They also proposed to substitute the Manahanmortgage with a mortgage on Adao's lot at 72 7th Avenue, Cubao, Quezon City (Exh. L).

These pieces of documentary evidence are sufficient to prove the liability of COB GroupMarketing and to justify the foreclosure of the two mortgages executed by Manahan and Lorenzo(Exh. D and E).


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Section 22, Rule 130 of the Rules of Court provides that the act, declaration or omission of aparty as to a relevant fact may be given in evidence against him "as admissions of a party".

The admissions of Bax are supported by the documentary evidence. It is noteworthy that all theinvoices, with delivery receipts, were presented in evidence by Keller, Exhibits KK-1 to KK-277-aand N to N-149-a, together with a tabulation thereof, Exhibit KK, covering the period from

October 15, 1969 to January 22, 1971. Victor A. Mayo, Keller's finance manager, submitted astatement of account showing that COB Group Marketing owed Keller P184,509.60 as of July 31,1971 (Exh. JJ). That amount is reflected in the customer's ledger, Exhibit M.

On the other hand, Bax although not an accountant, presented his own reconciliation statementswherein he showed that COB Group Marketing overpaid Keller P100,596.72 (Exh. 7 and 8). Heclaimed overpayment although in his answer he did not allege at all that there was anoverpayment to Keller.

The statement of the Appellate Court that COB Group Marketing alleged in its answer that itoverpaid Keller P100,596.72 is manifestly erroneous first, because COB Group Marketing did notfile any answer , having been declared in default, and second, because Bax and the otherstockholders, who filed an answer, did not allege any overpayment . As already stated, evenbefore they filed their answer, Bax admitted that COB Group Marketing owed Keller aroundP179,000 (Exh. 1).

Keller sued on September 16, 1971 COB Group Marketing, its stockholders and the mortgagors,Manahan and Lorenzo.

COB Group Marketing, Trinidad C. Ordonez and Johnny de la Fuente were declared in default(290 Record on Appeal).

After trial, the lower court (1) dismissed the complaint; (2) ordered Keller to pay COB GroupMarketing the sum of P100,596.72 with 6% interest a year from August 1, 1971 until the amountis fully paid: (3) ordered Keller to pay P100,000 as moral damages to be allocated among thestockholders of COB Group Marketing in proportion to their unpaid capital subscriptions; (4)ordered the petitioner to pay Manahan P20,000 as moral damages; (5) ordered the petitioner topay P20,000 as attomey's fees to be divided among the lawyers of all the answering defendantsand to pay the costs of the suit; (6) declared void the mortgages executed by Manahan andLorenzo and the cancellation of the annotation of said mortgages on the Torrens titles thereof,and (7) dismissed Manahan's cross-claim for lack of merit.

The petitioner appealed. The Appellate Court affirmed said judgment except the award ofP20,000 as moral damages which it eliminated. The petitioner appealed to this Court.

Bax and the other respondents quoted the six assignments of error made by the petitioner in the Appellate Court, not the four assignments of error in its brief herein. Manahan did not file anyappellee's brief.

We find that the lower courts erred in nullifying the admissions of liability made in 1971 by Bax aspresident and general manager of COB Group Marketing and in giving credence to the allegedoverpayment computed by Bax .

The lower courts not only allowed Bax to nullify his admissions as to the liability of COB GroupMarketing but they also erroneously rendered judgment in its favor in the amount of its supposedoverpayment in the sum of P100,596.72 (Exh. 8-A), in spite of the fact that COB GroupMarketing was declared in default and did not file any counterclaim for the supposedoverpayment.


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The lower courts harped on Keller's alleged failure to thresh out with representatives of COBGroup Marketing their "diverse statements of credits and payments". This contention has nofactual basis. In Exhibit J, quoted above, it is stated by Bax and Keller's Oefeli that "discussion(was) held on May 8, 1971."

That means that there was a conference on the COB Group Marketing's liability. Bax in that

discussion did not present his reconciliation statements to show overpayment. His Exhibits 7 and8 were an afterthought. He presented them long after the case was filed. The petitioner regardsthem as "fabricated" (p. 28, Appellant's Brief).

Bax admitted that Keller sent his company monthly statements of accounts (20-21 tsn,September 2, 1976) but he could not produce any formal protest against the supposedinaccuracy of the said statements (22). He lamely explained that he would have to dig up hiscompany's records for the formal protest (23-24). He did not make any written demand forreconciliation of accounts (27-28).

As to the liability of the stockholders, it is settled that a stockholder is personally liable for thefinancial obligations of a corporation to the extent of his unpaid subscription (Vda. de Salvatierravs. Garlitos 103 Phil. 757, 763; 18 CJs 1311-2).

While the evidence shows that the amount due from COB Group Marketing is P184,509.60 as ofJuly 31, 1971 or P186,354.70 as of August 31, 1971 (Exh. JJ), the amount prayed for in Keller'scomplaint is P182,994.60 as of July 31, 1971 (18-19 Record on Appeal). This latter amountshould be the one awarded to Keller because a judgment entered against a party in defaultcannot exceed the amount prayed for (Sec. 5, Rule 18, Rules of Court).

WHEREFORE, the decisions of the trial court and the Appellate Court are reversed and setaside.

COB Group marketing, Inc. is ordered to pay Edward A. Keller & Co., Ltd. the sum ofP182,994.60 with 12% interest per annum from August 1, 1971 up to the date of payment plusP20,000 as attorney's fees.

Asuncion Manahan and Tomas C. Lorenzo, Jr. are ordered to pay solidarity with COB GroupMarketing the sums of P35,000 and P25,000, respectively.

The following respondents are solidarity liable with COB Group Marketing up to the amounts oftheir unpaid subscription to be applied to the company's liability herein: Jose E. Bax P36,000;Francisco C. de Castro, P36,000; Johnny de la Fuente, P12,000; Sergio C. Ordonez, P12,000;Trinidad C. Ordonez, P3,000; Magno C. Ordonez, P3,000; Adoracion C. Ordonez P3,000; TomasC. Lorenzo, Jr., P3,000 and Luz M. Aguilar-Adao, P6,000.

If after ninety (90) days from notice of the finality of the judgment in this case the judgmentagainst COB Group Marketing has not been satisfied fully, then the mortgages executed byManahan and Lorenzo should be foreclosed and the proceeds of the sales applied to theobligation of COB Group Marketing. Said mortgage obligations should bear six percent legalinterest per annum after the expiration of the said 90-day period. Costs against the privaterespondents.

SO ORDERED


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PONCE VS. ALSONS CEMENT CORP

FACTS:

February 8, 1968: Vicente C. Ponce and Fausto Gaid, incorporator of Victory Cement Corporation

(VCC), executed a “Deed of Undertaking” and “Indorsement” whereby Gaid acknowledges that Ponce

is the owner of the shares and he was therefore assigning/endorsing it to Ponce

VCC was renamed Floro Cement Corporation (FCC) and then to Alsons Cement Corporation (ACC)

Up to the present, no certificates of stock corresponding to the 239,500 subscribed and fully paid

shares of Gaid were issued in the name of Fausto G. Gaid and/or the plaintiff.

Despite repeated demands, the ACC refused to issue the certificates of stocks

SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss

Upon appeal, the Commission En Banc reversed the decision of the Hearing Officer

Ponce, filed a complaint with the SEC for mandamus

CA: mandamus should be dismissed for failure to state a cause of action

in the absence of any allegation that the transfer of the shares was registered in the stock

and transfer book

ISSUE: W/N the cert. of stocks of Gaid can be transferred to Ponce

HELD: NO. petition Denied.

SEC. 63. Certificate of stock and transfer of shares. – The capital stock of stock

corporations shall be 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 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 or

certificates 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 recorded in the books of the corporation so

as to show the names of the parties to the transaction, the date of the transfer, the

number of the certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be

transferable in the

books of the corporation.

the stock and transfer book is the basis for ascertaining the persons entitled to the rights

and subject to the liabilities of a stockholder

Where a transferee is not yet recognized as a stockholder, the corporation is under no

specific legal duty to issue stock certificates in the transferee’s name.

in a case such as that at bar, a mandamus should not issue to compel the secretary of a

corporation to make a transfer of the stock on the books of the company


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The rule is that the delivery of the stock certificate duly endorsed by the owner is the

operative act of transfer of shares from the lawful owner to the transferee. Thus, title may be

vested in the transferee only by delivery of the duly indorsed certificate of stock.

For a valid transfer of stocks, there must be strict compliance with the mode of transfer

prescribed by law. The requirements are: (a) There must be delivery of the stock certificate:(b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons

legally authorized to make the transfer; and (c) To be valid against third parties, the transfer

must be recorded in the books of the corporation. As it is, compliance with any of these

requisites has not been clearly and sufficiently shown. It may be argued that despite non-

compliance with the requisite endorsement and delivery, the assignment was valid between

the parties, meaning the private respondents as assignors and the petitioners as assignees.

While the assignment may be valid and binding on the petitioners and private respondents,

it does not necessarily make the transfer effective. Consequently, the petitioners, as mere

assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not

be entitled to dividends, insofar as the assigned shares are concerned. Parenthetically, theprivate 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.

There being no showing that any of the requisites mandated by law was complied with, the

SEC Hearing Officer did not abuse his discretion in granting the issuance of the preliminary

injunction prayed for by petitioners in SEC Case No. 02-94-4683 (herein private respondents).

Accordingly, the order of the SEC en banc affirming the ruling of the SEC Hearing Officer, and

the Court of Appeals decision upholding the SEC en banc order, are valid and in accordance

with law and jurisprudence, thus warranting the denial of the instant petition for review.

NEUGENE MARKETING INC. VS. COURT OF APPEALS

Neugene Marketing Inc. vs. CA [303 SCRA 295 (Feb 18 1999)]

Ownership of Corporate Share/Stock Certificates

Facts: Neugene was duly registered with SEC to engage in trading business. Private Respondents Sy, Yang,

and Suen, holders of 5250 shares or 2/3 of the outstanding capital stock sent notice to the BoD for a board

meeting. In this meeting, they approved a resolution dissolving Neugene.

SEC thus issued a Certificate of Dissolution of Neugene. Petitioners Tan, Martin, Moreno and Lee brought an

action to annul said SEC Certification contending that they were the majority stockholders of the corporation, and

that prior to the board meeting, the private respondents had already divested themselves of their stockholdings

by endorsing them in blank and delivering them to the Uy family. The latter in turn awarded said stock certificates

to Johnny Uy, who in turn sold the same to petitioners. Hence, private respondents could no longer validly vote

for the dissolution of Neugene at the time of the board meeting.

Private respondents contend that the assignment of shares were simulated and fraudulently effected since the

endorsement in blank by them of the stock certificates to the Uy family was only for safekeeping when they were

stolen from a vault by Johnny Uy.


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SEC nullified the Certificate of Dissolution. CA, on the other hand, upheld Neugene’s dissolution. Hence, this

petition with the SC.

Issue: Whether or not private respondents divested themselves of their stockholdings when they voted for the

resolution dissolving Neugene.

Held: No. Entries in the Stock and Transfer Book show that at the time of dissolution of Neugene, the private

respondents owned at least 2/3 of the outstanding capital stock, in sufficient compliance with Sec. 118 of the

Corporation Code of the Philippines.

Petitioners submitted the same Stock and Transfer Book to show that the certificates of private respondents were

cancelled. But after a careful examination of the evidence on record, SC found that the stock certificates of

private respondents were stolen and therefore not validly transfered, and the transfers of stock relied upon by

petitioners were fraudulently recorded in the Stock and Transfer Book of Neugene.

The true relationship between stockholders of Neugene and that of the Uy family was that they had an

understanding that the beneficial ownership of Neugene would remain with the Uy family, such that the shares of

stock were endorsed in blank, upon issuance, by the shareholders and entrusted to the Uy family for

safekeeping. Such beneficial ownership has been admitted through the testimonies not only of private

respondents but also of petitioners.

BATANGAS LAGUNA TAYABAS BUS COMPANY VS. BITANGA

FACTS:

On October 28, 1997, Dolores Potenciano, Max Joseph Potenciano, Mercedelin Potenciano,

Delfin Yorro, and Maya Industries, Inc., entered into a Sale and Purchase Agreement, wherebythey sold to BMB Property Holdings, Inc., represented by its President, Benjamin Bitanga,

their 21,071,114 shares of stock in BLTB. The said shares represented 47.98% of the total

outstanding capital stock of BLTB. The purchase price for the shares of stock was

P72,076,425.00. A downpayment was made while the balance was payable on November 26,

1997.

The contracting parties stipulated that the downpayment was conditioned upon receipt by

the buyer of certain documents upon signing of the Agreement, namely, the Secretary's

Certificate stating that the Board of Directors of Maya Industries, Inc. authorized the sale of

its shares in BLTB and the execution of the Agreement, and designating Dolores A. Potenciano

as its Attorney-in-Fact; the Special Power of Attorney executed by each of the sellers in favor

of Dolores A. Potenciano for purposes of the Agreement; the undated written resignation

letters of the Directors of BLTB, except Henry John A. Potenciano, Michael A. Potericiano and

Candido A. Potenciano; a revocable proxy to vote the subject shares made by the sellers in

favor of the buyer; a Declaration of Trust made by the sellers in favor of the buyer

acknowledging that the subject shares shall be held in trust by the sellers for the buyer

pending their transfer to the latter's name; and the duly executed capital gains tax return

forms covering the sale, indicating no taxable gain on the same. Furthermore, the buyer

guaranteed that it shall take over the management and operations of BLTB but shall

immediately surrender the same to the sellers in case it fails to pay the balance of the

purchase price on November 26, 1997.


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On November 21, 1997, at a meeting of the stockholders of BLTB, Benjamin Bitanga and

Monina Grace Lim were elected as directors of the corporation Subsequently, on November

28, 1997, another stockholders' meeting was held, wherein Laureano A. Siy and Renato L.

Leveriza were elected as directors. At the same meeting, the Board of Directors of BLTB

elected James Olayvar, Eduardo Azucena, Evelio Custodia, and Gemma Santos as officers.

During a meeting of the Board of Directors on April 14, 1998, the newly elected directors of

BLTB scheduled the annual stockholders' meeting on May 19, 1998, 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, no response from Bitanga on whether or not the request for postponement

was favorably acted upon. On the scheduled date of the meeting, inasmuch as there was no

notice of postponement prior to that, a total of 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 Potencianogroup was re-elected to the Board of Directors, and a new set of officers was thereafter

elected. On May 21, 1998, the Bitanga group filed with the SEC a Complaint for Damages and

Injunction. Their prayer for the issuance of a temporary restraining order was, however,

denied at the ex-parte summary hearing conducted by SEC Chairman Perfecto Yasay, Jr.

Likewise, the Potenciano group filed on May 25, 1998, a Complaint for Injunction and

Damages with Preliminary Injunction and Temporary Restraining Order with the SEC. The SEC

Chairman Perfecto Yasay, Jr. issued a temporary restraining order enjoining the Bitanga group

from acting as officers and directors of BLTB.

On June 8, 1998, the Bitanga group filed another complaint with application for a writ ofpreliminary injunction and prayer for temporary restraining order, seeking to annul the May

19, 1998 stockholders' meeting. A joint hearing was conducted. On June 17, 1998, the SEC

Hearing Panel granted the Bitanga group's application for a writ of preliminary injunction

upon the posting of a bond in the amount of P20,000,000.00. It declared that the May 19,

1998 stockholders' meeting was void on the grounds that, first, Michael Potenciano had

himself asked for its postponement due to improper notice; and, second, there was no

quorum, since BMB Holdings, Inc., represented by the Bitanga group, which then owned

50.26% of BLTB's shares having purchased the same from the Potenciano group, was not

present at the said meeting. The Hearing Panel further held that the Bitanga Board remains

the legitimate Board in a hold-over capacity. The Potenciano group filed a petition forcertiorari with the SEC En Banc on June 29, 1998, seeking a writ of preliminary injunction to

restrain the implementation of the Hearing Panel's assailed Order.

On July 21, 1998, the SEC En Banc set aside the June 17, 1998 Order of the Hearing Panel and

issued the writ of preliminary injunction prayed for. The Bitanga group immediately filed a

petition for certiorari with the Court of Appeals on July 22, 1998, followed by a Supplemental

Petition on August 10, 1998. Meanwhile, on July 29, 1998, the SEC En Banc issued a writ of

preliminary injunction against the Bitanga group, after the Potencianos posted the required

bond of P20,000,000.00. On November 23, 1998, the CA rendered the now assailed Decision,

reversing the assailed Orders of the SEC En Banc and reinstating the Order of the Hearing


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Panel ordered dated June 17, 1998. The CA denied the Motions for Reconsideration in a

Resolution dated March 25, 1999. Hence, this petition for review.

ISSUE: Whether or not the stockholders' meeting on May 19, 1998 was void since BMB

Holdings, Inc., represented by the Bitanga group was not present at the said meeting.

RULING: 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 asa 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.

WHEREFORE, in view of all the foregoing, the instant petitions for review are GRANTED. The

Decision of the Court of Appeals dated November 23, 1998 in CA-G.R. SP No. 48374 and its

resolution dated March 25, 1999 are SET ASIDE. The Orders of the SEC En Banc dated July 21,

1998 and July 27, 1998 in SEC Case No. EB 611 are ordered REINSTATED.

PONCE VS. ALSONS CEMENT CORP (REPEAT CASE)

TORRES JR. VS. COURT OF APPEALS

Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty &

Development Corporation (TRDC). TRDC is a small family owned corporation and other

stockholders thereof include Judge Torres’ nieces and nephews. However, even though

Judge Torres owns the majority of TRDC and was also the president thereof, he is only

entitled to one vote among the 9-seat Board of Directors, hence, his vote can be easily

overridden by minority stockholders. So in 1987, before the regular election of TRDC

officers, Judge Torres assigned one share (qualifying share) each to 5 “outsiders” for the

purpose of qualifying them to be elected as directors in the board and thereby strengthen

Judge Torres’ power over other family members.

However, the said assignment of shares were not recorded by the corporate secretary,

Ma. Christina Carlos (niece) in the stock and transfer book of TRDC. When the validity of

said assignments were questioned, Judge Torres ratiocinated that it is impractical for him

to order Carlos to make the entries because Carlos is one of his opposition. So what Judge

Torres did was to make the entries himself because he was keeping thestock and transfer


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SEC Hearing Officer: heirs of Acayan were ent itled to the claimed shares and called for a special stockholders’ meeting to

elect a new set of officers.

SEC en banc: affirmed the decision

As a result, the shares of Acayan were recorded in the stock and transfer book.

On May 6, 1992, a special stockholders’ meeting was held to elect a new set of directors

Onrubia et al filed a petition with SEC questioning the validity of said meeting alleging that the quorum for the said meetingshould not be based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial subscribed

capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation

Petition was dismissed

SC en banc: shares of the deceased incorporators should be duly represented by their respective administrators or heirs

concerned. Called for a stockholders meeting on the basis of the stockholdings reflected in the articles of incorporation for

the purpose of electing a new set of officers for the corporation

Lanuza, Acayan et al, who are PMMSI stockholders, filed a petition for review with the CA, raising the following issues:

1. whether the basis the outstanding capital stock and accordingly also for determining the quorum at stockholders’ meetings

it should be the 1978 stock and transfer book or if it should be the 1952 articles of incorporation

(They contended that the basis is the stock and transfer book, not articles of incorporation in computing the quorum)

2. whether the Espejo decision (decision of SEC en banc ordering the recording of the shares of Jose Acayan in the stock and

transfer book) is applicable to the benefit of Onrubia et al

CA decision:

1. For purposes of transacting business, the quorum should be based on the outstanding capital stock as found in the articles

of incorporation

2. To require a separate judicial declaration to recognize the shares of the original incorporators would entail unnecessary

delay and expense. Besides. the incorporators have already proved their stockholdings through the provisions of the articles

of incorporation.

Appeal was made by Lanuza et al before the SC

Lanuza et al’ contention:

a. 1992 stockholders’ meeting was valid and legal

b. Reliance on the 1952 articles of incorporation for determining the quorum negates the existence and

validity of the stock and transfer book Onrubia et al prepared

c. Onrubia et al must show and prove entitlement to the founders and common shares in a separate and

independent action/proceeding in order to avail of the benefits secured by the heirs of Acayan

Onrubia et al’s contention, based on the Memorandum: petition should be dismissed on the ground of res judicata

Another appeal was made

Lanuza et al’s contention: instant petition is separate and distinct from G.R. No. 131315, there being no identity of parties,

and more importantly, the parties in the two petitions have their own distinct rights and interests in relation to the subject

matter in litigation

Onrubia et al’s manifestation and motion: moved for the dismissal of the case

Issue: What should be the basis of quorum for a stockholders’ meeting— the outstanding capital stock as indicated in the

articles of incorporation or that contained in the company’s stock and transfer book?

Ruling:

Articles of Incorporation

- Defines the charter of the corporation and the contractual relationships between the State and the corporation, the

stockholders and the State, and between the corporation and its stockholders.

- Contents are binding, not only on the corporation, but also on its shareholders.

Stock and transfer book

- Book which records the names and addresses of all stockholders arranged alphabetically, the installments paid and unpaid

on all stock for which subscription has been made, and the date of payment thereof; a statement of every alienation, sale or

transfer of stock made, the date thereof and by and to whom made; and such other entries as may be prescribed by law


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stockholders' resolution, contract nor any other document which could legally authorize the

creation of and support to an affiliate. She further alleged that on 2 May 1986 respondents

Eugenia Apostol, Leticia Magsanoc and Adoracion Nuyda subscribed to PDI shares of stock at

P50,000.00 each or a total of P150,000.00. The stock subscriptions were paid for by Mr. & Ms.

and initially treated, as receivables from officers and employees. But, no payments were ever

received from respondents, Magsanoc and Nuyda. Petitioner then filed a derivative suit

before the SEC allegedly for the benefit of private respondent Mr. & Ms. Publishing Co., Inc.,

against respondent spouses Eugenia Apostol and Jose Apostol.

However, private respondents contended that petitioner, being merely a holder-in-trust of

JAKA shares, only represented and continued to represent JAKA in the board. Private

respondents argued that petitioner was not the true party to this case, the real party being

JAKA which continued to be the true stockholder of Mr. & Ms. Hence, petitioner did not have

the personality to initiate and prosecute the derivative suit which, consequently, must be

dismissed. At the trial, petitioner contends that she became the registered and beneficial

owner of 997 shares of stock of Mr. & Ms. out of the 4,088 total outstanding shares after sheacquired them from JAKA through a deed of sale executed on 25 July 1983 and recorded in

the Stock and Transfer Book of Mr. & Ms. under Certificate of Shares of Stock No. 008. She

pointed out that Senator Enrile decided that JAKA should completely divest itself of its

holdings in Mr. & Ms. and this resulted in the sale to her of JAKA's interest and holdings in

that publishing firm.

Private respondents refuted the statement of petitioner that she was a stockholder of Mr. &

Ms. since 25 July 1983 as respondent Eugenia D. Apostol signed Certificate of Stock No. 008

only on 17 March 1989, and not on 25 July 1983. And, since the Stock and Transfer Book which

petitioner presented in evidence was not registered with the SEC, the entries thereinincluding Certificate of Stock No. 008 were fraudulent. On 3 August 1993, after trial on the

merits, the SEC Hearing Panel dismissed the derivative suit filed by petitioner. On 25 August

1993 petitioner Bitong appealed to the SEC En Banc. The SEC En Banc reversed the decision

of the Hearing Panel. Consequently, respondent Apostol spouses, Magsanoc, Nuyda, and Mr.

& Ms. filed a petition for review before respondent CA, while respondent Edgardo Espiritu

filed a petition for certiorari and prohibition also before respondent Court of Appeals. Said

two petitions were consolidated. On 31 August 1995 CA rendered a decision reversing the

SEC En Banc and held that petitioner was not the owner of any share of stock in Mr. & Ms.

and therefore not the real party-in-interest to prosecute the complaint she had instituted

against private respondents. For not being the real party-in-interest, petitioner's complaintdid not state a cause of action, a defense which was never waived. Motion for reconsideration

was likewise denied. Hence, this petition.

ISSUE: Whether or not petitioner is a bona fide stockholder of Mr. & Ms. at the time of the

transaction complained of which invests him with standing to institute a derivative action for

the benefit of the corporation.

RULING: Sec. 63 of the Corporation Code envisions a formal certificate of stock which can be

issued only upon compliance 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 mere typewritten statement advising a stockholder


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Sec. 431. Executing Order of Attachment as to debts and Credits. — Debts and credits,and other personal property not capable of manual delivery, shall be attached by leavingwith the person owing such debts or having in his possession or under his control, suchcredits and other personal property, a copy of the order of attachment and a notice thatthe debts owing by him to the defendant, or the credits and other personal property in hispossession or under his control, belonging to the defendant, are attached in pursuance of

such order.

Sec. 432. Effect of Attachment of Debts and Credits. — All persons having in theirpossession or under their control any credits or other personal property belonging to thedefendant, or owing any debts to the defendant at the time of service upon them of acopy of the order of attachment and notice as provided in the last section, shall be,unless such property be delivered up or transferred, or such debts be paid to the clerk ofthe court in which the action is pending, liable to the plaintiff for the amount of suchcredits, property, or debts, until the attachment be discharged, or any judgmentrecovered by him be satisfied."

Under the section last above quoted, the Filipinas Mining Corporation became liable to the

plaintiff for the shares of stock mentioned in its return to the sheriff of July 29, 1937, wherein itinformed the latter in response to the notice of garnishment "that according to its books saidSilverio Salvosa was the registered owner of 1,000 active shares evidence by certificate of stockNo. 235 and about 21,338 unissued shares held in escrow by the defendant Filipinas MiningCorporation."

Counsel for the appellant Standard Investment of the Philippines contends that a distinctionshould be drawn between issued shares evidenced by certificates of stock and unissued sharesheld in escrow, in that while the transfer of the former is subject to the restriction contained insection 35 of the Corporation Law, that of the latter is not. The said section, insofar as pertinenthere, reads as follows:

. . . Shares of stock so issued are personal property and may be transferred by deliveryof the certificate 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 betweenthe parties, until the transfer is entered and noted upon the books of the corporation soas to show the names of the parties to the transaction, the date of the transfer, thenumber of the certificate, and the number of shares transferred.

It is admitted that under this legal provision and the decision of this Court in Uson vs. Diosomito,61 Phil. 535, the transfer of duly issued shares of stock is not valid as against third parties andthe corporation until it is noted upon the books of the corporation; but it is contended that thetransfer of unissued shares of stock held in escrow is valid against the whole world although notnotified to the corporation and not noted upon its books. Since the sale, transfer, or assignment

of unissued shares of stock held in escrow is not specifically provided for by law, the questionhas to be resolved by resorting to analogy. What is the reason of the law for requiring therecording upon the books of the corporation of transfers of shares of stock as a conditionprecedent to their validity against the corporation, and third parties? We imagine that it is (1) toenable the corporation to know at all times who its actual stockholders are, because mutualrights and obligations exist between the corporation and its stockholders; (2) to afford to thecorporation an opportunity to object or refuse its consent to the transfer in case it has any claimagainst the stock sought to be transferred, or for any other valid reason; and (3) to avoid fictitiousor fraudulent transfers. Do these reasons hold as to the transfer of unissued shares held inescrow? To sustain appellant's contention is to declare that they do not. But we see no validreason for treating unissued shares held in escrow differently from issued shares insofar as theirsale and transfer is concerned. In both cases the corporation is entitled to know who the actual

owners of the shares are, and to object to the transfer upon any valid ground. Likewise, in bothcases the possibility of fictitious or fraudulent transfers exists. The only reason advanced by theappellant for exempting the transfer of unissued shares from recording is that in case of unissued


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shares there is no certificate number to be recorded. But that is a mere detail which does notaffect the reasons behind the rule. The lack of such detail does not make it impossible to recordthe transfer upon the books of the corporation so as to show the names of the parties to thetransaction, the date of the transfer, and the number of shares transferred, which are the mostessential data. As a matter of fact, the defendant Filipinas Mining Corporation was able to takenot of the transfer of the escrow shares in question to the Standard Investment of the Philippines

on December 7, 1940, without knowing the certificate number that would correspond to saidshares.

Moreover, it seems illogical and unreasonable to hold that inactive or unissued shares still heldby the corporation in escrow pending receipt of authorization from the Government to issue them,may be negotiated or transferred unrestrictedly and more freely than active or issued sharesevidenced by certificates of stock.

We are, therefore, of the opinion and so hold that section 35 of the Corporation Law, whichrequires the registration of transfers of shares stock upon the books of the corporation as acondition precedent to their validity against the corporation and third parties, is also applicable tounissued shares held by the corporation in escrow.

2. Under its second assignment of error appellant contends that appellee has been guilty oflaches in neglecting for an unreasonable length of time to enforce its levy on the 18,580 sharesof stock in question by having them sold at public auction, and that, consequently, said levyshould be considered discharged through waiver or abandonment. We find no factual basis forthe alleged laches and abandonment. The trial court found that the secretary of the defendantFilipinas Mining Corporation had repeatedly promised the plaintiff that he would notify the latteras soon as the escrow shares pertaining to Silverio Salvosa were released so that he ((plaintiff)might take the proper action for the execution of his judgment. The Filipinas Mining Corporationhaving advised the sheriff that it was holding the escrow shares of the judgment debtor SilverioSalvosa, the plaintiff as execution creditor had the right to wait for the release or issuance of saidshares before having the same sold at public auction, so long as the period of five years within

which to execution his judgment had not yet lapsed. Moreover, the judgment itself provided "thatthe escrow shares shall be transferred and delivered to the plaintiff only after they have beenreleased by the company." It is stated in the stipulation of facts that it was only after shares infavor of the Standard Investment of the Philippines that the plaintiff Antonio Escaño came toknow that Jose P. Bengzon and the Standard Investment of the Philippines had acquired SilverioSalvosa's rights to the shares in question. Upon these facts, together with the consideration thatthe delay had not in any way misled the appellant to its prejudice, we find appellant's secondassignment of error untenable.

The judgment appealed from is affirmed, with costs.

TAN VS. SECURITIES AND EXCHANGE COMMISSION

FACTS:

October 1, 1979: Visayan Educational Supply Corp.

As incorporator, Alfonso S. Tan had 400 shares of the capital stock at the par value of P100/share,

evidenced by Certificate of Stock No. 2

elected as President until 1982 Board of Directors as director until April 19, 1983


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HELD: YES. Affirmed.

Alfonso S. Tan devised the scheme of not returning the cancelled Stock Certificate No. 2 which was

returned to him for his endorsement, to skim off the largesse of the corporation as shown by the

trading of his Stock Certificate No. 8 for goods of the corporation valued at P2M when the par value

of the same was only worth P35K

He also used this scheme to renege on his indebtedness to respondent Tan Su Ching in the amount of

P1 million

valid transfer even if no delivery

certificate of stock is not a negotiable instrument

Although it is sometimes regarded as quasi-negotiable, in the sense that it may be transferred by

endorsement, coupled with delivery, it is well-settled that it is non-negotiable, because the holder

thereof takes it without prejudice to such rights or defenses as the registered owner/s or transferror's

creditor may have under the law, except insofar as such rights or defenses are subject to the limitations

imposed by the principles governing estoppel.

negotiable instrument

either indorsement + delivery or delivery = holder in due course = better right than real owner

certificate of stock = owner better right

transfer

valid between parties

recorded in the books - to bind others including the corporation

NOTE: Although there are 4 types of transactions, only transfer is recorded in the stocks and transfer

books.

paper representative or tangible evidence of the stock itself and of the various interests therein

not necessary to render one a stockholder in corporation

since stocks were already cancelled and reported to the respondent Commission, there was no

necessity to endorse

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 said transfer was earlier

recorded or registered in the corporate stock and transfer book

VILLAMOR VS. UMALE


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Documents

Shares of Stock Cases