Monserrat vs.
Ceran (Jay-em)
Sept 27, 1933 | Villareal, J | Capital Stock; Shares of Stock
Petitioner: Enrique Monserrat
Respondent: Carlos Ceron & Erma Inc.
Summary: Monserrat, president and manager of the Manila Yellow
Taxicab, assigned to Ceron the usufruct of 600 of his shares. This was
in consideration of the financial aid extended to him by Ceron in the
organization of the corporation. The assignment prohibited Ceron from
selling, mortgaging, encumbering, alienating or exercising any act
implying absolute ownership of all or any of the shares. The
assignment was evidenced by stock certificate no. 7 and was recorded
in the name of Carlos G. Ceron. The deed of transfer was noted on page
22 of the Stock and Transfer Book of the Manila Yellow Taxicab.
Ceron mortgaged to Eduardo Matute, president of Erma Inc., some
shares of stock of the Manila Yellow Taxicab among which were the
600 common shares of stock in question. He did not inform Matute of
the existence of usufruct. Issue: Whether a mortgage constituted on
certain shares of stock is a “transfer” contemplated under Sec. 35 of
Corporation Law. (That provision requires the transfer to be recorded
in the books for it to be valid to 3rd persons) SC decided in negative
and held that “transfer” in that provision means the absolute and
unconditional conveyance of the title and ownership of a share of
stock. A chattel mortgage transfers the title and ownership thereof to
the mortgage creditor, but such transfer is not absolute but
constitutes a mere security for the payment of the mortgage debt.
Hence, chattel mortgage is valid even as to 3rd persons even if it is
not recorded in the books.
Doctrine:
Sec 35 of Corporation Law requires the transfer of ownership and
possession of shares of stock to be recorded in the books for it to
be valid to 3rd persons.  This doesn’t requirement doesn’t apply
to chattel mortgage of stocks.
When the shares are covered by a stock certificate issued in the name
of the usufructuary by the original owner with the agreement between
them that they should not be disposed, but the registered owner had
pledged the shares to one who took them in good faith and for value,
the latter shall be preferred since registration of a security
arrangement covering shares of stock does not require, for its
validity and binding effect on the world, to be registered in the
stock and transfer book.
Facts:
1. Enrique Monserrat, was the president and manager of the Manila
Yellow Taxicab Co., Inc., and the owner of P1,200 common
shares of stock.
2. Monserrat assigned to Carlos Ceron the usufruct of half of the
said common shares of stock. This was in consideration of the
financial aid Ceron extended to him in the organization of the
corporation.
a. The assignment was evidenced by stock certificate no. 7
and was recorded in the name of Carlos G. Ceron. The
deed of transfer was noted on page 22 of the Stock and
Transfer Book of the Manila Yellow Taxicab.
b. The annotation was made by Ceron himself cos he was
secretary.
c. The transfer only gave the transferee the right to enjoy,
during his lifetime, the profits which might be derived
from the shares assigned him, prohibiting him from
selling, mortgaging, encumbering, alienating or
otherwise exercising any act implying absolute
ownership of all or any of the shares in question, the
transferor having reserved for himself and his heirs the
right to vote derived from said shares of stock and to
recover the ownership thereof at the termination of the
usufruct.
3. Ceron mortgaged to Eduardo Matute, president of Erma Inc.,
some shares of stock of the Manila Yellow Taxicab among which
were the 600 common shares of stock in question.
a. He did not inform Matute of the existence of the
document in fact #2a. Hence, Matute never had any
knowledge of it.
b. When Monserrat asked him whether he succeeded in his
transaction with Matute, he informed him of the
mortgage.
4. According to Ceron, Matute appeared at the office of Manila
Yellow Taxicab to ascertain the status of the said stocks. Ceron,
at a distance of about 3 meters from Monserrat, showed Matute
the stock book of the Manila Yellow Taxicab.
 a. Ceron claims that Matute did not see any annotation on rights which he has in it to the latter, and a chattel
page 22 cos the usufruct was only recorded 2 months mortgage is not within the meaning of such term.
after its execution. d. Hence, chattel mortgage is valid even as to 3rd
persons even if it is not recorded in the books.
Issue: Whether a mortgage constituted on certain shares of stock is a
“transfer” contemplated under Sec. 35 of Corporation Law. No, 2. From the time said shares of stocks in question were mortgaged
“transfer” in that provision means the absolute and unconditional by Ceron, the certificate has been in possession of the defendant
conveyance of the title and ownership of a share of stock. Erma, Inc., without any notation thereon relative to the usufruct.
Hence, Erma, Inc., acquired in good faith Carlos G. Ceron's
Ratio: right and title to the 600 common shares of stock evidenced
by certificate No. 7 of the Manila Yellow Taxicab., and as such
Subject provision: “SEC. 35. The capital stock of stock corporations conditional purchaser in good faith, it is entitled to the
shall be divided into shares for which certificates…Shares of stock so protection of the law.
issued are personal property and may be transferred by delivery of the a. When the shares are covered by a stock certificate issued
certificate…No transfer, however, shall be valid, except as between in the name of the usufructuary by the original owner
the parties, until the transfer is entered and noted upon the books of with the agreement between them that they should not
the corporation so as to show the names of the parties to the transaction, be disposed, but the registered owner had pledged the
the date of the transfer the number of the certificate, and the number of shares to one who took them in good faith and for value,
shares transferred. No share of stock against which the corporation hold, the latter shall be preferred since registration of a
any unpaid claim shall be transferable on the books of the corporation.” security arrangement covering shares of stock does
not require, for its validity and binding effect on the
1. Sec 35 of Corporation Law requires the transfer of world, to be registered in the stock and transfer
ownership and possession of shares of stock to be recorded in book.
the books for it to be valid to 3rd persons.
a. Does the word “transfer” in sec. 25 contemplate the
subject chattel mortgage here? No, “transfer” in that
provision means the absolute and unconditional
conveyance of the title and ownership of a share of
stock.
b. A chattel mortgage, accompanied by delivery of the
mortgaged thing, transfers the title and ownership
thereof to the mortgage creditor, such transfer is not
absolute but constitutes a mere security for the
payment of the mortgage debt, the transfer in question
becoming null and void from the time the mortgage
debtor complies with his obligation to pay his debt.
c. A "transfer" is the act by which owner of a thing
delivers it to another with the intent of passing the