XV.
Transfer of Shares
Uson v. Diosomito
Topic: Remedy if registration refused
Facts:
● Defendant Vicente Diosomito was the original
owner of the 75 shares of stock, having a par
value of P7,500, and that on Feb.3, 1931, he
sold shares to Emeterio Barcelon and
delivered to the latter the corresponding
certificates.
● Barcelon did not present these certificates to
the North Electric Corporation for a
registration until Sept. 16, 1932, when they
were cancelled and a new certificate was
issued in favor of Barcelon, who transferred
the same of the defendant H.P.L. Jollye.
● Meanwhile, Toribia Uson had filed a civil
action for debt against Vicente Diosomito and
that an attachment was duly issued and
levied upon the property of the defendant
Diosomito, including 75 shares of the North
Electric Co. Inc., which stood in his name on
the books of the company. Subsequently,
Toribia Uson obtained judgment against the
defendant Diosomito for sum of P2,300 with
interest and costs.
● To satisfy judgment, the sheriff sold shares at
public auction. The plaintiff Toribia Uson was
the highest bidder and said shares were
adjudicated to her.
● In the present auction, H.P.L. Jollye claims to
be the owner of said 75 shares of the North
Electric, and presents a certificate of stock
issued to him by the company.
● It will be seen, therefore, that the transfer of
said shares by Vicente Diosomito, the
judgment debtor to Barcelon was not
registered and noted on the books of the
corporation until some nine months after the
attachment had been levied on said shares.
Montserrat v. Ceron
Topic:
Facts:
§ Petitioner, Monserrat, was president and manager
of the Manila Yellow Taxicab Company Inc., and the
owner of P1,200 common shares of stock of the
company. He assigned the usufruct (right in a property
owned by another for a limited time or until death) of
half of his common shares of stock to Carlos Ceron
(defendant).
Issue: W/N a bonafide transfer of the shares of a
corporation, not registered or noted on the books of
the corporation, is valid as against a subsequent lawful
attachment of said shares, regardless of whether the
attaching creditor had actual notice of said transfer or
not.
Held:
No. The transfer is not valid. The true meaning of the
language is, and the obvious intention of the
legislature in using it was, that all transfers of shares
should be entered, as here required, on the books of
the corporation. And it is equally clear to us that all
transfers of shares not so entered are invalid as to
attaching or execution creditors of the assignors, as
well as to the corporation and to subsequent
purchasers in good faith, 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.
This court still adheres to the principle that its function
is jus dicere non jus dare. To us the language of the
legislature is plain to the effect that the right of the
owner of the shares of stocks of a Philippine
corporation to transfer the same by delivery of the
certificate is limited and restricted by the express
provision that “no transfer, however, shall be valid,
except as between parties, until the transfer is entered
and noted upon the books of the corporation”.
Therefore the transfer of the 75 shares in the North
Electric Company Inc. made by Diosomito to Barcelon
was not valid as to the plaintiff-appellee, Toribia Uson
on the date on which she obtained her attachment lien
on said shares of stock which still stood in the name of
Diosomito on the books of the corporation.
Issue:
§ Whether it is necessary to enter upon the books of
the corporation a mortgage constituted on common
shares of stock in order that such mortgage may be
valid and may have force and effect as against third
persons.
Held:
o Section 35 of the Corporation Law provides the
following: The capital stock of stock corporations shall
§ The assignment included the right to enjoy the
profits from the shares, prohibiting Ceron from selling,
mortgaging, encumbering, or exercising any act
implying absolute ownership.
§ Ceron mortgaged some of the shares of stock of
Manila Yellow Taxicab, including the 600 common
shares assigned to him by Monserrat to Eduardo
Matute, President to Erma, Inc as payment of his debt.
§ Matute was not informed of the document that
contained Ceron’s rights and prohibitions with regard
to the 600 common shares of stock from Monserrat.
*Original case did not mention how the case was
instituted in the CFI.
§ The CFI Manila rendered judgment in favor of the
plaintiff declaring the plaintiff the owner of the 600
shares of stock; and declaring the mortgage
constituted on the ownership of the shares of stock
null and void and without force and effect, although
the mortgage on the usufruct enjoyed by the
mortgage debtor Ceron in the said 600 shares of stock
is hereby declared valid; with costs against the
defendants.
§ Erma Inc. and the Sheriff of Manila, the defendants
therein, appealed from the decision.
be divided into shares for which certificates signed by
the president or the vice-president, counter signed by
the secretary or clerk and sealed with the seal of the
corporation, shall be issued in accordance with the by-
laws. Shares of stock so issued are personal property
and may be transferred by delivery of the certificate
indorsed by the owner or his attorney in fact or other
person legally authorized to make the transfer.
. No transfer, however, shall be valid, except as
between the parties, until the transfer is entered and
noted upon the books of the corporation so as to show
the names of the parties to the transaction, the date
of the transfer the number of the certificate, and the
number of shares transferred.
o Section 35 of the Corporation Law does not require
any entry except of transfers of shares of stock in
order that such transfers may be valid as against third
persons.
o The word transfer is defined by the "Diccionario de
la Academia de la Lengua Castellana" as the act and
effect of transferring; and the verb as to assign or
waive the right in, or absolute ownership of, a thing in
favor of another, making him the owner thereof.
o Section 3 of Act No. 1508, as amended by Act No.
2496, defines the phrase (chattel mortgage) as: a
conditional sale of personal property as security for
the payment of a debt… the condition being that the
sale shall be avoided upon the seller paying to the
purchaser a sum of money or doing some other act
named. If the condition is performed according to its
terms the mortgage and sale immediately become
void, and the mortgage is hereby divested of his title.
o The chattel mortgage is not the transfer referred to
in section 35 of Act No. 1459 commonly known as the
Corporation law, which transfer should be entered and
noted upon the books of a corporation in order to be
valid, and which, means the absolute and
unconditional conveyance of the title and ownership
of a share of stock.
o Inasmuch as a chattel mortgage of the aforesaid
title is not a complete and absolute alienation of the
dominion and ownership thereof, its entry and
notation upon the books of the corporation is not
necessary requisite to its validity.

Embassy Farms v. CA
Topic:
Facts:
· Alexander G. Asuncion (AGA) and Eduardo B.
Evangelista (EBE) entered into a Memorandum of
Agreement. EBE would transfer to AGA land in
Marilao, Bulacan, along with the equipment and
facilities of a piggery farm owned by Embassy
Farms, Inc., a corporation wherein ninety (90) per
cent of its shares of stock is owned by EBE.
§ Whether or not the defendant entity, Erma, Inc., had
knowledge of the document that states that the
transfer of the 600 shares of common stocks from
Monseratt to Ceron was only for the usufruct of the
shares, and that Ceron bound himself not to alienate
nor encumber them.
o The evidence shows that when Matute went to the
office of the Manila Yellow Taxicab Co., Inc., to
examine the Stock and Transfer Book of the said
corporation, for the purpose of ascertaining the actual
status of Carlos G. Ceron's shares of stock, Matute
found nothing but that the shares in question were
recorded therein in the name of said Carlos G. Ceron,
free from all liens and encumbrances.
o The notation of liens and encumbrances was placed
there only on May 5, 1931, the same date on which
the 600 common shares were to have been sold at
public auction, in view of Carlos G. Ceron's default in
the payment of the loan secured by them.
o Therefore, defendant entity Erma, Inc. as
conditional purchaser of the 600 shares of stock,
acquired, in good faith, Ceron’s right and title to the
shares of stock.
§ SC holds that: since section 35 of the Corporation
Law does not require the notation upon the books of a
corporation of transactions relating to its shares,
except the transfer of possession and ownership
thereof, as a necessary requisite to the validity of such
transfer, the notation upon the aforesaid books of the
corporation, of a chattel mortgage constituted on the
shares of stock in question is not necessary to its
validity.
Issue:
WON the transfer of shares made by AGA was valid?
NO.
Held:
· The Supreme Court ruled in favor of EBE.
· Although EBE has indorsed in blank the shares
outstanding in his name, he has not delivered the
certificate of stocks to AGA (he did not comply
 · EBE obligated himself to cede, transfer and
convey all of his shares of stock (90%) in Embassy
Farms Inc. to AGA or his nominees. EBE also
obligated to turnover to AGA the effective control
and management. AGA’s obligation in the MOA
was to pay EBE the total sum of 8.63 Million
Pesos.
with the 8M). There being no delivery, AGA
cannot transfer to other persons or his nominees
the undelivered shares.
· For an effective transfer of shares of stock, the
mode and manner of transfer as prescribed by law
must be followed. (Nava vs. Peers).

Note: This is why Embassy Farms is the plaintiff; AGA · Sec. 63 of the Corp. Code requires 1) a delivery
claimed ownership of the corporation (because of the to the transferee of the certificates indorsed, and
90% equity) despite the lack of a proper transfer of 2) a proper recording of the transfer in the books
shares. of the corporation.

· Pursuant the MOA, EBE turned over to AGA the · Thus, EBE is still the controlling stockholder of
effective control and management of the piggery Embassy Farms, despite the execution of the MOA
at Embassy Farms, and then served as President and the turnover of control and management to
and Chief Executive of the Embassy Farms. AGA.

· EBE also endorsed in blank all his shares of

stock, but EBE retained possession of said shares
and opted to deliver to AGA only upon full
compliance of the latter of his obligations under
the Memorandum of Agreement.

Note: There was mere indorsement in blank, but

no delivery of the certificate of shares of stock,
which is necessary for a valid transfer of shares.

· Even though there was no delivery of the

shares of stock, AGA transferred shares to several
persons through a deed of transfer of shares of
stock. EBE filed a case against AGA. Pasig Court
ruled in favor of EBE. CA affirmed, hence this
petition.
Note: There was no delivery because EBE held on to the
shares while AGA has yet to pay his obligation of 8
Million Pesos. Despite this, AGA transferred shares to
his nominees, and thus gained full control of Embassy
Farms.

Razon v. IAC Issue:

Topic: Held:
Facts:

Rural Bank of Salinas v. CA Issue:

Topic: Manner and effectivity of Transfer; Remedy if Whether respondent court erred in sustaining the SEC
registration refused when it compelled by mandamus the Rural Bank of
Salinas to register in its stock and transfer book the
Facts:
● Clemente G. Guerrero, President of the Rural
Bank of Salinas, Inc., executed a Special Power
of Attorney in favor of his wife, respondent
Melania Guerrero, granting the latter full
power and authority to sell or otherwise
dispose of and/or mortgage 473 shares of
stock of the Bank registered in his name
● Melania Guerrero, executed a Deed of
Assignment for 472 shares out of the 473
shares, in favor of private respondents Luz
Andico (457 shares), Wilhelmina Rosales (10
shares) and Francisco Guerrero, Jr. (5 shares).
● Four months later, or 2 days before the death
of Clemente Guerrero on June 24, 1980,
Melania Guerrero, executed a Deed of
Assignment for the remaining 1 share of stock
in favor of private respondent Francisco
Guerrero, Sr.
● Melania Guerrero presented to petitioner
Rural Bank of Salinas the 2 Deeds of
Assignment for
○ registration with a request for the
transfer in the Bank's stock and
transfer book of the 473 shares of
stock so assigned
○ the cancellation of stock certificates
in the name of Clemente G.
Guerrero, and the issuance of new
stock certificates covering the
transferred shares of stocks in the
name of the new owners thereof.
However, petitioner Bank denied the request
of respondent Melania Guerrero.
● Melania Guerrero filed with the SEC an action
for mandamus against petitioners Rural Bank
of Salinas, its President and Corporate
Secretary.
● Petitioners filed their Answer alleging the
upon the death of Clemente G. Guerrero, his
473 shares of stock became the property of
his estate, and his property and that of his
widow should first be settled and liquidated
in accordance with law before any
distribution can be effected so that
petitioners may not be a party to any scheme
to evade payment of estate or inheritance tax
and in order to avoid liability to any third
persons or creditors of the late Clemente G.
Guerrero.
● SEC Hearing Officer rendered a Decision
granting the writ of Mandamus
transfer of 473 shares of stock to private respondents
Held:
● No
Sec. 63 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 . . .
● In Fleisher vs. Botica Nolasco, the Court
interpreted Sec. 63 in his wise:
Said Section contemplates no restriction as to whom
the stocks may be transferred. It does not suggest that
any discrimination may be created by the corporation
in favor of, or against a certain purchaser. The owner
of shares, as owner of personal property, is at liberty,
under said section to dispose them in favor of
whomever he pleases, without limitation in this
respect, than the general provisions of law. . . .
● The only limitation imposed by Section 63 of
the Corporation Code is when the corporation
holds any unpaid claim against the shares
intended to be transferred, which is absent
here.
● A corporation, either by its board, its by-laws,
or the act of its officers, cannot create
restrictions in stock transfers, because
restrictions in the traffic of stock must have
their source in legislative enactment, as the
corporation itself cannot create such
impediment.
● The right of a transferee/assignee to have
stocks transferred to his name is an inherent
right flowing from his ownership of the
stocks. Thus:
Whenever a corporation refuses to transfer and
register stock in cases like the present, mandamus will
lie to compel 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).
● The duty of the corporation to transfer is a
ministerial one and if it refuses to make such
transaction without good cause, it may be
compelled to do so by mandamus.
● For the petitioner Rural Bank of Salinas to
refuse registration of the transferred shares
in its stock and transfer book, which duty is
ministerial on its part, is to render nugatory
and ineffectual the spirit and intent of Section
 ● SEC en banc and CA affirmed 63 of the Corporation Code. Thus, respondent
Court of Appeals did not err in upholding the
Decision of respondent SEC affirming the
Decision of its Hearing Officer directing the
registration of the 473 shares in the stock and
transfer book in the names of private
respondents.

Rural Bank of Lipa v. CA Issue:

Topic: Whether there was valid transfer of the shares to the
Facts: Bank.
1. Reynaldo Villanueva, Sr., a stockholder of the
Rural Bank of Lipa City, executed a Deed of Held:
Assignment, wherein he assigned his shares, For a valid transfer of stocks, there must be strict
as well as those of 8 other shareholders under compliance with the mode of transfer prescribed by
his control with a total of 10,467 shares, in law. The requirements are: (a) There must be delivery
favor of the stockholders of the Bank of the stock certificate: (b) The certificate must be
represented by its directors Bernardo endorsed by the owner or his attorney-in-fact or other
Bautista, Jaime Custodio and Octavio persons legally authorized to make the transfer; and
Katigbak. (c) To be valid against third parties, the transfer must
2. Sometime thereafter, Reynaldo Villanueva, be recorded in the books of the corporation. As it is,
Sr. and his wife, Avelina, executed an compliance with any of these requisites has not been
Agreement wherein they acknowledged their clearly and sufficiently shown. Still, while the
indebtedness to the Bank in the amount of assignment may be valid and binding on the bank, et
P4,000,000.00, and stipulated that said debt al. and the Villanuevas, it does not necessarily make
will be paid out of the proceeds of the sale of the transfer effective. Consequently, the bank et al., as
their real property described in the mere assignees, cannot enjoy the status of a
Agreement. stockholder, cannot vote nor be voted for, and will not
3. At a meeting of the Board of Directors of the be entitled to dividends, insofar as the assigned shares
Bank, the Villanueva spouses assured the are concerned. Parenthetically, the Villanuevas cannot,
Board that their debt would be paid; as yet, be deprived of their rights as stockholders, until
otherwise, the Bank would be entitled to and unless the issue of ownership and transfer of the
liquidate their shareholdings, including those shares in question is resolved with finality.
under their control.
4. 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 other collateral sufficient therefor.
5. When the Villanueva spouses failed to settle
their obligation to the Bank on the due date,
the Board sent them a letter demanding: (1)
the surrender of all the stock certificates
issued to them; and (2) the delivery of
sufficient collateral to secure the balance of
their debt amounting to P3,346,898.54.
6. The Villanuevas ignored the bank's demands,
whereupon their shares of stock were
converted into Treasury Stocks.
7. Later, the Villanuevas, through their counsel,
questioned the legality of the conversion of
their shares.
8. The stockholders of the Bank met to elect the
 new directors and set of officers for the year
1994. The Villanuevas were not notified of
said meeting.
9. In a letter, Atty. Amado Ignacio, counsel for
the Villanueva spouses, questioned the
legality of the said stockholders' meeting and
the validity of all the proceedings therein.
10. In reply, the new set of officers of the Bank
informed Atty. Ignacio that the Villanuevas
were no longer entitled to notice of the said
meeting since they had relinquished their
rights as stockholders in favor of the Bank.
11. Consequently, the Villanueva spouses filed
with the SEC, a petition for annulment of the
stockholders' meeting and election of
directors and officers,
12. However, a motion for reconsideration was
granted upon finding that since the
Villanuevas' have not disposed of their shares,
whether voluntarily or involuntarily, they
were still stockholders entitled to notice of
the annual stockholders' meeting was
sustained by the SEC.

Tan v. SEC
Topic: Remedy if registration refused
Facts:
Visayan Educational Supply Corp. was registered on
October 1, 1979. Tan, an incorporator, had 400 shares
of the capital stock at the par value of P100 per share,
evidenced by certificate of stock No. 2 He was elected
as President and subsequently reelected, holding the
position as such until 1982 but remained in BoD until
April 19, 1983 as director.
While petitioner was still the president, two other
incorporators, Young & Ong, withdrew by assigning to
the corporation their shares, represented by certificate
of stock No. 4 and 5 after which, they were paid the
corresponding 40% corporate stock-in-trade.
Petitioner's certificate of stock No. 2 was cancelled by
the corporate secretary and respondent Patricia
Aguilar by 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 5
directors of the board, Tan sold 50 shares out of his
400 shares of capital stock to his brother Angel Tan.
Another incorporator, Alfredo B. Uy, also sold fifty 50
of his 400 shares of capital stock to Teodora Tan and
Issue: W/N there was a valid transfer without delivery.
YES
Held:
The meaning of shares of stock 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.
However, there is no doubt that there was delivery of
Stock Certificate No. 2 made by the petitioner to the
Corporation before its replacement with the Stock
Certificate No. 6 for 50 shares to Angel S. Tan and
Stock Certificate No. 8 for 350 shares to the petitioner.
The problem arose when petitioner was given back
Stock Certificate No. 2 for him to endorse and he
deliberately withheld it for reasons of his own. That
the Stock Certificate in question was returned to him
for his purpose was attested to by Mr. Buzon in his
Affidavit.
The proof that Stock Certificate No. 2 was split into 2
consisting of Stock Certificate No. 6 for 50 shares and
Stock Certificate No. 8 for 350 shares, is the fact that
petitioner surrendered the latter stock (No. 8) in lieu
of P2 million pesos worth of stocks when he withdrew
from the corporation with a condition.
both new stockholders attended the special meeting,
Angel Tan was elected director and on March 27, Petitioner devised the scheme of not returning the
1981, the minutes of said meeting was filed with the cancelled Stock Certificate No. 2 which was returned
SEC. These facts stand unchallenged. to him for his endorsement, to skim off the largesse of
the corporation as shown by the trading of his Stock
As a result of the sale by Tan of his fifty 50 shares Certificate No. 8 for goods of the corporation valued at
Certificate of Stock No. 2 was cancelled and the P2 million when the par value of the same was only
corresponding Certificates Nos. 6, in the name of Angel worth P35,000.00. He also used this scheme to renege
Tan, and 8, in the name of Teodora Tan, were issued. on his indebtedness to respondent Tan Su Ching in the
amount of P1 million. Note: He’s a businessman with
Tan was given back Stock Certificate No. 2 for him to the same line of business as the corporation.
endorse and he deliberately withheld it for reasons of
his own - so as if no delivery It is safe to infer from the facts deduced in the instant
case that, there was already delivery of the
Tan Su Ching was elected as President while petitioner unendorsed Stock Certificate No. 2, which is essential
was elected as Vice-president. He, however, did not to the issuance of Stock Certificate Nos. 6 and 8. What
sign the minutes of said meeting which was submitted led to the problem was the return of the cancelled
to the SEC on March 30, 1983 certificate (No. 2) to Alfonso S. Tan for his
endorsement and his deliberate non-endorsement.
When Tan was dislodged from his position as However, since this was already cancelled which
president, he withdrew from the corporation on cancellation was also reported to the respondent
condition that he be paid with stocks-in-trade Commission, there was no necessity for the same
equivalent to 33.3% in lieu of the stock value of his certificate to be endorsed by the petitioner. All the
shares in the amount of P35,000.00. After the acts required for the transferee to exercise its rights
withdrawal of the stocks, the board of the respondent over the acquired stocks were attendant and even the
corporation held a meeting on April 19, 1983, effecting corporation was protected from other parties,
the cancellation of Stock Certificate Nos. 2 and 8 in the considering that said transfer was earlier recorded or
corporate stock and transfer book 1 and submitted the registered in the corporate stock and transfer book.
minutes thereof to the SEC on May 18, 1983. Following the doctrine enunciated in the case of
Tuazon v. La Provisora Filipina, where this Court held,
5 years 9 months after the sale to Angel Tan of the 50 that:
stocks and 3 years 7 months after effecting the But delivery is not essential where it appears that the
transfer of stock certificate No. 2 and 8 from Tan, he persons sought to be held as stockholders are officers
filed a case questioning the cancellation of the of the corporation, and have the custody of the stock
aforesaid stock certificates. book . . . (67 Phi. 36).
The bone of contention raised by the petitioner is that Besides, in Philippine jurisprudence, a certificate of
the deprivation of his shares despite the non- stock is not a negotiable instrument. "Although it is
endorsement or surrender of his Stock Certificate Nos. sometime regarded as quasi-negotiable, in the sense
2 and 8, was without the process contrary to the that it may be transferred by endorsement, coupled
provision of Section 63 of the Corporation Code (Batas with delivery, it is well-settled that it is non-negotiable,
Pambansa Blg. 68), which requires that: because the holder thereof takes it without prejudice
to such rights or defenses as the registered owner/s or
. . . No transfer, however, shall be valid,
transferror's creditor may have under the law, except
except as between the parties, until the
insofar as such rights or defenses are subject to the
transfer is recorded to the books of the
limitations imposed by the principles governing
corporation so as to show the names of the
parties to the transaction, the date of the estoppel."
transfer, the number of the certificate or
To follow the argument put up by petitioner which was
certificates and the number of shares
transferred. upheld by the Cebu SEC Extension Office Hearing
Officer, Felix Chan, that the cancellation of Stock
Cebu SEC: Cancellation was null and void. Certificate Nos. 2 and 8 was null and void for lack of
SEC en banc: overturned - nullity of the sale of 350 delivery of the cancelled "mother" Certificate No. 2
shares represented under stock certification No. 8,
pursuant to the "in pari delicto" doctrine.
Tay v. CA
Topic:
Facts:
Lee Won v. Wack Wack Golf & Country Club
Topic: Manner and effectivity of transfer - Sec. 63
Facts:
The defendant (a non-stock corporation) issued to
Iwao Teruyama Membership Certificate No. 201 which
was assigned to M. T. Reyes on April 22, 1944.
Subsequently in the same year 1944, M. T. Reyes
transferred and assigned said certificate to the
plaintiff.
Plaintiff filed an action in the CFI of Manila against the
defendant, alleging that shortly after the rehabilitation
of the defendant after the war, the plaintiff asked the
defendant to register in its books the assignment in
favor of the plaintiff and to issue to the latter a new
certificate, but that the defendant had refused and still
refuses to do so unlawfully
Plaintiff prays to be declared the owner of one share
of stock of the defendant and that the latter be
ordered to issue a correspondent new certificate.
Defendant filed a motion to dismiss, alleging that from
1944, when the plaintiff's right of action had accrued,
to April 26, 1955, when the complaint was filed, eleven
years have elapsed, and that therefore the complaint
was filed beyond the 5-year period
Note: The certificate in question contains a condition
to the effect that no assignment thereof "shall be
effective with respect to the club until such assignment
is registered in the books of the club, as provided in the
By-Laws."
whose endorsement was deliberately withheld by
petitioner, is to prescribe certain restrictions on the
transfer of stock in violation of the corporation law
itself as the only law governing transfer of stocks.
While Section 47(s) grants a stock corporations the
authority to determine in the by-laws "the manner of
issuing certificates" of shares of stock, however, the
power to regulate is not the power to prohibit, or to
impose unreasonable restrictions of the right of
stockholders to transfer their shares.
Issue:
Held:
Issue:
Whether or not the plaintiff was bound, under said
condition and By-Laws of the defendant to present
and register the certificate assigned to him in 1944
within any definite or fixed period. - NO.
Held:
It is stated in the appealed order of dismissal that the
plaintiff sought to register the assignment on April 13,
1955; whereas in plaintiff's brief it is alleged that it was
only in February, 1955, when the defendant refused to
recognize the plaintiff.
If, as already observed, there is no fixed period for
registering an assignment, how can the complaint be
considered as already barred by the Statute of
Limitations when it was filed on April 26, 1955, or
barely a few days (according to the lower court) and
two months (according to the plaintiff), after the
demand for registration and its denial by the
defendant.
Plaintiff's right was violated only sometime in 1955,
and it could not accordingly have asserted any cause
of action against the defendant before that.
The defendant seems to believe that the plaintiff was
compelled immediately to register his assignment. Any
such compulsion is obviously for the benefit of the
plaintiff, because it is only after registration that the
transfer would be binding against the defendant.
Padgett v. Babcock
Topic:
Facts:
Fleischer v. Botica Nolasco
Topic: Restriction on transfers; restrictions, validity,
requirements
Facts:
● March 11, 1923 Manuel Gonzales was the
original owner of 5 shares of stock (No. 16,
17, 18, 19 and 20) of the Botiica Nolasco Inc.
● Gonzales assigned said 5 shares to Fleischer
by accomplishing the form of endorsement
provided at the back
● On March 13, 1923, Miciano (secretary-
treasurer of corp) offered to buy from
Fleischer on behalf of the corporation said
shares of stock. That by virtue of art 12 of the
by-laws of Botica Nolasco the said
corporation had the preferential right to buy
from Gonzales the said shares.
● March 14, 1923 Two days later assignment,
Gonzales made a written statement to Botica
Nolasco requesting that 5 shares not be
transferred to Fleischer’s name
● June 14, 1923 Gonzales wrote another letter
to Botica Nolasco cancelling his written letter
on March 14, 1923
Allen v. Baltimore
Topic:
Facts:
1. Kaplan had purchased Biltmore (Defendant)
shares that were subject to certain restrictions on
alienation.
2. One such restriction required that the SH
wishing to sell give Biltmore the opportunity to 1st
purchase his shares at the same price for which he
had purchased them from the corp.
3. Another provided that if a SH dies, Biltmore
had the right to purchase his stock from the legal
rep of the deceased for the original purchase price
Issue:
Held:
Issue:
Whether the article in the bylaws of Botica Nolasco is
in conflict with the provisions of Corp (sec 63)
Held:
● The only restraint imposed by the
Corporation Law upon transfer of shares is
found in section 35 of Act No. 1459, quoted
above, as follows:
"No transfer, however, shall be valid, except as
between the parties, until the transfer is entered and
noted upon the books of the corporation so as to show
the names of the parties to the transaction, the date
of the transfer, the number of the certificate, and the
number of shares transferred."
● This restriction is necessary in order that the
officers of the corporation may know who are
the stockholders, which is essential in
conducting elections of officers, in calling
meeting of stockholders, and for other
purposes. but any restriction of the nature of
that imposed in the by-law now in question, is
ultra vires, violative of the property rights of
shareholders, and in restraint of trade.
● The by-laws now in question cannot have any
effect on the appellee.
● He had no knowledge of such by-law when
the shares were assigned to him.
● He obtained them in good faith and for a
valuable consideration. He was not a privy to
the contract created by said by-law between
the shareholder Manuel Gonzalez and the
Botica Nolasco, Inc. Said by-law cannot
operate to defeat his rights as a purchaser.
Issue:
Whether reasonable restraints on the transferability of
shares valid and enforceable?
Held:
Yes, even if stock certificates are considered personal
property rather than contractual action, reasonable
restraints on alienation are enforceable. Therefore, a
restriction imposed on the transfer of stock is
enforceable. It set forth a price formula agreed upon
by the parties and did not attempt to preclude sale of
the shares but only to postpone sale for a fixed time
while Biltmore decided whether to exercise its option.
 or to empower an existing SH to make such a
purchase.
4. If such action was not taken w/in 90 days, the
legal rep had the right to dispose of the stock as
she saw fit.
5. Kaplan died, and Allen (Plantiff), an executor
of his estate, refused to allow Biltmore to
purchase the shares as per the aforementioned
option it enjoyed.
6. Allen, who brought suit to compel Biltmore to
accept surrender of the old certificates and issue
new ones to the executors, claimed the option
constituted an unreasonable restraint on
alienation and was therefore unenforceable.
7. The Special Term held Biltmore could enforce
and exercise its repurchase option, but the
appellate division reversed.
Santamaria v. Hong Kong Shanghai
Topic: Effects of dissolution; winding up and
liquidation
Facts:
● Josefa Santamaria bought 10,000 shares of
the Batangas Minerals Inc. through the offices of Woo,
Uy-Tioco & Nataly, a stock brokerage firm. Santamaria
received the stock certificates (SC No. 517) issued in
the name of Woo et al and indorsed in blank by them.
Note: This document is called a street certificate.
Much like a blank negotiable instrument, it is indorsed
by mere delivery.
● Santamaria placed an order for the purchase
of 10,000 shares of the Crown Mines, Inc. with R.J.
Campos & Co. Santamaria delivered SC 517 as security
for the payment of the shares.
Note: Remember that the SC 517 given as security
was a street certificate. By surrendering the certificate
as is (when she received it from Woo et al) and in
blank to Campos, there is no indication that
Santamaria previously owned the certificate.
● When Santamaria went to Campos to pay for
the 10,000 Crown Mine shares, she was informed that
Campos, was no longer allowed by the SEC to transact
business. Also, SC 517 was then in the possession of
defendant Hongkong & Shanghai Banking Corp.
Note: Campos, indebted to HSBC, pledged to the latter
“all stocks, shares, and securities” that they possessed.
Reversed. There were earlier cases which
characterized all stock transfer restrictions as illegal
restraints on alienation. Even though some
restrictions are now recognized as valid, the courts
tend to interpret them strictly when faced with the
task of ascertaining if a particular disposition fell w/in
the scope of a particular restriction. In close corp.’s,
first option restrictions are often used to give the
partner-like SH’s the chance to “veto” the admission of
a new participant.
Issue: WON the transfer from R.J. Campos to HSBC was
authorized? YES.
Held:
● The Supreme Court ruled in favor of
Santamaria (only in the end, because
HSBC was willing to compromise from the
start)but she was still negligent in not
asking for a cancellation of SC 517 from
Woo et al, and issuance of a new SC.
● Given that the stock certificate was a
street certificate, one transferred in
blank, HSBC had a perfect right to
assume that R.J. Campos was lawfully in
possession of the certificate.Such would
entitle any possessor thereof to a
transfer of the stock on the books of the
corporation concerned.
● Santamaria is estopped from claiming
title or interest against a bona fide
pledgee or transferee, as the latter is not
chargeable with knowledge of the
limitations placed on it by the real owner.
Note: The street certificate operates like a
promissory note in the hands of a
holder in good faith.
● HSBC is not obligated to look beyond the
● HSBC sent the SC 517 to Batangas Minerals
Inc. so that the latter could cancel the SC and issue a
new one. SC 715 the new SC was issued in the name of
Robert Taplin, the bank’s trustee. Santamaria wanted
to claim from Taplin, but the latter argued that HSBC
did not know about the transaction between
Santamaria and Campos.
De los Santos v. Republic & McGrath
Topic:
Facts:
Chua Guan v. Samahang Magsasaka, Inc.
Topic:
Facts:
· Gonzalo H. Co Toco, a resident of Manila and
the owner of 5,894 shares of the capital
stock of Samahang Magsasaka Inc.,
mortgaged said shares to Chua Chiu to
guarantee the payment of a P20,000 debt.
· The said mortgage was duly registered in the
office of the register of deeds of Manila and
in the office of the said corporation.
· Chua Chiu assigned all his right and interest
in said mortgage to plaintiff Chua Guan and
the assignment was likewise registered in
the office of the register of deeds in the City
of Manila and in the office of the said
corporation.
· Co Toco defaulted so Chua Guan foreclosed
the mortgage and won as the highest
bidder.
· Plaintiff tendered the certificates of stock
standing in the name of Co Toco to the
proper officers of the corporation for
cancellation and demanded that they issue
new certificates in his name but the officers.
certificate to ascertain the ownership of
the stock at the time it received the same
from Campos, for it was given pursuant
to the latter’s letter of hypothecation
(debtor pledges collateral to secure a
debt)
● A certificate of stock indorsed in blank, is
deemed, quasi-negotiable, and as such,
the transferee thereof is justified in
believing that it belongs to the holder
and transferor. A mere claim of
ownership does not establish the fact of
ownership. Thus, Santamaria failed to
prove actual ownership.
WHO WON? SANTAMARIA (ONLY BECAUSE HSBC WAS
WILLING TO COMPROMISE FROM THE START)
Issue: Whether the mortgage takes priority over the
already noted writs of attachment. NO.
Held:
As a general rule, for purposes of execution,
attachment and garnishment, it is not the domicile of
the owner of a certificate but the domicile of the
corporation which is decisive.
The only safe way to accomplish the hypothecation of
share of stock of a Philippine corporation is for the
creditor to insist on the assignment and delivery of the
certificate and to obtain the transfer of the legal title
to him on the books of the corporation by the
cancellation of the certificate and the issuance of a
new one to him.
To the debtor, this may be unsatisfactory because it
leaves the creditor as the ostensible owner of the
shares and the debtor is forced to rely upon the
honesty and solvency of the creditor. The mere
possession and retention of the debtor's certificate by
the creditor gives some security to the creditor against
an attempted voluntary transfer by the debtor,
provided the by-laws of the corporation expressly
· An action for writ of mandamus was filed
with the CFI Nueva Ecija, praying that the
defendants transfer the said 5,894 shares of
stock to the plaintiff by cancelling the old
certificates and issuing new ones in their
stead.
· The parties entered into a stipulation in
which the defendants admitted all of the
allegations of the complaint and the plaintiff
admitted all of the special defenses in the
answer of the defendants, and on this
stipulation they submitted the case for
decision.
· As special defense, the defendants refused
to cancel said certificates (Co Toco’s) and to
issue new ones in the name of Chua Guan
because prior to the date of the latter’s
demand (4 February 1933), 9 attachments
had been issued and served and noted on
the books of the corporation against Co
Toco’s shares and Chua Guan objected to
having these attachments noted on the new
certificates which he demanded.
enact that transfers may be made only upon the
surrender of the certificate.
It is to be noted, however, that Section 35 of the
Corporation Law (Act No. 1459) enacts that shares of
stock "may be transferred by delivery of the certificate
endorsed by the owner or his attorney in fact or other
person legally authorized to make the transfer." The
use of the verb "may" does not exclude the possibility
that a transfer may be made in a different manner,
thus leaving the creditor in an insecure position even
though he has the certificate in his possession.
Moreover, the shares still standing in the name of the
debtor on the books of the corporation will be liable to
seizure by attachment or levy on execution at the
instance of other creditors
Loans upon stock securities should be facilitated in
order to foster economic development. The transfer
by endorsement and delivery of a certificate with
intention to pledge the shares covered thereby should
be sufficient to give legal effect to that intention and
to consummate the juristic act without necessity for
registration.