Corpo May 12

SECOND DIVISION
[G.R. No. 139802. December 10, 2002.]
VICENTE C. PONCE , petitioner, vs . ALSONS CEMENT CORPORATION,

JR. respondents.
and FRANCISCO M. GIRON, JR.,
Quiason Makalintal Barot Torres and Ibarra for petitioner.

Estelito P. Mendoza for respondents.
SYNOPSIS
Petitioner herein filed a complaint with the SEC for mandamus and damages against
respondents. With his allegations, petitioner prayed for the SEC to issue in his name
certi cates of stocks covering the 239,500 shares of stocks and its legal increments and
for the corporation to pay him damages. Respondent moved to dismiss the complaint on
the ground, among others, that it states no cause of action. After respondents led their
reply, the SEC hearing o cer granted the motion to dismiss. According to the hearing
o cer, insofar as the issuance of stock certi cates is concerned, the real party-in-interest
was Fausto G. Gaid, or his estate, or his heirs. Gaid was an incorporator and an original
stockholder of the respondent corporation who subscribed and fully paid for 239,500
shares of stock. The petitioner tried to step into the shoes of Gaid and thereby become a
stockholder of the defendant corporation by demanding the issuance of the stock
certi cate in his name. The SEC hearing o cer decided that the petitioner could not do as
he prayed because there was no record of any assignment or transfer in the books of the
respondent corporation and there was neither instruction nor authority from the transferor
for such assignment or transfer. Petitioner appealed the order of dismissal. The
Commission en banc reversed the decision of the hearing o cer. The motion for
reconsideration having been denied, the respondents appealed to the Court of Appeals.
The Court of Appeals held that in the absence of any allegations that the transfer of shares
between Fausto Gaid and the petitioner was registered in the stock and transfer book of
respondent corporation, petitioner failed to state a cause of action. Thus, the CA
dismissed the complaint for mandamus for failure to state a cause of action. Hence, the
instant petition for review on certiorari. At issue herein was whether the Court of Appeals
erred in holding that herein petitioner had no cause of action for a writ of mandamus.
The Supreme Court ruled that petitioner had no cause of action and that his petition
for mandamus was properly dismissed. From the corporation's point of view, the transfer
is not effective until it is recorded. As between the corporation, on one hand, and its
stockholders and third persons on the other, the corporation looks only to its books for
the purpose of determining who its stockholders are. cSCADE
SYLLABUS
1. MERCANTILE LAW; CORPORATION CODE; TRANSFER OF SHARES OF

STOCKS; SHOULD BE RECORDED IN THE STOCK AND TRANSFER BOOK OF A
CORPORATION; EFFECT OF FAILURE; APPLICATION IN CASE AT BAR. — Pursuant to Sec.
63 of the Corporation Code, a transfer of shares of stock not recorded in the stock and
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transfer book of the corporation is non-existent as far as the corporation is concerned. As
between the corporation on the one hand, and its shareholders and third persons on the
other, the corporation looks only to its books for the purpose of determining who its
shareholders are. It is only when the transfer has been recorded in the stock and transfer
book that a corporation may rightfully regard the transferee as one of its stockholders.
From this time, the consequent obligation on the part of the corporation to recognize such
rights as it is mandated by law to recognize arises. Hence, without such recording, the
transferee may not be regarded by the corporation as one among its stockholders and the
corporation may legally refuse the issuance of stock certi cates in the name of the
transferee even when there has been compliance with the requirements of Section 64 of
the Corporation Code. This is the import of Section 63 which states that "No transfer,
however, shall be valid, except between the parties, until the transfer is recorded in the
books of the corporation showing the names of the parties to the transaction, the date of
the transfer, the number of the certi cate or certi cates and the number of shares
transferred." Unless and until such recording is made the demand for the issuance of stock
certificates to the alleged transferee has no legal basis.
2. ID.; ID.; CERTIFICATE OF STOCK, A TANGIBLE EVIDENCE OF THE STOCK
ITSELF AND OF THE VARIOUS INTERESTS THEREIN; IMPORTANCE OF CERTIFICATE OF
STOCK, CONSTRUED. — In Tan vs. SEC, 206 SCRA 740 (1992), we had occasion to declare
that a certi cate of stock is not necessary to render one a stockholder in a corporation.
But a certi cate of stock is the tangible evidence of the stock itself and of the various
interests therein. The certi cate is the evidence of the holder's interest and status in the
corporation, his ownership of the share represented thereby. The certi cate is in law, so to
speak, an equivalent of such ownership. It expresses the contract between the corporation
and the stockholder, but it is not essential to the existence of a share in stock or the
creation of the relation of shareholder to the corporation. In fact, it rests on the will of the
stockholder whether he wants to be issued stock certi cates, and a stockholder may opt
not to be issued a certificate.
3. REMEDIAL LAW; SPECIAL CIVIL ACTIONS; PETITION FOR MANDAMUS;
WHEN NOT PROPER TO COMPEL THE REGISTRATION OF STOCK TRANSFER;
APPLICATION IN CASE AT BAR. — The deed of undertaking with indorsement presented by
petitioner does not establish, on its face, his right to demand for the registration of the
transfer and the issuance of certi cates of stocks. In Hager vs. Bryan, 19 Phil. 138 (1911),
this Court held that a petition for mandamus fails to state a cause of action where it
appears that the petitioner is not the registered stockholder and there is no allegation that
he holds any power of attorney from the registered stockholder, from whom he obtained
the stocks, to make the transfer. . . . In Rivera vs. Florendo, 144 SCRA 643, 657 (1986), we
reiterated that a mere indorsement by the supposed owners of the stock, in the absence
of express instructions from them, cannot be the basis of an action for mandamus and
that the rights of the parties have to be threshed out in an ordinary action. That Hager and
Rivera involved petitions for mandamus to compel the registration of the transfer, while
this case is one for issuance of stock, is of no moment. It has been made clear, thus far,
that before a transferee may ask for the issuance of stock certi cates, he must rst cause
the registration of the transfer and thereby enjoy the status of a stockholder insofar as the
corporation is concerned. A corporate secretary may not be compelled to register
transfers of shares on the basis merely of an indorsement of stock certi cates. With more
reason, in our view, a corporate secretary may not be compelled to issue stock certi cates
without such registration. . . . Absent an allegation that the transfer of shares is recorded in
the stock and transfer book of respondent ALSONS, there appears no basis for a clear and
indisputable duty or clear legal obligation that can be imposed upon the respondent
corporate secretary, so as to justify the issuance of the writ of mandamus to compel him
to perform the transfer of the shares to petitioner. The test of su ciency of the facts
alleged in a petition is whether or not, admitting the facts alleged, the court could render a
valid judgment thereon in accordance with the prayer of the petition. This test would not
be satis ed if, as in this case, not all the elements of a cause of action are alleged in the
complaint. Where the corporate secretary is under no clear legal duty to issue stock
certi cates because of the petitioner's failure to record earlier the transfer of shares, one
of the elements of the cause of action for mandamus is clearly missing. IaHDcT
DECISION
QUISUMBING , J : p
This petition for review seeks to annul the decision 1 of the Court of Appeals, in CA-
G.R. SP No. 46692, which set aside the decision 2 of the Securities and Exchange
Commission (SEC) En Banc in SEC-AC No. 545 and reinstated the order 3 of the Hearing
O cer dismissing herein petitioner's complaint. Also assailed is the CA's resolution 4 of
August 10, 1999, denying petitioner's motion for reconsideration. DTAaCE
On January 25, 1996, plaintiff (now petitioner) Vicente C. Ponce, led a complaint 5
with the SEC for mandamus and damages against defendants (now respondents) Alsons
Cement Corporation and its corporate secretary Francisco M. Giron, Jr. In his complaint,
petitioner alleged, among others, that:
xxx xxx xxx
5. The late Fausto G. Gaid was an incorporator of Victory Cement
Corporation (VCC), having subscribed to and fully paid 239,500 shares of said
corporation.
6. On February 8, 1968, plaintiff and Fausto Gaid executed a "Deed of

Undertaking" and "Indorsement" whereby the latter acknowledges that the former
is the owner of said shares and he was therefore assigning/endorsing the same
to the plaintiff. A copy of the said deed/indorsement is attached as Annex "A".
7. On April 10, 1968, VCC was renamed Floro Cement Corporation (FCC
for brevity).
8. On October 22, 1990, FCC was renamed Alsons Cement Corporation

(ACC for brevity) as shown by the Amended Articles of Incorporation of ACC, a
copy of which is attached as Annex "B".
9. From the time of incorporation of VCC up to the present, no

certi cates 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.
10. Despite repeated demands, the defendants refused and continue to

refuse without any justi able reason to issue to plaintiff the certi cates of stocks
corresponding to the 239,500 shares of Gaid, in violation of plaintiff's right to
secure the corresponding certificate of stock in his name. 6

Attached to the complaint was the Deed of Undertaking and Indorsement 7 upon
which petitioner based his petition for mandamus. Said deed and indorsement read as
follows:
DEED OF UNDERTAKING
KNOW ALL MEN BY THESE PRESENTS:
I, VICENTE C. PONCE, is the owner of the total subscription of Fausto Gaid

with Victory Cement Corporation in the total amount of TWO HUNDRED THIRTY-
NINE THOUSAND FIVE HUNDRED (P239,500.00) PESOS and that Fausto Gaid
does not have any liability whatsoever on the subscription agreement in favor of
Victory Cement Corporation.
(SGD.) VICENTE C. PONCE
February 8, 1968
CONFORME:
(SGD.) FAUSTO GAID
INDORSEMENT
I, FAUSTO GAID is indorsing the total amount of TWO HUNDRED THIRTY-
NINE THOUSAND FIVE HUNDRED (239,500.00) stocks of Victory Cement
Corporation to VICENTE C. PONCE.
(SGD.) FAUSTO GAID

With these allegations, petitioner prayed that judgment be rendered ordering
respondents (a) to issue in his name certi cates of stocks covering the 239,500 shares of
stocks and its legal increments and (b) to pay him damages. 8
Instead of ling an answer, respondents moved to dismiss the complaint on the
grounds that: (a) the complaint states no cause of action; mandamus is improper and not
available to petitioner; (b) the petitioner is not the real party in interest; (c) the cause of
action is barred by the statute of limitations; and (d) in any case, the petitioner's cause of
action is barred by laches. 9 They argued, inter alia, that there being no allegation that the
alleged "INDORSEMENT" was recorded in the books of the corporation, said indorsement
by Gaid to the plaintiff of the shares of stock in question — assuming that the indorsement
was in fact a transfer of stocks — was not valid against third persons such as ALSONS
under Section 63 of the Corporation Code. 1 0 There was, therefore, no speci c legal duty
on the part of the respondents to issue the corresponding certi cates of stock, and
mandamus will not lie. 1 1
Petitioner led his opposition to the motion to dismiss on February 19, 1996
contending that: (1) mandamus is the proper remedy when a corporation and its corporate
secretary wrongfully refuse to record a transfer of shares and issue the corresponding
certi cates of stocks; (2) he is the proper party-in-interest since he stands to be bene ted
or injured by a judgment in the case; (3) the statute of limitations did not begin to run until
defendant refused to issue the certi cates of stock in favor of the plaintiff on April 13,
1992.
After respondents led their reply, SEC Hearing O cer Enrique L. Flores, Jr. granted
the motion to dismiss in an Order dated February 29, 1996, which held that:
xxx xxx xxx
Insofar as the issuance of certi cates of stock is concerned, the real party
in interest is Fausto G. Gaid, or his estate or his heirs. Gaid was an incorporator
and an original stockholder of the defendant corporation who subscribed and
fully paid for 239,500 shares of stock (Annex "B"). In accordance with Section 37
of the old Corporation Law (Act No. 1459) obtaining in 1968 when the defendant
corporation was incorporated, as well as Section 64 of the present Corporation
Code (Batas Pambansa Blg. 68), a stockholder who has fully paid for his
subscription together with interest and expenses in case of delinquent shares, is
entitled to the issuance of a certi cate of stock for his shares. According to
paragraph 9 of the Complaint, no stock certificate was issued to Gaid.
Comes now the plaintiff who seeks to step into the shoes of Gaid and
thereby become a stockholder of the defendant corporation by demanding
issuance of the certi cates of stock in his name. This he cannot do, for two
reasons: there is no record of any assignment or transfer in the books of the
defendant corporation, and there is no instruction or authority from the transferor
(Gaid) for such assignment or transfer. Indeed, nothing is alleged in the complaint
on these two points.
xxx xxx xxx
In the present case, there is not even any indorsement of any stock
certi cate to speak of. What the plaintiff possesses is a document by which Gaid
supposedly transferred the shares to him. Assuming the document has this effect,
nevertheless there is neither any allegation nor any showing that it is recorded in
the books of the defendant corporation, such recording being a prerequisite to the
issuance of a stock certificate in favor of the transferee. 1 2
Petitioner appealed the Order of dismissal. On January 6, 1997, the Commission En

Banc reversed the appealed Order and directed the Hearing O cer to proceed with the
case. In ruling that a transfer or assignment of stocks need not be registered rst before it
can take cognizance of the case to enforce the petitioner's rights as a stockholder, the
Commission En Banc cited our ruling in Abejo vs. De la Cruz, 149 SCRA 654 (1987) to the
effect that:
. . . As the SEC maintains, "There is no requirement that a
stockholder of a corporation must be a registered one in order that the
Securities and Exchange Commission may take cognizance of a suit
seeking to enforce his rights as such stockholder". This is because the SEC
by express mandate has "absolute jurisdiction, supervision and control
over all corporations" and is called upon to enforce the provisions of the
Corporation Code, among which is the stock purchaser's right to secure the
corresponding certi cate in his name under the provisions of Section 63 of
the Code. Needless to say, any problem encountered in securing the
certi cates of stock representing the investment made by the buyer must
be expeditiously dealt with through administrative mandamus proceedings
with the SEC, rather than through the usual tedious regular court procedure.
...
Applying this principle in the case on hand, a transfer or assignment of

stocks need not be registered rst before the Commission can take cognizance of
the case to enforce his rights as a stockholder. Also, the problem encountered in
securing the certi cates of stock made by the buyer must be expeditiously taken
up through the so-called administrative mandamus proceedings with the SEC
than in the regular courts. 1 3
The Commission En Banc also found that the Hearing O cer erred in holding that
petitioner is not the real party in interest.
xxx xxx xxx
As appearing in the allegations of the complaint, plaintiff-appellant is the

transferee of the shares of stock of Gaid and is therefore entitled to avail of the
suit to obtain the proper remedy to make him the rightful owner and holder of a
stock certi cate to be issued in his name. Moreover, defendant-appellees failed to
show that the transferor nor his heirs have refuted the ownership of the
transferee. Assuming these allegations to be true, the corporation has a mere
ministerial duty to register in its stock and transfer book the shares of stock in the
name of the plaintiff-appellant subject to the determination of the validity of the
deed of assignment in the proper tribunal. 1 4
Their motion for reconsideration having been denied, herein respondents appealed
the decision 1 5 of the SEC En Banc and the resolution 1 6 denying their motion for
reconsideration to the Court of Appeals.
In its decision, the Court of Appeals held that in the absence of any allegation that
the transfer of the shares between Fausto Gaid and Vicente C. Ponce was registered in the
stock and transfer book of ALSONS, Ponce failed to state a cause of action. Thus, said the
CA, "the complaint for mandamus should be dismissed for failure to state a cause of
action." 1 7 Petitioner's motion for reconsideration was likewise denied in a resolution 1 8
dated August 10, 1999.
Hence, the instant petition for review on certiorari alleging that:
I. . . . THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
COMPLAINT FOR ISSUANCE OF A CERTIFICATE OF STOCK FILED BY
PETITIONER FAILED TO STATE A CAUSE OF ACTION BECAUSE IT DID
NOT ALLEGE THAT THE TRANSFER OF THE SHARES (SUBJECT MATTER
OF THE COMPLAINT) WAS REGISTERED IN THE STOCK AND TRANSFER
BOOK OF THE CORPORATION, CITING SECTION 63 OF THE
CORPORATION CODE.
II. . . . THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE

CASES OF "ABEJO VS. DE LA CRUZ", 149 SCRA 654 AND "RURAL BANK OF
SALINAS, INC., ET AL. VS. COURT OF APPEALS, ET AL." , G.R. NO. 96674,
JUNE 26, 1992.
III. . . . THE HONORABLE COURT OF APPEALS ERRED IN APPLYING A 1911

CASE, "HAGER VS. BRYAN" , 19 PHIL. 138, TO DISMISS THE COMPLAINT
FOR ISSUANCE OF A CERTIFICATE OF STOCK. 1 9
At issue is whether the Court of Appeals erred in holding that herein petitioner has
no cause of action for a writ of mandamus. HECaTD
Petitioner rst contends that the act of recording the transfer of shares in the stock
and transfer book and that of issuing a certi cate of stock for the transferred shares
involves only one continuous process. Thus, when a corporate secretary is presented with
a document of transfer of fully paid shares, it is his duty to record the transfer in the stock
and transfer book of the corporation, issue a new stock certi cate in the name of the
transferee, and cancel the old one. A transferee who requests for the issuance of a stock
certi cate need not spell out each and every act that needs to be done by the corporate
secretary, as a request for issuance of stock certi cates necessarily includes a request for
the recording of the transfer. Ergo, the failure to record the transfer does not mean that the
transferee cannot ask for the issuance of stock certificates.
Secondly, according to petitioner, there is no law, rule or regulation requiring a
transferor of shares of stock to rst issue express instructions or execute a power of
attorney for the transfer of said shares before a certi cate of stock is issued in the name
of the transferee and the transfer registered in the books of the corporation. He contends
that Hager vs. Bryan, 19 Phil. 138 (1911), and Rivera vs. Florendo, 144 SCRA 643 (1986),
cited by respondents, do not apply to this case. These cases contemplate a situation
where a certi cate of stock has been issued by the company whereas in this case at bar,
no stock certi cates have been issued even in the name of the original stockholder, Fausto
Gaid.
Finally, petitioner maintains that since he is under no compulsion to register the
transfer or to secure stock certi cates in. his name, his cause of action is deemed not to
have accrued until respondent ALSONS denied his request.
Respondents, in their comment, maintain that the transfer of shares of stock not
recorded in the stock and transfer book of the corporation is non-existent in so far as the
corporation is concerned and no certi cate of stock can be issued in the name of the
transferee. Until the recording is made, the transfer cannot be the basis of issuance of a
certi cate of stock. They add that petitioner is not the real party-in-interest, the real party-
in-interest being Fausto Gaid since it is his name that appears in the records of the
corporation. They conclude that petitioner's cause of action is barred by prescription and
laches since 24 years elapsed before he made any demand upon ALSONS.
We nd the instant petition without merit. The Court of Appeals did not err in ruling
that petitioner had no cause of action, and that his petition for mandamus was properly
dismissed.
There is no question that Fausto Gaid was an original subscriber of respondent
corporation's 239,500 shares. This is clear from the numerous pleadings led by either
party. It is also clear from the Amended Articles of Incorporation 2 0 approved on April 9,
1995 2 1 that each share had a par value of P1.00 per share. And, it is undisputed that
petitioners had not made a previous request upon the corporate secretary of ALSONS,
respondent Francisco M. Giron Jr., to record the alleged transfer of stocks.
The Corporation Code states that:
SEC. 63. Certi cate of stock and transfer of shares . — The capital
stock of stock corporations shall be divided into shares for which certi cates
signed by the president or vice-president, countersigned by the secretary or
assistant secretary, 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 certi cate or certi cates 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.
Pursuant to the foregoing provision, a transfer of shares of stock not recorded in

the stock and transfer book of the corporation is non-existent as far as the corporation is
concerned. 2 2 As between the corporation on the one hand, and its shareholders and third
persons on the other, the corporation looks only to its books for the purpose of
determining who its shareholders are. 2 3 It is only when the transfer has been recorded in
the stock and transfer book that a corporation may rightfully regard the transferee as one
of its stockholders. From this time, the consequent obligation on the part of the
corporation to recognize such rights as it is mandated by law to recognize arises. HcISTE
Hence, without such recording, the transferee may not be regarded by the
corporation as one among its stockholders and the corporation may legally refuse the
issuance of stock certi cates in the name of the transferee even when there has been
compliance with the requirements of Section 64 2 4 of the Corporation Code. This is the
import of Section 63 which states that "No transfer, however, shall be valid, except
between the parties, until the transfer is recorded in the books of the corporation showing
the names of the parties to the transaction, the date of the transfer, the number of the
certi cate or certi cates and the number of shares transferred." The situation would be
different if the petitioner was himself the registered owner of the stock which he sought to
transfer to a third party, for then he would be entitled to the remedy of mandamus. 2 5
From the corporation's point of view, the transfer is not effective until it is recorded.
Unless and until such recording is made the demand for the issuance of stock certi cates
to the alleged transferee has no legal basis. As between the corporation on the one hand,
and its shareholders and third persons on the other, the corporation looks only to its
books for the purpose of determining who its shareholders are. 2 6 In other words, 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 speci c legal duty to issue stock certi cates in
the transferee's name.
It follows that, as held by the Court of Appeals:
. . . until registration is accomplished, the transfer, though valid between
the parties, cannot be effective as against the corporation. Thus, in the absence
of any allegation that the transfer of the shares between Gaid and the private
respondent [herein petitioner] was registered in the stock and transfer book of the
petitioner corporation, the private respondent has failed to state a cause of action.
27
Petitioner insists that it is precisely the duty of the corporate secretary, when
presented with the document of fully paid shares, to effect the transfer by recording the
transfer in the stock and transfer book of the corporation and to issue stock certi cates in
the name of the transferee. On this point, the SEC En Banc cited Rural Bank of Salinas, Inc.
vs. Court of Appeals, 2 8 where we held that:
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 63 of the
Corporation Code. Thus, respondent Court of Appeals did not err in upholding the
decision of respondent SEC a rming the Decision of its Hearing O cer directing
the registration of the 473 shares in the stock and transfer book in the names of
private respondents. At all events, the registration is without prejudice to the
proceedings in court to determine the validity of the Deeds of Assignment of the
shares of stock in question.AcHEaS
I n Rural Bank of Salinas, Inc., however, private respondent Melania Guerrero had a
Special Power of Attorney executed in her favor by Clemente Guerrero, the registered
stockholder. It gave Guerrero full authority to sell or otherwise dispose of the 473 shares
of stock registered in Clemente's name and to execute the proper documents therefor.
Pursuant to the authority so given, Melania assigned the 473 shares of stock owned by
Guerrero and presented to the Rural Bank of Salinas the deeds of assignment covering the
assigned shares. Melania Guerrero prayed for the transfer of the stocks in the stock and
transfer book and the issuance of stock certi cates in the name of the new owners
thereof. Based on those circumstances, there was a clear duty on the part of the corporate
secretary to register the 473 shares in favor of the new owners, since the person who
sought the transfer of shares had express instructions from and specific authority given by
the registered stockholder to cause the disposition of stocks registered in his name.
That cannot be said of this case. The deed of undertaking with indorsement
presented by petitioner does not establish, on its face, his right to demand for the
registration of the transfer and the issuance of certi cates of stocks. In Hager vs. Bryan,
19 Phil. 138 (1911), this Court held that a petition for mandamus fails to state a cause of
action where it appears that the petitioner is not the registered stockholder and there is no
allegation that he holds any power of attorney from the registered stockholder, from
whom he obtained the stocks, to make the transfer, thus:
It appears, however, from the original as well as the amended petition, that
this petitioner is not the registered owner of the stock which he seeks to have
transferred, and except in so far as he alleges that he is the owner of the stock
and that it was "indorsed" to him on February 5 by the Bryan-Landon Company, in
whose name it is registered on the books of the Visayan Electric Company, there
is no allegation that the petitioner holds any power of attorney from the Bryan-
Landon Company authorizing him to make demand on the secretary of the
Visayan Electric Company to make the transfer, which petitioner seeks to have
made through the medium of the mandamus of this court.
Without discussing or deciding the respective rights of the parties which

might be properly asserted in an ordinary action or an action in the nature of an
equitable suit, we are all agreed that 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, unless it a rmatively appears that he
has failed or refused so to do, upon the demand either of the person in whose
name the stock is registered, or of some person holding a power of attorney for
that purpose from the registered owner of the stock. There is no allegation in the
petition that the petitioner or anyone else holds a power of attorney from the
Bryan-Landon Company authorizing a demand for the transfer of the stock, or
that the Bryan-Landon Company has ever itself made such demand upon the
Visayan Electric Company, and in the absence of such allegation we are not able
to say that there was such a clear indisputable duty, such a clear legal obligation
upon the respondent, as to justify the issuance of the writ to compel him to
perform it.
Under the provisions of our statute touching the transfer of stock (Secs. 35
and 36 of Act No. 1459), 2 9 the mere indorsement of stock certi cates does not in
itself give to the indorsee such a right to have a transfer of the shares of stock on
the books of the company as will entitle him to the writ of mandamus to compel
the company and its o cers to make such transfer at his demand, because,
under such circumstances the duty, the legal obligation, is not so clear and
indisputable as to justify the issuance of the writ. As a general rule and especially
under the above-cited statute, as between the corporation on the one hand, and its
shareholders and third persons on the other, the corporation looks only to its
books for the purpose of determining who its shareholders are, so that a mere
indorsee of a stock certi cate, claiming to be the owner, will not necessarily be
recognized as such by the corporation and its o cers, in the absence of express
instructions of the registered owner to make such transfer to the indorsee, or a
power of attorney authorizing such transfer. 3 0
I n Rivera vs. Florendo, 144 SCRA 643, 657 (1986), we reiterated that a mere
indorsement by the supposed owners of the stock, in the absence of express instructions
from them, cannot be the basis of an action for mandamus and that the rights of the
parties have to be threshed out in an ordinary action. That Hager and Rivera involved
petitions for mandamus to compel the registration of the transfer, while this case is one
for issuance of stock, is of no moment. It has been made clear, thus far, that before a
transferee may ask for the issuance of stock certi cates, he must rst cause the
registration of the transfer and thereby enjoy the status of a stockholder insofar as the
corporation is concerned. A corporate secretary may not be compelled to register
transfers of shares on the basis merely of an indorsement of stock certi cates. With more
reason, in our view, a corporate secretary may not be compelled to issue stock certi cates
without such registration. 3 1
Petitioner's reliance on our ruling in Abejo vs. De la Cruz, 149 SCRA 654 (1987), that
notice given to the corporation of the sale of the shares and presentation of the
certi cates for transfer is equivalent to registration is misplaced. In this case there is no
allegation in the complaint that petitioner ever gave notice to respondents of the alleged
transfer in his favor. Moreover, that case arose between and among the principal
stockholders of the corporation, Pocket Bell, due to the refusal of the corporate secretary
to record the transfers in favor of Telectronics of the corporation's controlling 56% shares
of stock which were covered by duly endorsed stock certificates. As aforesaid, the request
for the recording of a transfer is different from the request for the issuance of stock
certi cates in the transferee's name. Finally, in Abejo we did not say that transfer of shares
need not be recorded in the books of the corporation before the transferee may ask for
the issuance of stock certi cates. The Court's statement, that "there is no requirement that
a stockholder of a corporation must be a registered one in order that the Securities and
Exchange Commission may take cognizance of a suit seeking to enforce his rights as such
stockholder among which is the stock purchaser's right to secure the corresponding
certificate in his name," 3 2 was addressed to the issue of jurisdiction, which is not pertinent
to the issue at hand.
Absent an allegation that the transfer of shares is recorded in the stock and transfer
book of respondent ALSONS, there appears no basis for a clear and indisputable duty or
clear legal obligation that can be imposed upon the respondent corporate secretary, so as
to justify the issuance of the writ of mandamus to compel him to perform the transfer of
the shares to petitioner. The test of su ciency of the facts alleged in a petition is whether
or not, admitting the facts alleged, the court could render a valid judgment thereon in
accordance with the prayer of the petition. 3 3 This test would not be satis ed if, as in this
case, not all the elements of a cause of action are alleged in the complaint. 3 4 Where the
corporate secretary is under no clear legal duty to issue stock certi cates because of the
petitioner's failure to record earlier the transfer of shares, one of the elements of the cause
of action for mandamus is clearly missing. AaSCTD
That petitioner was under no obligation to request for the registration of the transfer
is not in issue. It has no pertinence in this controversy. One may own shares of corporate
stock without possessing a stock certi cate. In Tan vs. SEC , 206 SCRA 740 (1992), we
had occasion to declare that a certi cate of stock is not necessary to render one a
stockholder in a corporation. But a certi cate of stock is the tangible evidence of the
stock itself and of the various interests therein. The certi cate is the evidence of the
holder's interest and status in the corporation, his ownership of the share represented
thereby. The certificate is in law, so to speak, an equivalent of such ownership. It expresses
the contract between the corporation and the stockholder, but it is not essential to the
existence of a share in stock or the creation of the relation of shareholder to the
corporation. 3 5 In fact, it rests on the will of the stockholder whether he wants to be issued
stock certi cates, and a stockholder may opt not to be issued a certi cate. In Won vs.
Wack Wack Golf and Country Club, Inc., 104 Phil. 466 (1958), we held that considering that
the law does not prescribe a period within which the registration should be effected, the
action to enforce the right does not accrue until there has been a demand and a refusal
concerning the transfer. In the present case, petitioner's complaint for mandamus must
fail, not because of laches or estoppel, but because he had alleged no cause of action
sufficient for the issuance of the writ.
WHEREFORE, the petition is DENIED for lack of merit. The decision of the Court of
Appeals, in CA-G.R. SP No. 46692, which set aside that of the Securities and Exchange
Commission En Banc in SEC-AC No. 545 and reinstated the order of the Hearing O cer, is
hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Bellosillo, Mendoza, Austria-Martinez and Callejo, Sr., JJ., concur.
Footnotes
1. Rollo, pp. 120-133.

2. Id. at 108-112.
3. CA Rollo, pp. 172-177.
4. Rollo, pp. 159-160.
5. Id. at 24-27.
6. Id. at 24-25.
7. Id. at 28.
8. Id. at 26.
9. Id. at 37.
10. Id. at 41-42.
11. Id. at 43-44.
12. Rollo, pp. 104-106.
13. Id. at 110.
14. Rollo, p. 111.
15. Supra, note 2.
16. Rollo, pp. 113-116.
17. Id. at 128.
18. Id. at 159-160.
19. Id. at 13-14.
20. Id. at 30-36.
21. Id. at 29.
22. Uson vs. Diosomito, 61 Phil. 535, 540 (1935); Garcia vs. Jomouad, 323 SCRA 424, 428
(2000); Magsaysay-Labrador vs. CA, 180 SCRA 266, 273 (1989).
23. Hager vs. Bryan, 19 Phil. 138, 140-141 (1911).
24. SEC. 64. Issuance of stock certi cates . — No certi cate of stock shall be issued to a
subscriber until the full amount of his subscription together with interest and expenses
(in case of delinquent shares), if any is due, has been paid.
25. See Hager vs. Bryan, supra at 141-142.

26. Supra, note 23.
27. Rollo, p. 128.
28. 210 SCRA 510, 516 (1992).
29. Now Sections 63 and 64 of the Corporation Code.

30. Supra, note 23 at 142-143.
31. See Hager vs. Bryan, 19 Phil. 138, 141-143 (1911).
32. Abejo vs. Dela Cruz, 149 SCRA 654, 668-669 (1987).
33. Parañaque Kings Enterprises, Inc. vs. CA, 268 SCRA 727, 739 (1997).
34. See Mathay vs. The Consolidated Bank and Trust Co., 58 SCRA 559, 576-578 (1974).
35. Tan vs. SEC, 206 SCRA 740, 749-750 (1992).

FIRST DIVISION
[G.R. No. 124535. September 28, 2001.]
THE RURAL BANK OF LIPA CITY, INC., THE OFFICERS AND

DIRECTORS, BERNARDO BAUTISTA, JAIME CUSTODIO, OCTAVIO
KATIGBAK, FRANCISCO CUSTODIO, and JUANITA BAUTISTA OF THE
RURAL BANK OF LIPA CITY, INC. , petitioners, vs . HONORABLE COURT
OF APPEALS, HONORABLE COMMISSION EN BANC, SECURITIES
AND EXCHANGE COMMISSION, HONORABLE ENRIQUE L. FLORES,
JR., in his capacity as Hearing O cer, REYNALDO VILLANUEVA, SR.,
AVELINA M. VILLANUEVA, CATALINO VILLANUEVA, ANDRES
GONZALES, AURORA LACERNA, CELSO LAYGO, EDGARDO REYES,
ALEJANDRA TONOGAN and ELENA USI , respondents.
Rosales Law Office for petitioners.

Amando D. Ignacio and Jose R. Dimayuga for private respondents.
SYNOPSIS
This is an appeal from the CA decision which upheld the decision of the SEC
which granted the preliminary injunction prayed for by private respondents who claimed
that the newly elected o cers of petitioner-bank should be enjoined from discharging
their duties because private respondents-stockholders of petitioner-bank were not
noti ed of the stockholders' meeting held on January 15, 1994 wherein said new set of
officers were elected.
The Supreme Court found the appeal meritless, ruling: that while private
respondents executed a deed of assignment of their shares in favor of petitioners,
there was no effective transfer of shares since the requirements prescribed by the law
for a valid transfer of shares of stock have not been complied with. Consequently,
petitioner, as mere assignees cannot enjoy the status of stockholders, insofar as the
assigned shares are concerned, and private respondents cannot, as yet, be deprived of
their rights as stockholders, until the issue of ownership of the shares in question is
finally resolved. IaDcTC
SYLLABUS
1. COMMERCIAL LAW; CORPORATION CODE; TRANSFER OF SHARES OF

STOCK; REQUISITES FOR VALIDITY. — We have uniformly held that 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 certi cate; (b) The certi cate
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.
2. ID.; ID.; ID.; ID.; EFFECT OF NON-COMPLIANCE THEREWITH; CASE AT BAR. —
While it may be true that there was an assignment of private respondents' shares to the
petitioners, said assignment was not su cient to effect the transfer of shares since there
was no endorsement of the certi cates of stock by the owners, their attorneys-in-fact or
any other person legally authorized to make the transfer. Moreover, petitioners admit that
the assignment of shares was not coupled with delivery, the absence of which is a fatal
defect. The rule is that the delivery of the stock certi cate duly endorsed by the owner is
the operative act of transfer of shares from the lawful owner to the transferee. Title may
be vested in the transferee only by delivery of the duly indorsed certi cate of stock. . . .
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, the private respondents cannot, as yet, be deprived
of their rights as stockholders, until and unless the issue of ownership and transfer of the
shares in question is resolved with finality.
3. ID.; ID.; SECURITIES AND EXCHANGE COMMISSION; R.A. NO. 8799; SEC
JURISDICTION OVER CASES FALLING UNDER SEC. 5 OF PD NO. 902-A NOW COGNIZABLE
BY THE RTC; CASE AT BAR. — While this case was pending, Republic Act No. 8799 was
enacted, transferring to the courts of general jurisdiction or the appropriate Regional Trial
Court the SEC's jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A. One of those cases enumerated is any controversy "arising out of intra-
corporate or partnership relations, between and among stockholders, members, or
associates, between any and/or all of them and the corporation, partnership or association
of which they are stockholders, members or associates, respectively; and between such
corporation, partnership or association and the state insofar as it concerns their individual
franchise or right to exist as such entity." The instant controversy clearly falls under this
category of cases which are now cognizable by the Regional Trial Court.
DECISION
YNARES-SANTIAGO , J : p
Before us is a petition for review on certiorari assailing the Decision of the Court of
Appeals dated February 27, 1996, as well as the Resolution dated March 29, 1996, in CA-
G.R. SP No. 38861.
The instant controversy arose from a dispute between the Rural Bank of Lipa City,
Incorporated (hereinafter referred to as the Bank), represented by its o cers and
members of its Board of Directors, and certain stockholders of the said bank. The records
reveal the following antecedent facts:
Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa
City, executed a Deed of Assignment, 1 wherein he assigned his shares, as well as those of
eight (8) other shareholders under his control with a total of 10,467 shares, in favor of the
stockholders of the Bank represented by its directors Bernardo Bautista, Jaime Custodio
and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina,
executed an Agreement 2 wherein they acknowledged their indebtedness to the Bank in
the amount of Four Million Pesos (P4,000,000.00), and stipulated that said debt will be
paid out of the proceeds of the sale of their real property described in the Agreement.
At a meeting of the Board of Directors of the Bank on November 15, 1993, the
Villanueva spouses assured the Board that their debt would be paid on or before
December 31 of that same year; otherwise, the Bank would be entitled to liquidate their
shareholdings, including those under their control. In such an event, should the proceeds of
the sale of said shares fail to satisfy in full the obligation, the unpaid balance shall be
secured by other collateral sufficient therefor.
When the Villanueva spouses failed to settle their obligation to the Bank on the due
date, the Board sent them a letter 3 demanding: (1) the surrender of all the stock
certi cates issued to them; and (2) the delivery of su cient collateral to secure the
balance of their debt amounting to P3,346,898.54. The Villanuevas ignored the bank's
demands, whereupon their shares of stock were converted into Treasury Stocks. Later, the
Villanuevas, through their counsel, questioned the legality of the conversion of their shares.
4
On January 15, 1994, the stockholders of the Bank met to elect the new directors
and set of o cers for the year 1994. The Villanuevas were not noti ed of said meeting. In
a letter dated January 19, 1994, Atty. Amado Ignacio, counsel for the Villanueva spouses,
questioned the legality of the said stockholders' meeting and the validity of all the
proceedings therein. In reply, the new set of o cers 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.
Consequently, the Villanueva spouses led with the Securities and Exchange
Commission (SEC), a petition for annulment of the stockholders' meeting and election of
directors and o cers on January 15, 1994, with damages and prayer for preliminary
injunction 5 , docketed as SEC Case No. 02-94-4683. Joining them as co-petitioners were
Catalino Villanueva, Andres Gonzales, Aurora Lacerna, Celso Laygo, Edgardo Reyes,
Alejandro Tonogan, and Elena Usi. Named respondents were the newly-elected o cers
and directors of the Rural Bank, namely: Bernardo Bautista, Jaime Custodio, Octavio
Katigbak, Francisco Custodio and Juanita Bautista.
The Villanuevas' main contention was that the stockholders' meeting and election of
o cers and directors held on January 15, 1994 were invalid because: (1) they were
conducted in violation of the by-laws of the Rural Bank; (2) they were not given due notice
of said meeting and election notwithstanding the fact that they had not waived their right
to notice; (3) they were deprived of their right to vote despite their being holders of
common stock with corresponding voting rights; (4) their names were irregularly excluded
from the list of stockholders; and (5) the candidacy of petitioner Avelina Villanueva for
directorship was arbitrarily disregarded by respondent Bernardo Bautista and company
during the said meeting.
On February 16, 1994, the SEC issued a temporary restraining order enjoining the
respondents, petitioners herein, from acting as directors and o cers of the Bank, and
from performing their duties and functions as such. 6
In their joint Answer, 7 the respondents therein raised the following defenses:
1) The petitioners have no legal capacity to sue;
2) The petition states no cause of action;
3) The complaint is insufficient;
4) The petitioners' claims had already been paid, waived, abandoned, or
otherwise extinguished;
5) The petitioners are estopped from challenging the conversion of their
shares.
Petitioners, respondents therein, thus moved for the lifting of the temporary
restraining order and the dismissal of the petition for lack of merit, and for the upholding
of the validity of the stockholders' meeting and election of directors and o cers held on
January 15, 1994. By way of counterclaim, petitioners prayed for actual, moral and
exemplary damages.
On April 6, 1994, the Villanuevas' application for the issuance of a writ of preliminary
injunction was denied by the SEC Hearing O cer on the ground of lack of su cient basis
for the issuance thereof. However, a motion for reconsideration 8 was granted on
December 16, 1994, upon nding 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. Accordingly, a writ of
preliminary injunction was issued enjoining the petitioners from acting as directors and
officers of the bank. 9
Thereafter, petitioners led an urgent motion to quash the writ of preliminary
injunction, 1 0 challenging the propriety of the said writ considering that they had not yet
received a copy of the order granting the application for the writ of preliminary injunction.
With the impending 1995 annual stockholders' meeting only nine (9) days away, the
Villanuevas led an Omnibus Motion 1 1 praying that the said meeting and election of
o cers scheduled on January 14, 1995 be suspended or held in abeyance, and that the
1993 Board of Directors be allowed, in the meantime, to act as such. One (1) day before
the scheduled stockholders meeting, the SEC Hearing O cer granted the Omnibus Motion
by issuing a temporary restraining order preventing petitioners from holding the
stockholders meeting and electing the board of directors and officers of the Bank. 1 2
A petition for Certiorari and Annulment with Damages was led by the Rural Bank, its
directors and o cers before the SEC en banc, 1 3 naming as respondents therein SEC
Hearing O cer Enrique L. Flores, Jr., and the Villanuevas, erstwhile petitioners in SEC Case
No. 02-94-4683. The said petition alleged that the orders dated December 16, 1994 and
January 13, 1995, which allowed the issuance of the writ of preliminary injunction and
prevented the bank from holding its 1995 annual stockholders' meeting, respectively, were
issued by the SEC Hearing O cer with grave abuse of discretion amounting to lack or
excess of jurisdiction. Corollarily, the Bank, its directors and its o cers questioned the
SEC Hearing O cer's right to restrain the stockholders' meeting and election of o cers
and directors considering that the Villanueva spouses and the other petitioners in SEC
Case No. 02-94-4683 were no longer stockholders with voting rights, having already
assigned all their shares to the Bank.
In their Comment/Opposition, the Villanuevas and other private respondents argued
that the ling of the petition for certiorari was premature and there was no grave abuse of
discretion on the part of the SEC Hearing O cer, nor did he act without or in excess of his
jurisdiction.
On June 7, 1995, the SEC en banc denied the petition for certiorari in an Order, 1 4
which stated:
In the case now before us, petitioners could not show any proof of despotic
or arbitrary exercise of discretion committed by the hearing o cer in issuing the
assailed orders save and except the allegation that the private respondents have
already transferred their stockholdings in favor of the stockholders of the Bank.
This, however, is the very issue of the controversy in the case a quo and which, to
our mind, should rightfully be litigated and proven before the hearing o cer. This
is so because of the undisputed fact the (sic) private respondents are still in
possession of the stock certi cates evidencing their stockholdings and as held by
the Supreme Court in Embassy Farms, Inc. v. Court of Appeals, et al., 188 SCRA
492, citing Nava v. Peers Marketing Corp. , the non-delivery of the stock certi cate
does not make the transfer of the shares of stock effective. For an effective
transfer of stock, the mode of transfer as prescribed by law must be followed.
We likewise nd that the provision of the Corporation Code cited by the

herein petitioner, particularly Section 83 thereof, to support the claim that the
private respondents are no longer stockholders of the Bank is misplaced. The said
law applies to acquisition of shares of stock by the corporation in the exercise of
a stockholder's right of appraisal or when the said stockholder opts to dissent on
a speci c corporate act in those instances provided by law and demands the
payment of the fair value of his shares. It does not contemplate a "transfer"
whereby the stockholder, in the exercise of his right to dispose of his shares ( jus
disponendi) sells or assigns his stockholdings in favor of another person where
the provisions of Section 63 of the same Code should be complied with.
The hearing o cer, therefore, had a basis in issuing the questioned orders
since the private respondents' rights as stockholders may be prejudiced should
the writ of injunction not be issued. The private respondents are presumably
stockholders of the Bank in view of the fact that they have in their possession the
stock certi cates evidencing their stockholdings. Until proven otherwise, they
remain to be such and the hearing o cer, being the one directly confronted with
the facts and pieces of evidence in the case, may issue such orders and
resolutions which may be necessary or reasonable relative thereto to protect their
rights and interest in the meantime that the said case is still pending trial on the
merits.
A subsequent motion for reconsideration 1 5 was likewise denied by the SEC en banc
in a Resolution 1 6 dated September 29, 1995.
A petition for review was thus led before the Court of Appeals, which was
docketed as CA-G.R. SP No. 38861, assailing the Order dated June 7, 1995 and the
Resolution dated September 29, 1995 of the SEC en banc in SEC EB No. 440. The ultimate
issue raised before the Court of Appeals was whether or not the SEC en banc erred in
finding:
1. That the Hon. Hearing O cer in SEC Case No. 02-94-4683 did not
commit any grave abuse of discretion that would warrant the ling of a petition
for certiorari;
2. That the private respondents are still stockholders of the subject

bank and further stated that "it does not contemplate a transfer" whereby the
stockholders, in the exercise of his right to dispose of his shares (Jus Disponendi)
sells or assigns his stockholdings in favor of another person where the provisions
of Sec. 63 of the same Code should be complied with; and
3. That the private respondents are presumably stockholders of the

bank in view of the fact that they have in their possession the stock certi cates
evidencing their stockholdings.
On February 27, 1996, the Court of Appeals rendered the assailed Decision 1 7
dismissing the petition for review for lack of merit. The appellate court found that:
The public respondent is correct in holding that the Hearing O cer did not
commit grave abuse of discretion. The o cer, in exercising his judicial functions,
did not exercise his judgment in a capricious, whimsical, arbitrary or despotic
manner. The questioned Orders issued by the Hearing O cer were based on
pertinent law and the facts of the case.
Section 63 of the Corporation Code states: ". . . Shares of stock so issued

are personal property and may be transferred by delivery of the certi cate or
certi cates indorsed by the owner . . . . 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 certi cate or certi cates and the number of shares
transferred."
In the case at bench, when private respondents executed a deed of

assignment of their shares of stocks in favor of the Stockholders of the Rural
Bank of Lipa City, represented by Bernardo Bautista, Jaime Custodio and Octavio
Katigbak, title to such shares will not be effective unless the duly indorsed
certi cate of stock is delivered to them. For an effective transfer of shares of
stock, the mode and manner of transfer as prescribed by law should be followed.
Private respondents are still presumed to be the owners of the shares and to be
stockholders of the Rural Bank.
We find no reversible error in the questioned orders.
Petitioners' motion for reconsideration was likewise denied by the Court of Appeals
in an Order 1 8 dated March 29, 1996.
Hence, the instant petition for review seeking to annul the Court of Appeals' decision
dated February 27, 1996 and the resolution dated March 29, 1996. In particular, the
decision is challenged for its ruling that notwithstanding the execution of the deed of
assignment in favor of the petitioners, transfer of title to such shares is ineffective until
and unless the duly indorsed certi cate of stock is delivered to them. Moreover,
petitioners faulted the Court of Appeals for not taking into consideration the acts of
disloyalty committed by the Villanueva spouses against the Bank.
We find no merit in the instant petition.
The Court of Appeals did not err or abuse its discretion in a rming the order of the
SEC en banc, which in turn upheld the order of the SEC Hearing O cer, for the said rulings
were in accordance with law and jurisprudence.
The Corporation Code specifically provides:
SECTION 63. Certi cate of stock and transfer of shares . — The capital
stock of stock corporations shall be divided into shares for which certi cates
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 stocks so issued are personal property
and may be transferred by delivery of the certi cate or certi cates 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. (Emphasis ours)
Petitioners argue that by virtue of the Deed of Assignment, 1 9 private respondents

had relinquished to them any and all rights they may have had as stockholders of the Bank.
While it may be true that there was an assignment of private respondents' shares to the
petitioners, said assignment was not su cient to effect the transfer of shares since there
was no endorsement of the certi cates of stock by the owners, their attorneys-in-fact or
any other person legally authorized to make the transfer. Moreover, petitioners admit that
the assignment of shares was not coupled with delivery, the absence of which is a fatal
defect. The rule is that the delivery of the stock certi cate duly endorsed by the owner is
the operative act of transfer of shares from the lawful owner to the transferee. 2 0 Thus,
title may be vested in the transferee only by delivery of the duly indorsed certi cate of
stock. 2 1
We have uniformly held that for a valid transfer of stocks, there must be strict
compliance with the mode of transfer prescribed by law. 2 2 The requirements are: (a)
There must be delivery of the stock certi cate; (b) The certi cate 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, the private respondents
cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of
ownership and transfer of the shares in question is resolved with finality.
There being no showing that any of the requisites mandated by law 2 3 was complied
with, the SEC Hearing O cer 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 a rming the ruling of the SEC
Hearing O cer, 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.
To enable the shareholders of the Rural Bank of Lipa City, Inc. to meet and elect their
directors, the temporary restraining order issued by the SEC Hearing Officer on January 13,
1995 must be lifted. However, private respondents shall be noti ed of the meeting and be
allowed to exercise their rights as stockholders thereat.
While this case was pending, Republic Act No. 8799 2 4 was enacted, transferring to
the courts of general jurisdiction or the appropriate Regional Trial Court the SEC's
jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A. 2 5
One of those cases enumerated is any controversy "arising out of intra-corporate or
partnership relations, between and among stockholders, members, or associates, between
any and/or all of them and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between such corporation,
partnership or association and the state insofar as it concerns their individual franchise or
right to exist as such entity." The instant controversy clearly falls under this category of
cases which are now cognizable by the Regional Trial Court.
Pursuant to Section 5.2 of R.A. No. 8799, this Court designated speci c branches of
the Regional Trial Courts to try and decide cases formerly cognizable by the SEC. For the
Fourth Judicial Region, speci cally in the Province of Batangas, the RTC of Batangas City,
Branch 32 is the designated court. 2 6
WHEREFORE, in view of all the foregoing, the instant petition for review on certiorari
is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 38861
are hereby AFFIRMED. The case is ordered REMANDED to the Regional Trial Court of
Batangas City, Branch 32, for proper disposition. The temporary restraining order issued
by the SEC Hearing Officer dated January 13, 1995 is ordered LIFTED.
SO ORDERED.
Davide, Jr., C.J., Kapunan and Pardo, JJ., concur.
Puno, J., concurs in the result.
Footnotes
1. Dated February 5, 1993; Annex "V", Rollo, pp. 123-124.
2. Dated November 10, 1993; Annex "W", Rollo, p. 127.
3. Dated January 5, 1994.
4. Dated January 14, 1994.
5. Annex "A", Rollo, pp. 21-26.
6. Annex "B", Rollo, pp. 29-30.
7. Annex "D", Rollo, pp. 33-47.
8. Annex "G", Rollo, pp. 57-62.
9. Annex "I", Rollo, p. 65.
10. Annex "J", Rollo, pp. 66-70.
11. Annex "M", Rollo, pp. 73-75.
12. Order dated January 13, 1995, Annex "Q", Rollo, pp. 104-105.
13. Docketed as Case No. EB-440, Rollo, pp. 83-99.
14. Annex "S", Rollo, pp. 112-115.
15. Annex "T", Rollo, pp. 116-120.
16. Annex "U", Rollo, p. 122.
17. Annex "Y", Rollo, pp. 129-137.

18. Annex "D", Rollo, pp. 138-139.
19. Annex "V", dated February 15, 1993; Rollo, pp. 123-124.
20. Bitong v. Court of Appeals, 292 SCRA 503, 528 (1998).

21. Rivera v. Florendo, 144 SCRA 643, 656-657 (1986).
22. Nava v. Peers Marketing Corp., 74 SCRA 65, 69 (1976).
23. The Corporation Code, Section 63.
24. Otherwise known as The Securities Regulation Code which took effect in the year 2000.
25. Section 5.2 of R.A. 8799.
26. En Banc Resolution, A.M. No. 00-11-03-SC, promulgated November 21, 2000.

FIRST DIVISION
[G.R. No. 126891. August 5, 1998.]
LIM TAY , petitioner, vs . COURT OF APPEALS, GO FAY AND CO. INC.,

SY GUIOK, and ESTATE OF ALFONSO LIM, LIM respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De Los Angeles for petitioner.

Manuel M. Gonzales for private respondent.
SYNOPSIS
Private respondent Sy Guiok and Alfonso Sy Lim secured a loan from petitioner Lim
Tay, securing their loans with contracts of pledge covering their respective shares of stock
in Go Fay & Company, Inc. Under said contracts of pledge, Guiok and Sy Lim agreed that in
the event of their failure to pay the amount within the period agreed upon, the pledgee, Lim
Tay, was authorized to foreclose the pledge upon the said shares of stock.
Respondent Guiok and Sy Lim endorsed their respective shares of stock in blank
and delivered the same to Lim Tay. Guiok and Lim, however, failed to pay their respective
loans to Lim Tay.
Lim Tay led a petition for mandamus with the Securities and Exchange
Commission (SEC) against Go Fay & Company, praying that an order be issued directing
the corporate secretary of the company to register the stock transfers and issue new
certi cates in his favor. Lim Tay alleged in his petition that the controversy between him as
stockholder and the company was intra-corporate in view of the obstinate refusal of the
corporate secretary of the company to record the transfer of the shares of stock of Guiok
and Sy Lim in favor of petitioner.
The registration of shares in a stockholder's name, the issuance of stock
certificates, and the right to receive dividends which pertain to the said shares are all rights
that ow from ownership. The determination of whether or not a shareholder is entitled to
exercise the preceding rights falls within the jurisdiction of the SEC. However, if ownership
of the shares is not clearly established and is still unresolved at the time the action for
mandamus is filed, then jurisdiction lies with the regular courts.
Manifestly, petitioner's complaint by itself did not contain any prima facie showing
that petitioner was the owner of the shares of stocks. Quite the contrary, it demonstrated
that he was merely a pledgee, not an owner. The contractual stipulation which was part of
the complaint, shows that petitioner was merely authorized to foreclose the pledge upon
maturity of the loans, not to own them. Accordingly, it failed to lay down a su cient basis
for the SEC to exercise jurisdiction over the controversy.
SYLLABUS
1. MERCANTILE LAW; CORPORATION LAW; OWNERSHIP OF SHARES OF

STOCKS; JURISDICTION LIES WITH REGULAR COURTS AND NOT WITH THE SEC; REASON.
— The registration of shares in a stockholder's name, the issuance of stock certi cates,
and the right to receive dividends which pertain to the said shares are all rights that ow
from ownership. The determination of whether or not a shareholder is entitled to exercise
the above-mentioned rights falls within the jurisdiction of the SEC. However, if ownership
of the shares is not clearly established and is still unresolved at the time the action for
mandamus is led, then jurisdiction lies with the regular courts. As a general rule, the
jurisdiction of a court or tribunal over the subject matter is determined by the allegations in
the complaint. In the present case, however, petitioner's claim that he was the owner of the
shares of stock in question has no prima facie basis. In his Complaint, petitioner alleged
that, pursuant to the contracts of pledge, he became the owner of the shares when the
term for the loans expired. However, the contracts of pledge, which were made integral
parts of the Complaint, contain this common proviso: In the event of the failure of the
PLEDGOR to pay the amount within a period of six (6) months from the date hereof, the
PLEDGEE is hereby authorized to foreclose the pledge upon the said shares of stock . . .."
2. REMEDIAL LAW; CIVIL PROCEDURE; MANDAMUS; MANDAMUS WILL NOT
ISSUE TO ESTABLISH A RIGHT. — Petitioner has failed to establish a clear legal right.
Petitioner's contention that he is the owner of the said shares is completely without merit.
Quite the contrary and as already shown, he does not have any ownership rights at all. At
the time petitioner instituted his suit at the SEC, his ownership claim had no prima facie leg
to stand on. At best, his contention was disputable and uncertain. Mandamus will not issue
to establish a legal right, but only to enforce one that is already clearly established.
3. CIVIL LAW; CREDIT TRANSACTIONS; PLEDGE; PETITIONER DID NOT
ACQUIRE OWNERSHIP OF THE SHARES BY VIRTUE OF THE PLEDGE. — There is no
showing that petitioner made any attempt to foreclose or sell the shares through public or
private auction, as stipulated in the contracts of pledge and as required by Article 2112 of
the Civil Code. Therefore, ownership of the shares could not have passed to him. The
pledgor remains the owner during the pendency of the pledge and prior to foreclosure and
sale, as explicitly provided by Article 2103 of the same Code: "Unless the thing pledged is
expropriated, the debtor continues to be the owner thereof. Nevertheless, the creditor may
bring the actions which pertain to the owner of the thing pledged in order to recover it
from, or defend it against a third person."
4. ID.; PRESCRIPTION; PETITIONER'S POSSESSION OF THE SHARES OF STOCK
AS A PLEDGEE CANNOT RIPEN INTO OWNERSHIP BY PRESCRIPTION. — Petitioner's
contention that he can be deemed to have acquired ownership over the certi cates of
stock through extraordinary prescription, as provided for in Article 1132 of the Civil Code,
is untenable. What is required by Article 1132 is possession in the concept of an owner. In
the present case, petitioner's possession of the stock certi cates came about because
they were delivered to him pursuant to the contracts of pledge. His possession as a
pledgee cannot ripen into ownership by prescription.
5. ID.; NOVATION; NOVATION OF A CONTRACT MUST NOT BE PRESUMED. —
Neither did petitioner acquire the shares by virtue of a novation of the contract of pledge.
Novation is de ned as "the extinguishment of an obligation by a subsequent one which
terminates it, either by changing its object or principal conditions, by substituting a new
debtor in place of the old one, or by subrogating a third person to the rights of the
creditor." Novation of a contract must not be presumed. "In the absence of an express
agreement, novation takes place only when the old and the new obligations are
incompatible on every point."

DECISION
PANGANIBAN J :
PANGANIBAN, p
The duty of a corporate secretary to record transfers of stocks is ministerial.

However, he cannot be compelled to do so when the transferee's title to said shares has
no prima facie validity or is uncertain. More speci cally, a pledgor, prior to foreclosure and
sale, does not acquire ownership rights over the pledged shares and thus cannot compel
the corporate secretary to record his alleged ownership of such shares on the basis
merely of the contract of pledge. Similarly, the SEC does not acquire jurisdiction over a
dispute when a party's claim to being a shareholder is, on the face of the complaint, invalid
or inadequate or is otherwise negated by the very allegations of such complaint.
Mandamus will not issue to establish a right, but only to enforce one that is already
established. LibLex
Statement of the Case

These are the principles used by this Court in resolving this Petition for Review on
Certiorari before us, assailing the October 24, 1996 Decision 1 of the Court of Appeals 2 in
CA-GR SP No. 40832, the dispositive portion of which reads:
"IN THE LIGHT OF ALL THE FOREGOING, the Petition at bench is DENIED
DUE COURSE and is hereby DISMISSED. With costs against the [p]etitioner." 3
By the foregoing disposition, the Court of Appeals effectively a rmed the March 7,
1996 Decision 4 of the Securities and Exchange Commission (SEC) en banc:
"WHEREFORE, in view of all the foregoing, judgment is hereby rendered
dismissing the appeal on the ground that mandamus will only issue upon a clear
showing of ownership over the assailed shares of stock, [t]he determination of
which, on the basis of the foregoing facts, is within the jurisdiction of the regular
courts and not with the SEC." 5
The SEC en banc upheld the August 16, 1993 Decision 6 of SEC Hearing O cer
Rolando C. Malabonga, which dismissed the action for mandamus filed by petitioner.
The Facts
As found by the Court of Appeals, the facts of the case are as follows:
" . . . On January 8, 1980, Respondent-Appellee Sy Guiok secured a loan
from the [p]etitioner in the amount of P40,000 payable within six (6) months. To
secure the payment of the aforesaid loan and interest thereon, Respondent Guiok
executed a Contract of Pledge in favor of the [p]etitioner whereby he pledged his
three hundred (300) shares of stock in the Go Fay & Company Inc., Respondent
Corporation, for brevity's sake. Respondent Guiok obliged himself to pay interest
on said loan at the rate of 10% per annum from the date of said contract of
pledge. On the same date, Alfonso Sy Lim secured a loan, from the [p]etitioner in
the amount of P40,000 payable in six (6) months. To secure the payment of his
loan, Sy Lim executed a 'Contract of Pledge' covering his three hundred (300)
shares of stock in Respondent Corporation. Under said contract, Sy Lim obliged
himself to pay interest on his loan at the rate of 10% per annum from the date of
the execution of said contract.

Under said 'Contracts of Pledge,' Respondent[s] Guiok and Sy Lim
covenanted, inter alia, that:
'3. In the event of the failure of the PLEDGOR to pay the amount
within a period of six (6) months from the date hereof, the PLEDGEE is
hereby authorized to foreclose the pledge upon the said shares of stock
hereby created by selling them same at public or private sale with or
without notice to the PLEDGOR, at which sale the PLEDGEE may be the
purchaser at his option; and the PLEDGEE is hereby authorized and
empowered at his option to transfer the said shares of stock on the books
of the corporation to his own name and to hold the certi cate issued in lieu
thereof under the terms of this pledge, and to sell the said shares to issue
to him and to apply the proceeds of the sale to the payment of the said
sum and interest, in the manner hereinabove provided;
4. In the event of the foreclosure of this pledge and the sale of

the pledged certificate, any surplus remaining in the hands of the PLEDGEE
after the payment of the said sum and interest, and the expenses, if any,
connected with the foreclosure sale, shall be paid by the PLEDGEE to the
PLEDGOR;
5. Upon payment of the said amount and interest in full, the

PLEDGEE will, on demand of the PLEDGOR, redeliver to him the said
shares of stock by surrendering the certi cate delivered to him by the
PLEDGOR or by retransferring each share to the PLEDGOR, in the event
that the PLEDGEE, under the option hereby granted, shall have caused
such shares to be transferred to him upon the books of the issuing
company.' (idem, supra)
Respondent Guiok and Sy Lim endorsed their respective shares of stock in

blank and delivered the same to the [p]etitioner." 7
However, Respondent Guiok and Sy Lim failed to pay their respective loans
and the accrued interests thereon to the [p]etitioner. In October, 1990, the
[p]etitioner led a 'Petition for Mandamus' against Respondent Corporation, with
the SEC entitled 'Lim Tay versus Go Fay & Company . Inc., SEC Case No. 03894',
praying that:
'PRAYER
WHEREFORE, premises considered, it is respectfully prayed that an

order be issued directing the corporate secretary of [R]espondent Go Fay &
Co, Inc. to register the stock transfers and issue new certi cates in favor of
Lim Tay. It is likewise prayed that [R]espondent Go Fay & Co., Inc[.] be
ordered to pay all dividends due and unclaimed on the said certi cates to
[P]laintiff Lim Tay.
cdphil
Plaintiff further prays for such other relief just and equitable in the
premises.' (page 34, Rollo)
The [p]etitioner alleged, inter alia, in his Petition that the controversy
between him as stockholder and the Respondent Corporation was intra-corporate
in view of the obstinate refusal of the corporate secretary of Respondent
Corporation to record the transfer of the shares of stock of Respondent Guiok and
Sy Lim in favor of and under the name of the [p]etitioner and to issue new
certificates of stock to the [p]etitioner.
The Respondent Corporation led its Answer to the Complaint and alleged,
as Affirmative Defense, that:
'AFFIRMATIVE DEFENSE '
7. Respondent repleads and incorporates herein by reference

the foregoing allegations.
8. The Complaint states no cause of action against

[r]espondent.
9. Complainant is not a stockholder of [r]espondent. Hence, the

Honorable Commission has no jurisdiction to enter the present controversy
since their [sic] is no intracorporate relationship between complainant and
respondent.
10. Granting arguendo that a pledge was constituted over the

shareholdings of Sy Guiok in favor of the complainant and that the former
defaulted in the payment of his obligations to the latter, the same did not
automatically vest [i]n complainant ownership of the pledged shares.'
(page 37, Rollo)
In the interim, Sy Lim died. Respondents Guiok and the Intestate Estate of
Alfonso Sy Lim, represented by Conchita Lim, led their Answer-In-Intervention
with the SEC alleging, inter alia, that:
'xxx xxx xxx
3. Deny speci cally the allegation under paragraph 5 of the

Complaint that, failure to pay the loan within the contract period
automatically foreclosed the pledged shares of stocks and that the share
of stocks are automatically purchased by the plaintiff, for being false and
distorted, the truth being that pursuant to the [sic] paragraph 3 of the
contract of pledges, Annexes 'A' and 'B', it is clear that upon failure to pay
the amount within the stipulated period, the pledgee is authorized to
foreclose the pledge and thereafter, to sell the same to satisfy the loan.
[H]owever, to this point in time, plaintiff has not performed any operative
act of foreclosing the shares of stocks of [i]ntervenors in accordance with
the Chattel Mortgage law, [n]either was there any sale of stocks — by way
of public or private auction — made after foreclosure in favor of the
plaintiff to speak about, and therefore, the respondent company could not
be force[d] to [sic] by way of mandamus, to transfer the subject shares of
stocks from the name of your [i]ntervenors to that of the plaintiff in the
absence of clear and legal basis for such;
4. DENY speci cally the allegations under paragraphs 6, 7 and

8 of the complaint as to the existence of the alleged intracorporate dispute
between plaintiff and company for being without proper and legal basis. In
the rst place, plaintiff is not a stockholder of the respondent corporation;
there was no foreclosure of shares executed in accordance with the Chattel
Mortgage Law whatsoever; there were no sales consummated that would
transfer to the plaintiff the subject shares of stocks and therefore, any
demand to transfer the shares of stocks to the name of the plaintiff has no
legal basis. In the second place, [i]ntervenors had been in the past
negotiating possible compromise and at the same time, had tendered
payment of the loan secured by the subject pledges but plaintiff refused
unjusti ably to oblige and accept payment o[r] even agree on the
computation of the principal amount of the loan and interest on top of a
substantial amount offered just to settle and compromise the
indebtedness of [i]ntervenors;
II. SPECIAL AFFIRMATIVE DEFENSES
Intervenors replead by way of reference all the foregoing allegations

to form part of the special affirmative defenses;
5. This Honorable Commission has no jurisdiction over the

person of the respondent and nature of the action, plaintiff having no
personality at all to compel respondent by way of mandamus to perform
certain corporate function[s]; prLL
6. The complaint states no cause of action;
7. That respondent is not [a] real party in interest;
8. The appropriation of the subject shares of stocks by plaintiff,

without compliance with the formality of law, amounted to '[p]actum
commis[s]orium' therefore, null and void;
9. Granting for the sake of argument only that there was a valid
foreclosure and sale of the subject st[o]cks in favor of the plaintiff — which
[i]ntervenors deny — still paragraph 5 of the contract allows redemption, for
which intervenors are willing to redeem the share of stocks pledged;
10. Even the Chattel Mortgage law allowed redemption of the

[c]hattel foreclosed;
11. As a matter of fact, on several occasions, [i]ntervenors had

made representations with the plaintiff for the compromise and settlement
of all the obligations secured by the subject pledges — even offering to pay
compensation over and above the value of the obligations, interest[s] and
dividends accruing to the share of stocks but, plaintiff unjustly refused to
accept the offer of payment;' ( pages 39-42, Rollo)
The [r]espondents-[i]ntervenors prayed the SEC that judgment be rendered

in their favor, as follows:
'IV. PRAYER
It is respectfully prayed to this Honorable Commission after due
hearing, to dismiss the case for lack of merit, ordering plaintiff to accept
payment for the loans secured by the subject shares of stocks and to pay
plaintiff:
1. The sum of P50,000.00, as moral damages;
2. the sum of P50,000.00, as attorneys fees; and,
3. costs of suit.
Other reliefs just and equitable [are] likewise prayed for.' ( pages 42-
43, Rollo)
After due proceedings, the [h]earing [o] cer promulgated a Decision
dismissing [p]etitioner's Complaint on the ground that although the SEC had
jurisdiction over the action, pursuant to the Decision of the Supreme Court in the
case of 'Rural Bank of Salinas et. al. versus Court of Appeals, et al., 210 SCRA
510', he failed to prove the legal basis for the secretary of the Respondent
Corporation to be compelled to register stock transfers in favor of the [p]etitioner
and to issue new certi cates of stock under his name ( pages 67-77, Rollo) The
[p]etitioner appealed the Decision of the [h]earing [o] cer to the SEC, but, on
March 7, 1996, the SEC promulgated a Decision, dismissing [p]etitioner's appeal
on the grounds that: (a) the issue between the [p]etitioner and the [r]espondents
being one involving the ownership of the shares of stock pledged by Respondent
Guiok and Sy Lim the SEC had no jurisdiction over the action led by the
[p]etitioner; (b) the latter had no cause of action for mandamus against the
Respondent Corporation, the right of ownership of the [p]etitioner over the 300
shares of stock pledged by Respondent Guiok and Sy Lim not having been as yet,
established, preparatory to the institution of said Petition for Mandamus with the
SEC."
Ruling of the Court of Appeals

On the issue of jurisdiction, the Court of Appeals ruled:
"In ascertaining whether or not the SEC had exclusive jurisdiction over
[p]etitioner's action, the [a]ppellate [c]ourt must delve into and ascertain: (a)
whether or not there is a need to enlist the expertise and technical know-how of
the SEC in resolving the issue of the ownership of the shares of stock; (b) the
status of the relationships of the parties; [and] (c) the nature of the question that
is the subject of the controversy. Where the controversy is purely a civil matter
resoluble by civil law principles and there is no need for the application of the
expertise and technical know-how of the SEC, then the regular courts have
jurisdiction over the action." 8 [citations omitted]
On the issue of whether mandamus can be availed of by the petitioner the Court of
Appeals agreed with the SEC, viz:
". . . [T]he [p]etitioner failed to establish a clear and legal right to the writ of
mandamus prayed for by him . . .Mandamus will not issue to enforce a right
which is in substantial dispute or to which a substantial doubt exists . . .The
principal function of the writ of mandamus is to command and expedite, and not
to inquire and adjudicate and, therefore it is not the purpose of the writ to
establish a legal right, but to enforce one which has already been established." 9
[citations omitted] prLL
The Court of Appeals debunked petitioner's claim that he had acquired ownership
over the shares by virtue of novation, holding that respondents' indorsement and delivery
of the shares were pursuant to Articles 2093 and 2095 of the Civil Code and that
petitioner's receipt of dividends was in compliance with Article 2102 of the same Code.
Petitioner's claim that he had acquired ownership of the shares by virtue of prescription
was likewise dismissed by Respondent Court in this wise:
"The prescriptive period for the action of Respondent[s] Guiok and Sy Lim
to recover the shares of stock from the [p]etitioner accrued only from the time they
paid their loans and the interests thereon and [made] a demand for their return. 1 0
Hence, the petitioner brought before us this Petition for Review on Certiorari in
accordance with Rule 45 of the Rules of Court. 1 1
Assignment of Errors
Petitioner submits, for the consideration of this Court, these issues: 1 2
"(a) Whether the Securities and Exchange Commission had jurisdiction
over the complaint filed by the petitioner; and
(b) Whether the petitioner is entitled to the relief of mandamus as

against the respondent Go Fay & Co., Inc."
In addition, petitioner contends that it has acquired ownership of the shares

"through extraordinary prescription," pursuant to Article 1132 of the Civil Code, and
through respondents' subsequent acts, which amounted to a novation of the contracts of
pledge. Petitioner also claims that there was dacion en pago, in which the shares of stock
were deemed sold to petitioner, the consideration for which was the extinguishment of the
loans and the interests thereon. Petitioner likewise claims that laches bars respondents
from recovering the subject shares.
The Court's Ruling
The petition has no merit.
First Issue: Jurisdiction of the SEC
Claiming that the present controversy is intra-corporate and falls within the
exclusive jurisdiction of the SEC, petitioner relies heavily on Abejo v. De La Cruz, 1 3 which
upheld the jurisdiction of the SEC over a suit led by an unregistered stockholder seeking
to enforce his rights. He also seeks support from Rural Bank of Salinas, Inc. v. Court of
Appeals, 1 4 which ruled that the right of a transferee or an assignee to have stocks
transferred to his name was an inherent right owing from his ownership of the said
stocks.
The registration of shares in a stockholder's name, the issuance of stock
certificates, and the right to receive dividends which pertain to the said shares are all rights
that ow from ownership. The determination of whether or not a shareholder is entitled to
exercise the above-mentioned rights falls within the jurisdiction of the SEC. However, if
ownership of the shares is not clearly established and is still unresolved at the time the
action for mandamus is filed, then jurisdiction lies with the regular courts.
Section 5 of Presidential Decree No. 902-A sets forth the jurisdiction of the SEC as
follows:
"SEC. 5. In addition to the regulatory and adjudicative functions of the
Securities and Exchange Commission over corporations, partnerships and other
forms of associations registered with it as expressly granted under existing laws
and decrees, it shall have original and exclusive jurisdiction to hear and decide
cases involving:
(a) Devices or schemes employed by or any acts of the board of

directors, business associates, its o cers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public and/or of
stockholders, partners, members of associations or organizations registered with
the Commission;
(b) Controversies arising out of intra-corporate or partnership relations,

between and among stockholders, members, or associates; between any or all of
them and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between such corporation,
partnership or association and the State insofar as it concerns their individual
franchise or right to exist as such entity;
(c) Controversies in the election or appointment of directors, trustees,

officers or managers of such corporations, partnerships or associations;
(d) Petitions of corporations, partnerships or associations to be

declared in the state of suspension of payments in cases where the corporation,
partnership or association possesses property to cover all its debts but foresees
the impossibility of meeting them when they respectively fall due or in cases
where the corporation, partnership or association has no su cient assets to
cover its liabilities, but is under the Management Committee created pursuant to
this decree." 1 5
Thus, a controversy "among stockholders, partners or associates themselves" 1 6 is

intra-corporate in nature and falls within the jurisdiction of the SEC. cda
As a general rule, the jurisdiction of a court or tribunal over the subject matter is
determined by the allegations in the complaint. 1 7 in the present case, however, petitioner's
claim that he was the owner of the shares of stock in question has no prima facie basis.
In his Complaint, petitioner alleged that, pursuant to the contracts of pledge, he
became the owner of the shares when the term for the loans expired. The Complaint
contained the following pertinent averments:
"xxx xxx xxx
3. On [J]anuary 8, 1990, under a Contract of Pledge, Lim Tay received

three hundred (300) shares of stock of Go Fay & Co., Inc., from Sy Guiok as,
security for the payment of a loan of [f]orty [t]housand [p]esos (P40,000.00)
Philippine currency, the sum of which was payable within six (6) months [with
interest] at ten percentum (10%) per annum from the date of the execution of the
contract; a copy of this Contract of Pledge is attached as Annex "A" and made
part hereof ;
4. On the same date January 8, 1980, under a similar Contract of
Pledge, Lim Tay received three hundred (300) shares of stock of Go Fay & Co., Inc.
from Alfonso Sy Lim as security for the payment of a loan of [f]orty [t]housand
[p]esos (P40,000.00) Philippine currency, the sum of which was payable within six
(6) months [with interest] at ten percentum (10%) per annum from the date of the
execution of the contract; copy of this Contract of Pledge is attached as Annex "B"
and made part hereof ;
5. By the express terms of the agreements, upon failure of the
borrowers to pay the stated amounts within the contract period, the pledge is
foreclosed and the shares of stock are purchased by [p]laintiff, who is expressly
authorized and empowered to transfer the duly endorsed shares of stock on the
books of the corporation to his own name; . . . 1 8 (emphasis supplied)
However, the contracts of pledge, which were made integral parts of the Complaint,
contain this common proviso:
"3. In the event of the failure of the PLEDGOR to pay the amount within
a period of six (6) months from the date hereof, the PLEDGEE is hereby
authorized to foreclose the pledge upon the said shares of stock hereby created
by selling the same at public or private sale with or without notice to the
PLEDGOR, at which sale the PLEDGEE may be the purchaser at his option; and
the PLEDGEE is hereby authorized and empowered at his option, to transfer the
said shares of stock on the books of the corporation to his own name and to hold
the certi cate issued in lieu thereof under the terms of this pledge, and to sell the
said shares to issue to him and to apply the proceeds of the sale to the payment
of the said sum and interest, in the manner hereinabove provided; "
This contractual stipulation, which was part of the Complaint, shows that plaintiff
was merely authorized to foreclose the pledge upon maturity of the loans, not to own
them. Such foreclosure is not automatic, for it must be done in a public or private sale.
Nowhere did the Complaint mention that petitioner had in fact foreclosed the pledge and
purchased the shares after such foreclosure His status as a mere pledgee does not, under
civil law, entitle him to ownership of the subject shares. It is also noteworthy that
petitioner's Complaint did not aver that said shares were acquired through extraordinary
prescription, novation or laches. Moreover, petitioner's claim, subsequent to the ling of
the Complaint, that he acquired ownership of the said shares through these three modes is
not indubitable and still has to be resolved. In fact, as will be shown, such allegation has no
merit. Manifestly, the Complaint by itself did not contain any prima facie showing that
petitioner was the owner of the shares of stocks. Quite the contrary, it demonstrated that
he was merely a pledgee, not an owner. Accordingly, it failed to lay down a su cient basis
for the SEC to exercise jurisdiction over the controversy. In fact, the very allegations of the
Complaint and its annexes negated the jurisdiction of the SEC.
Petitioner's reliance on the doctrines set forth in Abejo v. De la Cruz and Rural Bank
of Salinas, Inc. v. Court of Appeals is misplaced. In Abejo, the Abejo spouses sold to
Telectronic Systems, Inc. shares of stock in Pocket Bell Philippines, Inc. Subsequent to
such contract of sale, the corporate secretary, Norberto Braga, refused to record the
transfer of the shares in the corporate books and instead asked for the annulment of the
sale, claiming that he and his wife had a preemptive right over some of the shares, and that
his wife's shares were sold without consideration or consent.
At the time the Bragas questioned the validity of the sale, the contract had already
been perfected, thereby demonstrating that Telectronic Systems, Inc. was already the
prima facie owner of the shares and, consequently, a stockholder of Pocket Bell
Philippines, Inc. Even if the sale were to be annulled later on, Telectronic Systems, Inc. had,
in the meantime, title over the shares from the time the sale was perfected until the time
such sale was annulled. The effects of an annulment operate prospectively and do not, as a
rule, retroact to the time the sale was made. Therefore, at the time the Bragas questioned
the validity of the transfers made by the Abejos, Telectronic Systems, Inc. was already
aprima facie shareholder of the corporation, thus making the dispute between the Bragas
and the Abejos "intra-corporate" in nature. Hence, the Court held that "the issue is not on
ownership of shares but rather the non-performance by the corporate secretary of the
ministerial duty of recording transfers of shares of stock of the corporation of which he is
secretary " 1 9
Unlike Abejo, however, petitioner's ownership over the shares in this case was not
yet perfected when the Complaint was led. The contract of pledge certainly does not
make him the owner of the shares pledged. Further, whether prescription effectively
transferred ownership of the shares, whether there was a novation of the contracts of
pledge, and whether laches had set in were di cult legal issues, which were unpleaded
and unresolved when herein petitioner asked the corporate secretary of Go Fay to effect
the transfer, in his favor, of the shares pledged to him. cda
I n Rural Bank of Salinas, Melenia Guerrero executed deeds of assignment for the
shares in favor of the respondents in that case. When the corporate secretary refused to
register the transfer, an action for mandamus was instituted. Subsequently, a motion for
intervention was led, seeking the annulment of the deeds of assignment on the grounds
that the same were ctitious and antedated, and that they were in fact donations because
the considerations therefor were below the book value of the shares.
Like the Abejo spouses, the respondents in Rural Bank of Salinas were already prima
facie shareholders when the deeds of assignment were questioned. If the said deeds were
to be annulled later on, respondents would still be considered shareholders of the
corporation from the time of the assignment until the annulment of such contracts.
Second Issue: Mandamus Will Not
Issue to Establish a Right
Petitioner prays for the issuance of a writ of mandamus, directing the corporate
secretary of respondent corporation to have the shares transferred to his name in the
corporate books, to issue new certi cates of stock and to deliver the corresponding
dividends to him. 2 0
"In order that a writ of mandamus may issue, it is essential that the person
petitioning for the same has a clear legal right to the thing demanded and that it is the
imperative duty of the respondent to perform the act required. It neither confers powers
nor imposes duties and is never issued in doubtful cases. It is simply a command to
exercise a power already possessed and to perform a duty already imposed." 2 1
In the present case, petitioner has failed to establish a clear legal right. Petitioner's
contention that he is the owner of the said shares is completely without merit. Quite the
contrary and as already shown, he does not have any ownership rights at all. At the time
petitioner instituted his suit at the SEC, his ownership claim had no prima facie leg to stand
on. At best, his contention was disputable and uncertain. Mandamus will not issue to
establish a legal right, but only to enforce one that is already clearly established.
Without Foreclosure and
Purchase at Auction,
Pledgor Is Not the Owner of Pledged Shares
Petitioner initially argued that ownership of the shares pledged had passed to him,
upon Respondents Sy Guiok and Sy Lim's failure to pay their respective loans. But on
appeal, petitioner claimed that ownership over the shares had passed to him, not via the
contracts of pledge, but by virtue of prescription and by respondents' subsequent acts
which amounted to a novation of the contracts of pledge. We do not agree.
At the outset, it must be underscored that petitioner did not acquire ownership of
the shares by virtue of the contracts of pledge. Article 2112 of the Civil Code states:
"The creditor to whom the credit has not been satis ed in due time, may
proceed before a Notary Public to the sale of the thing pledged. This sale shall be
made at a public auction, and with noti cation to the debtor and the owner of the
thing pledged in a proper case, stating the amount for which the public sale is to
be held. If at the rst auction the thing is not sold, a second one with the same
formalities shall be held; and if at the second auction there is no sale either, the
creditor may appropriate the thing pledged. In this case he shall be obliged to give
an acquittance for his entire claim."
Furthermore, the contracts of pledge contained a common proviso, which we quote

again for the sake of clarity:
"3. In the event of the failure of the PLEDGOR to pay the amount within
a period of six (6) months from the date hereof, the PLEDGEE is hereby
authorized to foreclose the pledge upon the said shares of stock hereby created
by selling the same at public or private sale with or without notice to the
PLEDGOR, at which sale the PLEDGEE may be the purchaser at his option; and
the PLEDGEE is hereby authorized and empowered at his option to transfer the
said shares of stock on the books of the corporation to his own name, and to hold
the certi cate issued in lieu thereof under the terms of this pledge, and to sell the
said shares to issue to him and to apply the proceeds of the sale to the payment
of the said sum and interest, in the manner hereinabove provided;" 2 2
There is no showing that petitioner made any attempt to foreclose or sell the shares
through public or private auction, as stipulated in the contracts of pledge and as required
by Article 2112 of the Civil Code. Therefore, ownership of the shares could not have
passed to him. The pledgor remains the owner during the pendency of the pledge and prior
to foreclosure and sale, as explicitly provided by Article 2103 of the same Code: LLphil
"Unless the thing pledged is expropriated, the debtor continues to be the

owner thereof.
Nevertheless, the creditor may bring the actions which pertain to the owner
of the thing pledged in order to recover it from, or defend it against a third person."
No Ownership
by Prescription
Petitioner did not acquire the shares by prescription either. The period of
prescription of any cause of action is reckoned only from the date the cause of action
accrued.
"Since a cause of action requires as an essential element not only a legal right of the
plaintiff and a correlative obligation of the defendant, but also an act or omission of the
defendant in violation of said legal right, the cause of action does not accrue until the party
obligated refuses, expressly or impliedly, to comply with its duty." 2 3 Accordingly, a cause
of action on a written contract accrues when a breach or violation thereof occurs.
Under the contracts of pledge, private respondents would have a right to ask for the
redelivery of their certi cates of stock upon payment of their debts to petitioner,
consonant with Article 2105 of the Civil Code, which reads:
"The debtor cannot ask for the return of the thing pledged against the will
of the creditor, unless and until he has paid the debt and its interest, with
expenses in a proper case." 2 4
Thus, the right to recover the shares based on the written contract of pledge
between petitioner and respondents would arise only upon payment of their respective
loans. Therefore, the prescriptive period within which to demand the return of the thing
pledged should begin to run only after the payment of the loan and a demand for the thing
has been made, because it is only then that respondents acquire a cause of action for the
return of the thing pledged.
Prescription should not begin to run on the action to demand the return of the thing
pledged while the loan still exists. This is because the right to ask for the return of the
thing pledged will not arise so long as the loan subsists. In the present case, the
prescriptive period did not begin to run when the loan became due. On the other hand, it is
petitioner's right to demand payment that may be in danger of prescription.
Petitioner contends that he can be deemed to have acquired ownership over the
certi cates of stock through extraordinary prescription, as provided for in Article 1132 of
the Civil Code which states:
"Art. 1132. The ownership of movables prescribes through uninterrupted
possession for four years in good faith.
The ownership of personal property also prescribes through uninterrupted
possession for eight years, without need of any other condition. . . ."
Petitioner's argument is untenable. What is required by Article 1132 is possession in

the concept of an owner. In the present case, petitioner's possession of the stock
certi cates came about because they were delivered to him pursuant to the contracts of
pledge. His possession as a pledgee cannot ripen into ownership by prescription. As aptly
pointed out by Justice Jose C. Vitug:
"Acquisitive prescription is a mode of acquiring ownership by a possessor
through the requisite lapse of time. In order to ripen into ownership, possession
must be in the concept of an owner, public, peaceful and uninterrupted. Thus,
possession with a juridical title, such as by a usufructory, a trustee, a lessee,
agent or a pledgee, not being in the concept of an owner, cannot ripen into
ownership by acquisitive prescription unless the juridical relation is rst expressly
repudiated and such repudiation has been communicated to the other party." 2 5
Petitioner expressly repudiated the pledge, only when he led his Complaint and
claimed that he was not a mere pledgee, but that he was already the owner of the shares.
Based on the foregoing, petitioner has not acquired the certi cates of stock through
extraordinary prescription.
No Novation
in Favor of Petitioner
Neither did petitioner acquire the shares by virtue of a novation of the contract of
pledge. Novation is de ned as "the extinguishment of an obligation by a subsequent one
which terminates it, either by changing its object or principal conditions, by substituting a
new debtor in place of the old one, or by subrogating a third person to the rights of the
creditor." 2 6 Novation of a contract must not be presumed. "In the absence of an express
agreement, novation takes place only when the old and the new obligations are
incompatible on every point." 2 7
In the present case, novation cannot be presumed by (a) respondents' indorsement
and delivery of the certi cates of stock covering the 600 shares, (b) petitioner's receipt of
dividends from 1980 to 1983, and (c) the fact that respondents have not instituted any
action to recover the shares since 1980.
Respondents' indorsement and delivery of the certi cates of stock were pursuant to
paragraph 2 of the contract of pledge which reads:
"2. The said certi cates had been delivered by the PLEDGOR endorsed
in blank to be held by the PLEDGEE under the pledge as security for the payment
of the aforementioned sum and interest thereon accruing." 2 8
This stipulation did not effect the transfer of ownership to petitioner. It was merely
in compliance with Article 2093 of the Civil Code, 2 9 which requires that the thing pledged
be placed in the possession of the creditor or a third person of common agreement; and
Article 2095, 3 0 which states that if the thing pledged are shares of stock, then the
"instrument proving the right pledged" must be delivered to the creditor. cdll
Moreover, the fact that respondents allowed the petitioner to receive dividends
pertaining to the shares was not meant to relinquish ownership thereof. As stated by
respondent corporation, the same was done pursuant to an agreement between the
petitioner and Respondents Sy Guiok and Sy Lim, following Article 2102 of the Civil Code
which provides:
"If the pledge earns or produces fruits, income, dividends, or interests, the
creditor shall compensate what he receives with those which are owing him; but if
none are owing him, or insofar as the amount may exceed that which is due, he
shall apply it to the principal. Unless there is a stipulation to the contrary, the
pledge shall extend to the interest and the earnings of the right pledged."
Novation cannot be inferred from the mere fact that petitioner has not, since 1980,
instituted any action to recover the shares. Such action is in fact premature, as the loan is
still outstanding. Besides, as already pointed out, novation is never presumed inferred.
No Dacion en Pago
in Favor of Petitioner
Neither can there be dacion en pago, in which the certi cates of stock are deemed
sold to petitioner, the consideration for which is the extinguishment of the loans and the
accrued interests thereon. Dacion en pago is a form of novation in which a change takes
place in the object involved in the original contract. Absent an explicit agreement,
petitioner cannot simply presume dacion en pago.
Laches Not
a Bar to Petitioner
Petitioner submits that "the inaction of the individual respondents with respect to
the recovery of the shares of stock serves to bar them from asserting rights over said
shares on the basis of laches." 3 1
Laches has been de ned as "the failure or neglect, for an unreasonable length of
time, to do that which by exercising due diligence could or should have been done earlier; it
is negligence or omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or declined to
assert it." 3 2
In this case, it is in fact petitioner who may be guilty of laches. Petitioner had all the
time to demand payment of the debt. More important, under the contracts of pledge,
petitioner could have foreclosed the pledges as soon as the loans became due. But for still
unknown or unexplained reasons, he failed to do so, preferring instead to pursue his
baseless claim to ownership.
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.
Costs against petitioner. LLphil
SO ORDERED.
Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ ., concur.
Footnotes
1.Rollo, pp. 7-31.

2.Fifth Division, composed of J. Romeo J. Callejo, ponente; and JJ. Pedro A. Ramirez
(chairman) and Pacita Canizares-Nye (member), concurring.
3.CA Division, p. 24; Rollo, p. 30.
4.Rollo, pp. 62-65; signed by Acting Chairman Perfecto R. Yasay, Jr. and Associate
Commissioners Rodolfo L. Samarista and Fe Eloisa C. Gloria.
5.CA Division, pp.; 4-5; Rollo, pp. 65-66

6.Rollo, pp. 103-113.
7.CA Decision, pp. 1-3; Rollo, pp. 7-9.

8.CA Decision, pp. 10-11; Rollo, p. 16-17.
9.Ibid, pp. 14-15; Rollo, pp. 20-21.

10.Ibid., p. 23; Rollo, p. 29.
11.This case deemed submitted for Resolution on November 11, 1997 upon receipt by the Court
of private respondents' Memorandum.
12.Memorandum for the Petitioner, pp. 6-7; Rollo, pp. 308-309.
13.149 SCRA 654, May 18, 1987.
14.210 SCRA 510, June 26, 1992.

15.Sec. 5, PD 902-A.
16.Securities and Exchange Commission v. Court of Appeals , 201 SCRA 124, 129, August 23,
1991, per Padilla J., citing Union Glass and Container Corporation v. SEC , 126 SCRA 31,
November 28, 1983.
17.Javelosa v. CA, 265 SCRA 493, December 10, 1996.

18.Complaint, pp. 1-2; Rollo, pp. 68-69.
19.Abejo v. De la Cruz, 149 SCRA 654, 662, May 18, 1987, per Teehankee; C.J.
20.Petition for Review, p. 17; Rollo, p. 50.

21.University of San Agustin, Inc., v. Court of Appeals, 230 SCRA 761, 771-772, March 7, 1994,
per Nocon, J.
22.Rollo, pp. 8-9.

23.Elido, Sr. v. Court of Appeals, 216 SCRA 617, 643, December 16, 1992, per Bellosillo, J.
24.Art. 2105 Civil Code.

25.Compendium of Civil Law and Jurisprudence, 1993 ed., pp. 463-464.
26.Caneda v. Court of Appeals, 181 SCRA 762, 771, February 5, 1990, per Paras, J.
27.Rillo v. Court of Appeals, GR No. 125347, pp. 9-10, June 19, 1997, per Puno, J.
28.Memorandum of Respondents, p. 2: Rollo, p. 291.

29."Art. 2093. In addition to the requisite prescribed in Article 2085, it is necessary, in order to
constitute the contract of pledge, that the thing pledged be placed in the possession of
the creditor, or of a third person of common agreement."
30."Art. 2095. Incorporeal rights, evidenced by negotiable instruments, bills of lading, shares of
stock, bonds warehouse receipt and similar documents may also be pledged. The
instrument proving the right pledged shall be delivered to the creditor, and if negotiable,
must be indorsed."
31.Memorandum for the Petitioner, p. 29; Rollo, p. 330.

32.Republic Planters Bank v. Agana, Sr ., 269 SCRA 1, 14, March 3, 1997, per Hermosisima, Jr.,
J.

SECOND DIVISION
[G.R. No. L-28120. November 25, 1976.]
RICARDO A. NAVA , petitioner-appellant, vs. PEERS MARKETING

CORPORATION, RENATO R. CUSI and AMPARO CUSI ,
respondents-appellees.
Rolando M. Medalla, for appellant.

Jose Y. Montalvo, for appellees.
DECISION
AQUINO , J : p
This is a mandamus case. Teo lo Po as an incorporator subscribed to eighty

shares of Peers Marketing Corporation at one hundred pesos a share or a total par
value of eight thousand pesos. Po paid two thousand pesos or twenty- ve percent of
the amount of his subscription. No certi cate of stock was issued to him or, for that
matter, to any incorporator, subscriber or stockholder.
On April 2, 1966 Po sold to Ricardo A. Nava for two thousand pesos twenty of his
eighty shares. In the deed of sale Po represented that he was "the absolute and
registered owner of twenty shares" of Peers Marketing Corporation.
Nava requested the o cers of the corporation to register the sale in the books
of the corporation. The request was denied because Po has not paid fully the amount of
his subscription. Nava was informed that Po was delinquent in the payment of the
balance due on his subscription and that the corporation had a claim on his entire
subscription of eighty shares which included the twenty shares that had been sold to
Nava.
On December 21, 1966 Nava led this mandamus action in the Court of First
Instance of Negros Occidental, Bacolod City Branch to compel the corporation and
Renato R. Cusi and Amparo Cusi, its executive vice-president and secretary respectively,
to register the said twenty shares in Nava's name in the corporation's transfer book.
The respondents in their answer pleaded the defense that no shares of stock
against which the corporation holds an unpaid claim are transferable in the books of
the corporation.
After hearing, the trial court dismissed the petition. Nava appealed on the ground
that the decision "is contrary to law." His sole assignment of error is that the trial court
erred in applying the ruling in Fua Cun vs. Summers and China Banking Corporation, 44
Phil. 705 to justify respondents' refusal in registering the twenty shares in Nava's name
in the books of the corporation.
The rule enunciated in the Fua Cun case is that payment of one-half of the
subscription does not entitle the subscriber to a certi cate of stock for one-half of the
number of shares subscribed.
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Appellant Nava contends that the Fua Cun case was decided under section 36 of
the Corporation Law which provides that "no certi cate of stock shall be issued to a
subscriber as fully paid up until the full par value thereof has been paid by him to the
corporation". Section 36 was amended by Act No. 3518. It is now section 37. Section
37 provides that "no certi cate of stock shall be issued to a subscriber as fully paid up
until the full par value thereof, or the full subscription in case of no par stock, has been
paid by him to the corporation".
The issue is whether the o cers of Peers Marketing Corporation can be
compelled by mandamus to enter in its stock and transfer book the sale made by Po to
Nava of the twenty shares forming part of Po's subscription of eighty shares, with a
total par value of P8,000 and for which Po had paid only P2,000, it being admitted that
the corporation has an unpaid claim of P6,000 as the balance due on Po's subscription
and that the twenty shares are not covered by any stock certificate.
Apparently, no provision of the by-laws of the corporation covers that situation.
The parties did not bother to submit in evidence the by-laws nor invoke any of its
provisions. The corporation can include in its by-laws rules, not inconsistent with law,
governing the transfer of its shares of stock (Sec. 13 7, Act No. 1459; Fleischer vs.
Botica Nolasco Co., 47 Phil 583, 589).
We hold that the transfer made by Po to Nava is not the "alienation, sale, or
transfer of stock" that is supposed to be recorded in the stock and transfer book, as
contemplated in section 52 of the Corporation Law.
As a rule, the shares which may be alienated are those which are covered by
certi cates of stock, as shown in the following provisions of the Corporation Law and
as intimated in Hager vs. Bryan, 19 Phil 138 (overruling the decision in Hager vs. Bryan,
21 Phil. 523. See 19 Phil. 616, notes, and Hodges vs. Lezama, 14 SCRA 1030).
"SEC. 35. The capital stock of stock corporations shall be divided into
shares for which certi cates signed by the president or the vice-president,
countersigned by the secretary or clerk and sealed with the seal of the
corporation, shall be issued in accordance with the by-laws. Shares of stock so
issued are personal property and may be transferred by delivery of the certificate
indorsed by the owner or his attorney in fact or other person legally authorized to
make the transfer. No transfer, however, shall be valid, except as between the
parties, until the transfer is entered and noted upon the books of the corporation
so as to show the names of the parties to the transaction, the date of the transfer,
the number of the certificate, and the number of shares transferred.
"No share of stock against which the corporation holds any unpaid claim
shall be transferable on the books of the corporation.
"SEC. 36. (re voting trust agreement) . . .
"xxx xxx xxx
"The certificates of stock so transferred shall be surrendered and cancelled,

and new certificates therefor issued to such person or persons, or corporation, as
such trustee or trustees, in which new certi cates it shall appear that they are
issued pursuant to said agreement.
xxx xxx xxx

(Emphasis supplied).
(In the case of nonstock corporations a membership certi cate is usually issued.
Lee E. Won vs. Wack Wack Golf & Country Club, Inc., 104 Phil. 466; Wack Wack Golf &
Country Club, Inc. vs. Won, L-23851, March 26, 1976, 70 SCRA 165).
As prescribed in section 35, shares of stock may be transferred by delivery to the
transferee of the certi cate properly indorsed. "Title may be vested in the transferee by
delivery of the certi cate with a written assignment or indorsement thereof" (18 C.J.S.
928). There should be compliance with the mode of transfer prescribed by law (18
C.J.S. 930).
The usual practice is for the stockholder to sign the form on the back of the
stock certi cate. The certi cate may thereafter be transferred from one person to
another. If the holder of the certi cate desires to assume the legal rights of a
shareholder to enable him to vote at corporate elections and to receive dividends, he
lls up the blanks in the form by inserting his own name as transferee. Then he delivers
the certi cate to the secretary of the corporation so that the transfer may be entered in
the corporation's books. The certi cate is then surrendered and a new one issued to
the transferee. (Hager vs. Bryan, 19 Phil. 138, 143-4).
That procedure cannot be followed in the instant case because, as already noted,
the twenty shares in question are not covered by any certi cate of stock in Po's name.
Moreover, the corporation has a claim on the said shares for the unpaid balance of Po's
subscription. A stock subscription is a subsisting liability from the time the
subscription is made. The subscriber is as much bound to pay his subscription as he
would be to pay any other debt. The right of the corporation to demand payment is no
less incontestable. (Velasco vs. Poizat, 37 Phil. 802; Lumanlan vs. Cura, 59 Phil. 746)
A corporation cannot release an original subscriber from paying for his shares
without a valuable consideration (Philippine National Bank vs. Bitulok Sawmill, Inc., L-
24177-85, June 29, 1968, 23 SCRA 1366) or without the unanimous consent of the
stockholders (Lingayen Gulf Electric Power Co., Inc. vs. Baltazar, 93 Phil. 404).
Under the facts of this case, there is no clear legal duty on the part of the o cers
of the corporation to register the twenty shares in Nava's name. Hence, there is no
cause of action for mandamus.
Nava argues that under section 37 a certi cate of stock may be issued for
shares the par value of which have already been paid for although the entire
subscription has not been fully paid. He contends that Peers Marketing Corporation
should issue a certi cate of stock for the twenty shares, notwithstanding that Po had
not paid fully his subscription for the eighty shares, because section 37 requires full
payment for the subscription, as a condition precedent for the issuance of the
certificate of stock, only in the case of no par stock.
Nava relies on Baltazar vs. Lingayen Gulf Electric Power Co., Inc., L-16236-38,
June 30, 1965, 14 SCRA 522, where it was held that section 37 "requires as a condition
before a shareholder can vote his shares that his full subscription be paid in the case of
no par value stock; and in case of stock corporation with par value, the stockholder can
vote the shares fully paid by him only, irrespective of the unpaid delinquent shares".
There is no parallelism between this case and the Baltazar case. It is noteworthy
that in the Baltazar case the stockholder, an incorporator, was the holder of a certificate
of stock for the shares the par value of which had been paid by him. The issue was
whether the said shares had voting rights although the incorporator had not paid fully
the total amount of his subscription. That is not the issue in this case.
In the Baltazar case, it was held that where a stockholder subscribed to a certain
number of shares with par value and he made a partial payment and was issued a
certi cate for the shares covered by his partial payment, he is entitled to vote the said
shares, although he has not paid the balance of his subscription and a call or demand
had been made for the payment of the par value of the delinquent shares.
As already stressed, in this case no stock certi cate was issued to Po. Without
the stock certi cate, which is the evidence of ownership of corporate stock, the
assignment of corporate shares is effective only between the parties to the transaction
(Davis vs. Wachter, 140 So. 361).
The delivery of the stock certi cate, which represents the shares to be alienated,
is essential for the protection of both the corporation and its stockholders (Smallwood
vs. Moretti, 128 So. 2d 628).
In view of the foregoing considerations, the trial court's judgment dismissing the
petition for mandamus is affirmed. Costs against the petitioner-appellant.
SO ORDERED.
Fernando (Chairman), Barredo, Antonio and Concepcion, Jr., JJ., concur.

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SECOND DIVISION

[G.R. No. 139802. December 10, 2002.]

VICENTE C. PONCE , petitioner, vs . ALSONS CEMENT CORPORATION,

Quiason Makalintal Barot Torres and Ibarra for petitioner.

1. MERCANTILE LAW; CORPORATION CODE; TRANSFER OF SHARES OF

6. On February 8, 1968, plaintiff and Fausto Gaid executed a "Deed of

8. On October 22, 1990, FCC was renamed Alsons Cement Corporation

9. From the time of incorporation of VCC up to the present, no

10. Despite repeated demands, the defendants refused and continue to

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I, VICENTE C. PONCE, is the owner of the total subscription of Fausto Gaid

(SGD.) VICENTE C. PONCE

(SGD.) FAUSTO GAID

(SGD.) FAUSTO GAID

xxx xxx xxx

Petitioner appealed the Order of dismissal. On January 6, 1997, the Commission En

Applying this principle in the case on hand, a transfer or assignment of

As appearing in the allegations of the complaint, plaintiff-appellant is the

II. . . . THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE

III. . . . THE HONORABLE COURT OF APPEALS ERRED IN APPLYING A 1911

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Pursuant to the foregoing provision, a transfer of shares of stock not recorded in

Without discussing or deciding the respective rights of the parties which

1. Rollo, pp. 120-133.

25. See Hager vs. Bryan, supra at 141-142.

29. Now Sections 63 and 64 of the Corporation Code.

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[G.R. No. 124535. September 28, 2001.]

THE RURAL BANK OF LIPA CITY, INC., THE OFFICERS AND

Rosales Law Office for petitioners.

1. COMMERCIAL LAW; CORPORATION CODE; TRANSFER OF SHARES OF

We likewise nd that the provision of the Corporation Code cited by the

2. That the private respondents are still stockholders of the subject

3. That the private respondents are presumably stockholders of the

Section 63 of the Corporation Code states: ". . . Shares of stock so issued

In the case at bench, when private respondents executed a deed of

We find no reversible error in the questioned orders.

Petitioners argue that by virtue of the Deed of Assignment, 1 9 private respondents

1. Dated February 5, 1993; Annex "V", Rollo, pp. 123-124.

2. Dated November 10, 1993; Annex "W", Rollo, p. 127.

3. Dated January 5, 1994.

4. Dated January 14, 1994.

5. Annex "A", Rollo, pp. 21-26.

6. Annex "B", Rollo, pp. 29-30.

7. Annex "D", Rollo, pp. 33-47.

8. Annex "G", Rollo, pp. 57-62.

9. Annex "I", Rollo, p. 65.

10. Annex "J", Rollo, pp. 66-70.

11. Annex "M", Rollo, pp. 73-75.

13. Docketed as Case No. EB-440, Rollo, pp. 83-99.

14. Annex "S", Rollo, pp. 112-115.

15. Annex "T", Rollo, pp. 116-120.

16. Annex "U", Rollo, p. 122.

17. Annex "Y", Rollo, pp. 129-137.

20. Bitong v. Court of Appeals, 292 SCRA 503, 528 (1998).

25. Section 5.2 of R.A. 8799.

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[G.R. No. 126891. August 5, 1998.]

LIM TAY , petitioner, vs . COURT OF APPEALS, GO FAY AND CO. INC.,

Romulo, Mabanta, Buenaventura, Sayoc & De Los Angeles for petitioner.

1. MERCANTILE LAW; CORPORATION LAW; OWNERSHIP OF SHARES OF

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