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I.
Power
of
the
Corporation
to
Issue
Shares
of
Stock
II.
Concept
of
Capital
Stock
(Section
137)
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
The
term
capital
and
other
terms
used
to
describe
the
capital
structure
of
a
corporation
are
of
universal
acceptance,
and
their
III.
Classification
of
Shares
(Section
6)
Section
6.
Classification
of
shares.
The
shares
of
stock
of
stock
corporations
may
be
divided
into
classes
or
series
of
shares,
or
both,
any
of
which
classes
or
series
of
shares
may
have
such
rights,
privileges
or
restrictions
as
may
be
stated
in
the
articles
of
incorporation:
Provided,
That
no
share
may
be
deprived
of
voting
rights
except
those
classified
and
issued
as
"preferred"
or
"redeemable"
shares,
unless
otherwise
provided
in
this
Code:
Provided,
further,
That
there
shall
always
be
a
class
or
series
of
shares
which
have
complete
voting
rights.
Any
or
all
of
the
shares
or
series
of
shares
may
have
a
par
value
or
have
no
par
value
as
may
be
provided
for
in
the
articles
of
incorporation:
Provided,
however,
That
banks,
trust
companies,
insurance
companies,
public
utilities,
and
building
and
loan
associations
shall
not
be
permitted
to
issue
no-par
value
shares
of
stock.
Preferred
shares
of
stock
issued
by
any
corporation
may
be
given
preference
in
the
distribution
of
the
assets
of
the
corporation
in
case
of
liquidation
and
in
the
distribution
of
dividends,
or
such
other
preferences
as
may
be
stated
in
the
articles
of
incorporation
which
are
not
violative
of
the
provisions
of
this
Code:
Provided,
That
preferred
shares
of
stock
may
be
issued
only
with
a
stated
par
value.
The
board
of
directors,
where
authorized
in
the
articles
of
incorporation,
may
fix
the
terms
and
conditions
of
preferred
shares
of
stock
or
any
series
thereof:
Provided,
That
such
terms
and
conditions
shall
be
effective
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
upon
the
filing
of
a
certificate
thereof
with
the
Securities
and
Exchange
Commission.
Shares
of
capital
stock
issued
without
par
value
shall
be
deemed
fully
paid
and
non-assessable
and
the
holder
of
such
shares
shall
not
be
4.
Incurring,
creating
or
increasing
bonded
indebtedness;
5.
Increase
or
decrease
of
capital
stock;
Except
as
provided
in
the
immediately
preceding
paragraph,
the
vote
necessary
to
approve
a
particular
corporate
act
as
provided
in
this
Code
shall
be
deemed
to
refer
only
to
stocks
with
voting
rights.
A.
Policies
on
Classification
of
Shares:
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
2. Secondly,
the
Code
expressly
adopts
the
presumption
of
equality
of
the
rights
and
features
of
shares
when
nothing
is
expressly
provided
to
the
contrary.
o Although
a
corporation
has
the
power
to
classify
its
shares
of
stock,
provide
for
preferences
and
other
conditions,
when
nothing
has
been
provided
for
in
the
C.
Preferred
Shares:
Republic
Planters
Bank
v.
Agana,
269
SCRA
1
(1997):
Republic
Planters
Bank
v.
Agana
Facts:
Robes-Francisco
Realty
&
Development
Corporation
(RFRDC)
secured
a
loan
from
the
Republic
Planters
Bank
which
were
partly
in
the
form
of
cash
and
partly
in
the
form
of
stock
certificates.
The
stock
certificates
were
preferred
shares
in
the
names
of
Adalia
F.
Robes
and
Carlos
F.
Robes
who
subsequently,
however,
endorsed
his
shares
in
favor
of
Adalia.
The
terms
for
certificates
of
stocks
include
the
right
to
receive
quarterly
dividends
and
such
shares
may
be
redeemed
at
the
option
of
the
Corporation
2
years
from
date
of
issue.
RFRDC
and
Robes
proceeded
against
the
Bank
and
filed
a
Complaint
anchored
on
their
alleged
rights
to
collect
dividends
under
the
preferred
shares
in
question
and
to
have
petitioner
redeem
the
same
under
the
terms
and
conditions
of
the
stock
certificates.
Issue:
Whether
the
bank
can
be
compelled
to
redeem
the
preferred
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
shares
issued
to
RFRDC
and
Robes.
Held:
NO.
While
the
stock
certificate
does
allow
redemption,
the
option
to
do
so
was
clearly
vested
in
the
bank.
The
redemption
therefore
is
clearly
the
type
known
as
"optional".
Thus,
except
as
otherwise
1. Participating
and
Non-participating1
a. Participating
preferred
shares
that
entitle
the
holders
to
participate
with
the
holders
of
common
shares
in
the
retained
earnings
after
the
amount
of
stipulated
dividend
has
been
paid
to
the
preferred
shares.
provided
in
the
stock
certificate,
the
redemption
rests
entirely
with
the
corporation
and
the
stockholder
is
without
right
to
either
compel
or
refuse
the
redemption
of
its
stock.
Furthermore,
payment
of
dividends
to
a
stockholder
is
not
a
matter
of
right
but
a
matter
of
consensus
as
the
Corporation
Code
prohibits
the
issuance
of
any
stock
dividend
without
the
prior
approval
of
the
stockholders.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
a. The
Supreme
Court
characterized
no-par
value
shares
thus:
"[a]
no-par
value
share
does
not
purport
to
represent
any
stated
proportionate
interest
in
the
capital
stock
measured
by
value,
but
only
an
aliquot
part
of
the
whole
number
of
such
shares
of
the
issuing
corporation.
The
holder
of
no-par
shares
may
see
from
Delpher
Trades
Corp.
v.
Intermediate
Appellate
Court,
157
SCRA
349,
353-354
[1988],
quoting
directly
from
AGBAYANI,
COMMENTARIES
AND
JURISPRUDENCE
ON
THE
COMMERCIAL
LAWS
OF
THE
PHILIPPINES,
Vol.
III,
1980
Ed.,
p.
107).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
any
right
in
addition
to
those
enjoyed
by
common
shares.1
Facts:
Prime
Holdings
Inc.
(PHI)
owned
46%
of
the
outstanding
capital
stock
of
the
Philippine
Telecommunications
Investment
Corporation
(PTIC).
PTIC
owned
26%
of
the
outstanding
common
shares
of
PLDT.
The
shares
held
by
PHI
were
sequestered
by
the
PCGG
and
declared
to
be
ill-
gotten
wealth
of
the
Marcos.
This
being
the
case,
the
Inter-Agency
Privatization
Council
(IPC)
of
the
Philippine
Government
sold
the
shares
to
Metro
Pacific
Assets
Holdings,
Inc.
(MPAH),
an
affiliate
of
First
Pacific
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
directors.
To
summarize,
(1)
foreigners
own
64.27%
of
the
common
shares
of
PLDT,
which
class
of
shares
exercises
the
sole
right
to
vote
in
the
election
of
directors,
and
thus
exercise
control
over
PLDT;
(2)
Filipinos
own
only
35.73%
of
PLDTs
common
shares,
constituting
a
minority
of
the
voting
stock,
and
thus
do
not
exercise
control
over
PLDT;
voting
or
not,
and
claims
that
the
term
capital
in
section
11,
article
XII
of
the
constitution
has
long
been
settled
and
defined
to
refer
to
the
total
outstanding
shares
of
stock,
whether
voting
or
non-voting.
Issue:
Whether
or
not
the
contention
of
Pangilinan
et
al.
is
correct.
Held:
NO.
The
Supreme
Court
has
never
yet
interpreted
the
meaning
of
capital
in
the
context
of
section
11,
article
XII
of
the
Constitution.
For
more
than
75
years
since
the
1935
Constitution,
the
court
has
not
interpreted
or
defined
the
term
capital
found
in
various
economic
provisions
of
the
1935,
1973
and
1987
constitutions.
There
has
never
been
a
judicial
precedent
interpreting
the
term
capital
in
the
1935,
Doctrine:
Considering
that
common
shares
have
voting
rights
which
translate
to
control,
as
opposed
to
preferred
shares
which
usually
have
no
voting
rights,
the
term
capital
in
Section
11,
Article
XII
of
the
Constitution
refers
only
to
common
shares.
However,
if
the
preferred
shares
also
have
the
right
to
vote
in
the
election
of
directors,
then
the
term
capital
shall
include
such
preferred
shares
because
the
right
to
1973
and
1987
constitutions,
until
now.
Hence,
it
is
patently
wrong
and
utterly
baseless
to
claim
that
the
court
in
defining
the
term
capital
in
its
28
June
2011
decision
modified,
reversed,
or
set
aside
the
purported
long-standing
definition
of
the
term
capital,
which
supposedly
refers
to
the
total
outstanding
shares
of
stock,
whether
voting
or
non-voting.
Doctrine:
Capital
refers
only
to
those
shares
which
have
voting
rights,
Heirs
of
Gamboa
v.
Teves
Facts:
Contesting
the
ruling
in
Gamboa
v.
Teves
(2011),
Pangilinan
et
al.
claims
that
Securities
and
Exchange
Commission
and
DOJ
have
always
interpreted
capital
to
refer
to
total
outstanding
shares
of
stock
whether
D.
Redeemable
Shares
(Section
8;
Republic
Planters
Bank
v.
Agana,
269
SCRA
1
[1997])
Section
8.
Redeemable
shares.
Redeemable
shares
may
be
issued
by
the
corporation
when
expressly
so
provided
in
the
articles
of
incorporation.
They
may
be
purchased
or
taken
up
by
the
corporation
upon
the
expiration
of
a
fixed
period,
regardless
of
the
existence
of
unrestricted
retained
earnings
in
the
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
would
now
constitute
a
clear
exception
to
the
trust
fund
doctrine.2
o Nevertheless,
the
consistency
of
policy
of
protecting
corporate
creditors
is
still
there
in
the
sense
that
creditors
will
not
be
misled
since
it
is
required
that
the
redemption
feature
must
be
stated
both
in
the
articles
books
of
the
corporation,
and
upon
such
other
terms
and
conditions
as
may
be
stated
in
the
articles
of
incorporation,
which
terms
and
conditions
must
also
be
stated
in
the
certificate
of
stock
representing
said
shares.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
stockholder
is
without
right
to
either
compel
or
refuse
the
redemption
of
its
stock.1
E.
Founder
Shares
(Section
7)2
Section
7.
Founders'
shares.
Founders'
shares
classified
as
such
in
the
articles
of
incorporation
may
be
given
certain
rights
and
privileges
not
enjoyed
by
the
owners
of
other
stocks,
provided
that
where
the
exclusive
right
to
vote
and
be
voted
for
in
the
election
of
directors
is
granted,
it
must
be
for
a
limited
period
not
to
exceed
five
(5)
years
subject
to
the
approval
of
the
Securities
and
Exchange
Commission.
The
five-year
period
shall
necessarily include the fact that there are other shares that do
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
F.
Treasury
Shares
(Section
9;
Commissioner
v.
Manning,
66
SCRA
14
[1975]).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
equitably;
c. Stock
options
granted
to
non-stockholders
may
be
granted
only
upon
showing
that
the
board
has
been
duly
authorized
to
grant
same
by
its
charter
or
by
a
resolution
of
the
stockholders
owning
at
least
two-
thirds
(2/3)
of
the
outstanding
capital
stock
of
the
corporation,
both
voting
and
non-voting;
H.
Stock
Options
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
d. Options
granted
to
directors,
managing
groups
and
corporate
officers
must
be
approved
in
a
stockholders'
meeting
by
stockholders
owning
at
least
two-thirds
(2/3)
of
all
the
outstanding
capital
stock,
voting
or
non-
voting;
e. The
options
must
be
exercised
within
a
period
of
three
f.
price
should
not
be
lower
than
par
or
less
than
80%
of
the
market
price
at
the
time
of
the
exercise,
or
if
there
is
no
transaction
at
the
time
of
exercise,
then
the
last
asked
price
whichever
is
higher;
provided
that
if
the
shares
are
not
listed,
the
80%
referred
to
shall
be
based
on
book
value.3
I.
Re-Classification
of
Shares
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
shares.
Philippine
Coconut
Producers
Federation,
Inc.
v.
Republic,
600
SCRA
102
(2009).
IV.
Hybrid
Securities:
Government
v.
Phil.
Sugar
Estates,
38
Phil.
15
(1918).
Issue:
Whether
or
not
Philippine
Sugar
should
be
dissolved.
Held:
YES.
The
judgment
of
the
lower
court
should
be
modified.
It
is
hereby
ordered
and
decreed
that
the
franchise
heretofore
granted
to
the
defendant
by
which
it
was
permitted
to
exist
and
do
business
as
a
corporation
in
the
Philippine
Islands,
be
withdrawn
and
annulled
and
that
it
be
disallowed
to
do
and
to
continue
doing
business
in
the
Philippine
Islands,
unless
it
shall
within
a
period
of
six
months
after
final
decision,
liquidate,
dissolve
and
separate
absolutely
in
every
respect
and
in
all
of
its
relations,
complained
of
in
the
petition,
with
The
The
issue
arose
from
an
alleged
violation
of
then
Section
13
of
the
old
Corporation
Law
which
provided
that
no
corporation
shall
be
authorized
to
conduct
the
business
of
buying
and
selling
real
estate
or
be
permitted
to
hold
or
own
real
estate
except
such
as
may
reasonably
necessary
to
enable
it
to
carry
out
the
purposes
for
which
it
has
been
created;
however,
the
section
authorized
a
corporation
to
loan
funds
upon
real
estate,
security,
and
purchase
of
real
estate
when
necessary
for
the
collection
of
loans,
but
it
shall
dispose
of
real
estate
so
obtained
within
five
years
after
receiving
the
title.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
company
must
make
for
the
development
of
its
business;
e. The
consent
of
the
"lending"
company
was
necessary
when
the
"borrowing"
company
desired
to
sell
the
land
at
below
an
agreed
market
price,
but
was
not
required
if
the
selling
price
was
over
the
benchmark
figure;
and
f.
Under
the
1997
National
Internal
Revenue
Code,
although
dividends
received
by
a
domestic
corporation
from
another
domestic
corporation
are
exempt
from
income
tax
(Securities
and
Exchange
Commission.
27[D][4]),
beginning
1
January
1998,
dividends
declared
from
profits
earned
from
that
date
to
individuals
are
subject
to
a
final
tax
of
10%
(Securities
and
Exchange
Commission.
24[B][2]).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
post
office
with
postage
prepaid,
or
served
personally.
A
certificate
in
duplicate
must
be
signed
by
a
majority
of
the
directors
of
the
corporation
and
countersigned
by
the
chairman
and
the
secretary
of
the
stockholders'
meeting,
setting
forth:
1.
That
the
requirements
of
this
section
have
been
complied
with;
2.
The
amount
of
the
increase
or
diminution
of
the
capital
stock;
3.
If
an
increase
of
the
capital
stock,
the
amount
of
capital
stock
or
number
of
shares
of
no-par
stock
thereof
actually
subscribed,
the
the
corporation
and
the
other
shall
be
filed
with
the
Securities
and
Exchange
Commission
and
attached
to
the
original
articles
of
incorporation.
From
and
after
approval
by
the
Securities
and
Exchange
Commission
and
the
issuance
by
the
Commission
of
its
certificate
of
filing,
the
capital
stock
shall
stand
increased
or
decreased
and
the
incurring,
creating
or
increasing
of
any
bonded
indebtedness
authorized,
as
the
certificate
of
filing
may
declare:
Provided,
That
the
Securities
and
Exchange
Commission
shall
not
accept
for
filing
any
certificate
of
increase
of
capital
stock
unless
accompanied
by
the
sworn
statement
of
the
treasurer
of
the
corporation
lawfully
holding
office
at
the
time
of
the
filing
of
the
certificate,
showing
that
at
least
twenty-five
(25%)
percent
of
such
increased
capital
stock
has
been
subscribed
and
that
at
least
twenty-five
(25%)
percent
of
the
amount
subscribed
has
been
paid
either
in
actual
cash
to
the
corporation
or
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Bonds
issued
by
a
corporation
shall
be
registered
with
the
Securities
and
Exchange
Commission,
which
shall
have
the
authority
to
determine
the
sufficiency
of
the
terms
thereof.
(17a)
B.
Stock
Splits
Facts:
Lim
Cuan
Sy
delivered
to
Mercantile
Bank
of
China
a
promissory
note
guaranteed
by
Lim
Chu
Sing
as
surety
and
also
secured
by
a
chattel
mortgage.
It
also
has
a
stipulation
that
in
case
of
default,
the
whole
C.
Stock
Consolidations
amount
will
become
due
and
demandable.
Lim
Cuan
Sy
failed
to
comply
with
his
obligation
and
so
the
bank
required
Lim
Chu
Sing
as
surety
to
deliver
the
promissory
note
(P19,
605.17)
with
interest
at
6%
p.a.
Lim
Chu
Sing
had
been
paying
the
monthly
installments
with
interest
on
thereon,
leaving
a
balance
of
P9,105.17,
after
which
he
defaulted
in
the
payment
of
the
installments
which
made
the
promissory
note
due
and
demandable.
The
Mercantile
Bank
of
China
then
foreclosed
the
chattel
mortgage
and
privately
sold
the
property
without
the
knowledge
of
Lim
Chu
Sing.
Lim
Chu
Sing
is
also
the
owner
of
shares
of
stock
at
the
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
corporation's
capital,
or
the
right
to
share
in
the
proceeds
when
the
remaining
assets
of
the
corporation
are
distributed
according
to
law
and
equity,
its
holders
do
not
own
any
part
of
the
assets
represented
by
the
capital
of
the
corporation;
nor
are
the
stockholders
entitled
to
the
possession
of
any
definite
portion
of
the
corporation's
assets
or
properties. 2
Shares
of
VII.
Subscription
Contract
(Sections.
60
and
72;
overturned
Trillana
v.
Quezon
Colegialla,
93
Phil.
383
[1953]).
stockholders.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
agreement
therefore
is
a
special
contract
in
Corporate
Law;
although
it
is
governed
by
the
Law
on
Contracts,
specifically
as
a
species
of
sale
contracts,
a
subscription
agreement
has
special
features
that
go
beyond
such
discipline,
and
delve
into
the
very
heart
of
Corporate
Law.
Section
60.
Subscription
contract.
Any
contract
for
the
acquisition
of
unissued
stock
in
an
existing
corporation
or
a
corporation
still
to
be
formed
shall
be
deemed
a
subscription
within
the
meaning
of
this
Title,
notwithstanding
the
fact
that
the
parties
refer
to
it
as
a
purchase
or
some
other
contract.
(n)
A.
When
Shares
Deemed
Subscribed2
What
can
be
drawn
from
the
provisions
of
Sections
60,
63,
and
72
is
that
the
entering
into
any
contract
for
the
acquisition
of
unissued
stock,
which
shall
be
deemed
as
subscription
agreement,
would
constitute
itself
the
tradition
by
which
the
B.
Purchase
Agreement:
Bayla
v.
Silang
Traffic
Co.,
Inc.,
73
Phil.
557
(1942).
Bayla
v.
Silang
Traffic
Co.,
Inc.
Facts:
Sofronio
Bayla
and
other
petitioners
instituted
this
action
in
the
CFI
of
Cavite
against
Silang
Traffic
Corporation
in
order
to
recover
a
sum
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
of
money
they
paid
to
the
corporation
on
account
of
shares
of
stock
they
each
agreed
to
take
and
pay
for
under
the
condition
that
if
the
subscriber
fails
to
pay
any
of
the
installments
when
due,
or
if
they
are
levied
upon
by
the
creditors
of
the
said
subscriber,
the
shares
were
to
revert
to
the
seller
and
the
payments
already
made
will
also
be
forfeited
to
the
seller,
and
that
the
latter
may
take
possession
without
court
proceedings.
The
agreement
was
later
rescinded,
although
the
Board
of
Directors
claim
that
such
rescission
is
not
applicable
to
Bayla
and
the
others
because
their
failure
to
pay
installments
thereon
had
already
caused
their
shares
and
previous
installments
to
be
forfeited.
Issue:
Whether
or
not
the
contract
is
a
contract
of
subscription
o
o
Held:
NO.
The
said
agreement
is
entitled
Agreement
for
Installment
Sale
of
Shares
in
the
Silang
Traffic
Co,
and
while
the
purchaser
is
designated
as
the
subscriber
and
the
corporation
seller,
the
agreement
was
entered
into
in
1935
long
after
the
incorporation
and
organization
of
the
corporation
which
took
place
in
1927.
The
purchase
was
to
be
payable
in
quarterly
installments
for
five
years.
The
lower
court
failed
to
see
the
distinction
between
a
subscription
and
a
purchase.
Given
that
this
is
a
sale,
the
rescission
of
such
is
valid.
Doctrine:
A
subscription,
properly
speaking,
is
the
mutual
agreement
of
the
subscribers
to
take
and
pay
for
the
stock
of
a
corporation,
while
a
purchase
is
an
independent
agreement
between
the
individual
and
the
corporation
to
buy
shares
of
stock
from
it
at
stipulated
price.
NOTE:
This
case
was
decided
under
the
old
corporation
law
thats
why
there
were
distinctions
between
a
subscription
contract
and
a
purchase
See
Chapter
XIV
of
the
CLBs
book
LAW
ON
SALES
(Rex
Book
Store,
1998
ed.),
on
the
characteristics
of
assignment
of
intangibles,
like
shares
of
stock,
as
a
species
of
sale.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
and
creditors
of
the
corporation,
Section
60
of
the
Corporation
Code
removed
such
distinctions
and
now
provides
that
all
agreements
pertaining
to
the
purchase
of
unissued
shares
of
stock
of
a
corporation
would
be
considered
as
subscription
agreements
and
governed
by
the
principles
of
Corporate
Law.
C.
Pre-Incorporation
Subscription
(Section
61)
Section
61.
Pre-incorporation
subscription.
A
subscription
for
shares
of
stock
of
a
corporation
still
to
be
formed
shall
be
irrevocable
for
a
period
of
at
least
six
(6)
months
from
the
On
Yong
v.
Tiu
Facts:
The
Tiu
family
members
are
the
owners
of
First
Landlink
Asia
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Development
Corporation
(FLADC).
One
of
the
corporations
projects
is
the
construction
of
Masagana
Citimall
in
Pasay
City.
However,
due
to
financial
difficulties
(they
were
indebted
to
PNB
for
P190
million),
the
Tius
feared
that
the
construction
would
not
be
finished.
So
to
prevent
the
foreclosure
of
the
mortgage
on
the
two
lots
where
the
mall
was
being
built,
they
invited
the
Ongs
to
invest
in
FLADC.
The
two
parties
entered
into
a
Presubscription
Agreement
whereby
each
of
them
would
hold
1,000,000
shares
each
and
be
entitled
to
nominate
certain
officers.
The
Tius
contributed
a
building
and
two
lots,
while
the
Ongs
contributed
P100M.
Two
years
later,
the
Tuis
filed
for
rescission
of
the
Presubscription
Subscription
Agreement
on
the
basis
of
Art.
1191
of
the
Civil
Code.
Art.
1191.
The
power
to
rescind
obligations
is
implied
in
reciprocal
ones,
in
case
one
of
the
obligors
should
not
comply
with
what
is
incumbent
upon
him.
As
a
legal
consequence
of
rescission,
the
order
of
the
Court
of
Appeals
to
return
the
cash
and
property
contribution
of
the
parties
is
based
on
law,
hence,
cannot
be
considered
an
act
of
misappropriation.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
D.
Release
from
Subscription
Obligation:
Tan
v.
Sycip,
499
SCRA
216
(2006).1
for
the
obvious
reason
that
it
was
held
in
an
annual
meeting
of
the
members
(where
a
majority
of
the
Board
were
present),
not
of
the
board
of
trustees.
We
cannot
ignore
the
GCHS
bylaw
provision,
which
specifically
prescribes
that
vacancies
in
the
board
must
be
filled
up
by
the
remaining
trustees
who
must
sit
as
a
board
in
order
to
validly
elect
the
new
ones.
of
Atty.
Antonio
C.
Pacis,
who
argued
that
there
was
no
quorum.
In
the
meeting,
Petitioners
Ernesto
Tanchi,
Edwin
Ngo,
Virginia
Khoo,
and
Judith
Tan
were
voted
to
replace
the
four
deceased
member-trustees.
Held:
NO.
Under
Section
52
of
the
Corporation
Code,
the
majority
of
the
members
representing
the
actual
number
of
voting
rights,
not
the
number
or
numerical
constant
that
may
originally
be
specified
in
the
Tan v. Sycip
Velasco
v.
Poizat,
37
Phil.
802
(1918);
PNB
v.
Bituloc
Sawmill,
Inc.,
23
SCRA
1366
(1968);
National
Exchange
Co.
v.
Dexter,
51
Phil.
601
(1928).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
E.
Condition
of
Payment
Provided
in
By-laws.
De
Silva
v.
Aboitiz
&
Co.,
44
Phil.
755
(1923).
De
Silva
v.
Aboitiz
&
Co.1
Stocks
shall
not
be
issued
for
a
consideration
less
than
the
par
or
issued
price
thereof.
Consideration
for
the
issuance
of
stock
may
be
any
or
a
combination
of
any
two
or
more
of
the
following:
1.
Actual
cash
paid
to
the
corporation;
Facts:
De
Silva
subscribed
for
650
shares
of
stock.
He
has
paid
only
200
shares.
Subsequently,
the
Board
of
said
corporation
declared,
by
resolution,
the
unpaid
subscription
to
be
due
and
demandable;
and
non-payment
of
which
on
the
date
fixed
would
amount
to
a
sale
of
said
shares.
De
Silva
questioned
said
authority
of
the
Board,
as
the
corporation's
by-laws
provided
that
the
Board
may
deduct
an
amount
2.
Property,
tangible
or
intangible,
actually
received
by
the
corporation
and
necessary
or
convenient
for
its
use
and
lawful
purposes
at
a
fair
valuation
equal
to
the
par
or
issued
value
of
the
stock
issued;
3.
Labor
performed
for
or
services
actually
rendered
to
the
corporation;
4.
Previously
incurred
indebtedness
of
the
corporation;
5.
Amounts
transferred
from
unrestricted
retained
earnings
to
stated
capital;
and
authority
given
to
it
in
the
by-law,
it
still
has
two
other
remedies.
It
may
put
up
the
unpaid
stock
for
sale
as
provided
in
Sections
38
to
48
of
the
Corporation
Law
or
by
action
in
court.
VIII.
CONSIDERATION
(Section
62):
Section
62.
Considering
for
stocks.
Shares
of
stock
shall
not
be
issued
in
exchange
for
promissory
notes
or
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
of
the
cash
consideration
in
order
to
make
the
subscription
agreement
valid
and
binding.
Indeed,
a
subscription
agreement
is
a
consensual
contract,
perfect,
valid
and
binding
upon
the
meeting
of
the
minds
of
the
parties
on
the
subject
matter
(the
shares
subscribed)
and
the
consideration.
future
service.
The
same
considerations
provided
for
in
this
section,
insofar
as
they
may
be
applicable,
may
be
used
for
the
issuance
of
bonds
by
the
corporation.
The
issued
price
of
no-par
value
shares
may
be
fixed
in
the
articles
of
incorporation
or
by
the
board
of
directors
pursuant
to
authority
conferred
upon
it
by
the
articles
of
incorporation
or
the
by-laws,
or
in
the
absence
thereof,
by
the
stockholders
representing
at
least
a
majority
of
the
outstanding
capital
stock
at
a
meeting
duly
called
for
the
purpose.
(5
and
16)
Atty.
Hofilea
while
youre
free
to
choose
how
you
pay
for
your
shares,
the
company
must
always
receive
the
value
for
the
shares
they
are
parting
with.
B.
Property3
A.
Cash2
The
basis
for
determining
the
documentary
stamps
due
on
stock
dividends
declared
would
be
their
book
value
as
indicated
in
the
latest
audited
financial
statements
of
the
corporation,
and
not
the
par
value
thereof.
Commissioner
of
Internal
Revenue
v.
Lincoln
Phil.
Life
Insurance
Co.,
379
SCRA
423
(2002).
2
Villanueva,
C.
L.,
&
Villanueva-Tiansay,
T.
S.
(2013).
Philippine
Corporate
Law.
(2013
ed.).
Manila,
Philippines:
Rex
Book
Store.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
E.
Retained
Earnings
F.
Watered
Stocks
(Section
65)
Section
65.
Liability
of
directors
for
watered
stocks.
Any
director
or
officer
of
a
corporation
consenting
to
the
issuance
of
stocks
for
a
consideration
less
than
its
par
or
issued
value
or
for
a
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
consideration
in
any
form
other
than
cash,
valued
in
excess
of
its
fair
value,
or
who,
having
knowledge
thereof,
does
not
forthwith
express
his
objection
in
writing
and
file
the
same
with
the
corporate
secretary,
shall
be
solidarily,
liable
with
the
stockholder
concerned
to
the
corporation
and
its
creditors
for
the
difference
between
the
fair
value
directors
of
any
stock
corporation
may
at
any
time
declare
due
and
payable
to
the
corporation
unpaid
subscriptions
to
the
capital
stock
and
may
collect
the
same
or
such
percentage
thereof,
in
either
case
with
accrued
interest,
if
any,
as
it
may
deem
necessary.
received
at
the
time
of
issuance
of
the
stock
and
the
par
or
issued
value
of
the
same.
(n)
G.
Payment
of
Balance
of
Subscription
(Sections
66
and
67):
payment.
If
within
thirty
(30)
days
from
the
said
date
no
payment
is
made,
all
stocks
covered
by
said
subscription
shall
thereupon
become
delinquent
and
shall
be
subject
to
sale
as
hereinafter
provided,
unless
the
board
of
directors
orders
otherwise.
(38)
1. Nature
of
the
Call
(Section
67):
The
word
call
is
capable
of
three
meanings,
namely:
(a)
it
may
mean
the
resolution
of
the
the
by-laws,
such
rate
shall
be
deemed
to
be
the
legal
rate.
(37)
Section
67.
Payment
of
balance
of
subscription.
Subject
to
the
provisions
of
the
contract
of
subscription,
the
board
of
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
rule
it
must
not
exceed
the
balance
remaining
unpaid
on
their
shares.
2. When
Call
Not
Necessary:
There
are
two
(2)
instances
when
call
is
not
necessary
to
make
the
subscriber
liable
for
payment
of
the
unpaid
subscription:
a. When,
under
the
terms
of
the
subscription
contract,
subscription
is
payable,
not
upon
call,
but
immediately,
or
on
a
specified
day,
or
when
it
is
payable
in
installments
at
specified
times;
and
b. If
the
corporation
becomes
insolvent,
which
makes
the
liability
on
the
unpaid
subscription
due
and
demandable
regardless
of
any
stipulation
to
the
contrary
in
the
subscription
agreement.
Lingayen
Gulf
Electric
Power
Co.
v.
Baltazar
Facts:
Companys
president
subscribed
to
shares
and
paid
partially.
The
Board
made
a
call
for
payment
through
a
resolution
with
the
first
50%
payable
within
60
days
beginning
August
1,
1946,
and
the
remaining
50%
payable
within
60
days
beginning
October
1,
1946.
The
resolution
provided
that
all
unpaid
subscriptions
after
the
due
dates
would
be
subject
to
a
12%
interest
per
annum,
and
if
after
February
1947
they
remain
unpaid,
they
would
revert
to
the
corporation.
This
resolution
was
set
aside
about
a
year
later
by
Resolution
No.
17
which
stated
that
the
company
was
in
no
position
to
absorb
unpaid
shares,
and
the
Board
decided
to
issue
a
call
for
payment
of
unpaid
shares.
Resolution
No.
4
was
passed
a
year
later
directing
for
the
revaluation
of
shares.
However,
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
H.
Delinquency
on
Subscription
(Sections
68,
69,
70
and
71;
Philippine
Trust
Co.
v.
Rivera,
44
Phil.
469
[1923];
Miranda
v.
Tarlac
Rice
Mill
Co.,
57
Phil.
619
[1932])
Section
68.
Delinquency
sale.
The
board
of
directors
may,
by
resolution,
order
the
sale
of
delinquent
stock
and
shall
specifically
state
the
amount
due
on
each
subscription
plus
all
accrued
interest,
and
the
date,
time
and
place
of
the
sale
which
shall
not
be
less
than
thirty
(30)
days
nor
more
than
sixty
(60)
days
from
the
date
the
stocks
become
delinquent.
Notice
of
said
sale,
with
a
copy
of
the
resolution,
shall
be
sent
to
every
delinquent
stockholder
either
personally
or
by
registered
mail.
The
same
shall
furthermore
be
published
once
a
week
for
two
(2)
consecutive
weeks
in
a
newspaper
of
general
circulation
in
the
province
or
city
where
the
principal
office
of
the
corporation
is
located.
Unless
the
delinquent
stockholder
pays
to
the
corporation,
on
or
before
the
date
specified
for
the
sale
of
the
delinquent
stock,
the
balance
due
on
his
subscription,
plus
accrued
interest,
costs
of
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
b. Failure
to
pay
the
subscription
on
the
date
specified
on
the
contract
of
subscription.
2. Effects
of
delinquency
a. It
disqualifies
the
stockholder
to
be
voted
for
or
be
entitled
to
vote
or
to
representation
at
any
stockholder's
meeting;
commenced
by
the
filing
of
a
complaint
within
six
(6)
months
from
the
date
of
sale.
(47a)
Section
70.
Court
action
to
recover
unpaid
subscription.
Nothing
in
this
Code
shall
prevent
the
corporation
from
collecting
by
action
in
a
court
of
proper
jurisdiction
the
amount
due
on
any
unpaid
subscription,
with
accrued
interest,
costs
and
expenses.
(49a)
Section
71.
Effect
of
delinquency.
No
delinquent
stock
shall
be
voted
for,
be
entitled
to
vote
or
to
representation
at
any
stockholder's
meeting,
nor
shall
the
holder
thereof
be
entitled
to
any
of
the
rights
of
a
stockholder
except
the
not
commence
from
the
time
of
subscription
but
from
the
time
of
demand
by
Board
of
Directors
to
pay
the
balance
of
subscription.
Garcia
v.
Suarez,
67
Phil.
441
(1939).
IX.
CERTIFICATE
OF
STOCK
(Section
63)
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Section
63.
Certificate
of
stock
and
transfer
of
shares.
The
capital
stock
of
stock
corporations
shall
be
divided
into
shares
for
which
certificates
signed
by
the
president
or
vice
president,
countersigned
by
the
secretary
or
assistant
secretary,
and
sealed
with
the
seal
of
the
corporation
shall
be
issued
in
accordance
with
the
by-
Facts:
Alfonso
Tan
owned
400
shares
of
Visayan
Educational
Supply
Corporation,
and
was
president
until
1982
and
director
until
1983.
In
1981,
two
of
Visayans
incorporators
withdrew
from
the
company.
To
A.
Nature
of
Certificate:
C.N.
Hodges
v.
Lezama,
14
SCRA
1030
(1965);
Ponce
v.
Alsons
Cement
Corp.,
393
SCRA
602
(2002);
Nautica
Canning
Corp.
v.
Yumul,
473
SCRA
415
(2005).
the
cancellation
on
the
ground
that
there
was
never
any
endorsement
from
Alfonso
and
that
he
never
delivered
his
stock
certificates,
rendering
the
transfer
ineffective
under
Section
63
of
the
Corporation
Code.
Issue:
Whether
or
not
Alfonsos
argument
that
the
wording
of
Section
63
of
the
Corporation
Code
requires
delivery
as
a
mode
of
transfer
is
correct.
Held:
NO.
The
requirement
of
delivery
under
Section
63
is
merely
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
directory
and
not
mandatory.
Furthermore,
there
is
no
doubt
that
there
was
delivery
of
Stock
Certificate
No.
2
made
by
the
petitioner
to
the
Corporation
before
its
replacement
with
the
Stock
Certificate
no.
6
no.
8.
The
problem
arose
when
petitioner
was
given
back
stock
certificate
no.
2
for
him
to
endorse
and
instead
he
deliberately
withheld
it.
The
transfer
was
recognized
when
Angel,
became
a
director
and
the
Vice
President
of
the
company
by
reason
of
his
fifty
(50)
shares
from
Alfonso.
The
certificate
is
not
stock
in
the
corporation
but
is
merely
evidence
of
the
holders
interest
and
status
in
the
corporation,
his
ownership
of
the
share
represented
thereby,
but
is
not
in
law
the
equivalent
of
such
ownership.
SECURITIES
AND
EXCHANGE
COMMISSION
Opinion,
6
January
1999,
XXXIII
SECURITIES
AND
EXCHANGE
COMMISSION
QUARTERLY
BULLETIN
44
(No.
1,
June,
1999).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
advise
of
its
offer
to
resell
the
share.
It
appears
that
while
the
sale
between
the
MSCI
and
McFoods
was
still
under
negotiations,
there
were
negotiations
between
McFoods
and
Hodreal
for
the
purchase
by
the
latter
of
a
share
of
the
MSCI.
Upon
request,
a
new
certificate
was
issued.
An
investigation
was
then
conducted
and
the
committee
held
MSCI
received
McFoods
letter
of
offer
to
sell
the
share,
that
McFoods
and
Hodreal
executed
the
Deed
of
Absolute
Sale
over
the
said
share
of
stock.
Doctrine:
A
certificate
of
stock
is
the
paper
representative
or
tangible
evidence
of
the
stock
itself
and
of
the
various
interests
therein.
The
certificate
is
not
a
stock
in
the
corporation
but
is
merely
evidence
of
the
holders
interest
and
status
in
the
corporation,
his
ownership
of
the
share
represented
thereby.
It
is
not
in
law
the
equivalent
of
such
ownership.
It
expresses
the
contract
between
the
corporation
and
the
stockholder,
but
is
not
essential
to
the
existence
of
a
share
of
stock
or
the
nature
of
the
relation
of
shareholder
to
the
corporation.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
The
fact
that
the
stock
certificates
registered
in
the
name
of
one
person
are
found
in
the
possession
of
another
stockholder
does
not
prove
that
the
possessor
is
the
owner
of
the
covered
shares.
element
of
the
issuance
of
the
certificate
of
stock
itself.
There
is
no
issuance
of
the
certificate
where
it
is
never
detached
from
the
certificate
book
although
the
blanks
therein
are
properly
filled
up,
if
the
person
whose
name
is
inserted
therein
has
no
control
over
the
books
of
the
corporation.1
B.
Quasi-Negotiable
Character
of
Certificate
of
Stock
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
De
los
Santos
contends
that
he
bought
55,000
shares
from
Juan
Campos
and
1,200,000
shares
from
Carl
Hess.
On
the
other
hand,
the
US
Attorney
General
contends
that
prior
to
the
outbreak
of
the
war
in
the
Pacific,
said
shares
of
stock
were
bought
by
Vicente
Madrigal,
in
trust
for,
and
for
the
benefit
of,
the
Mitsui
Bussan
Kaisha
(Mitsuis),
a
corporation
organized
in
accordance
with
the
laws
of
Japan,
with
branch
office
in
the
Philippines.
They
further
contend
that
Madrigal
delivered
the
corresponding
stock
certificates
to
the
Mitsuis,
which
kept
them
in
its
office
in
Manila,
until
the
liberation
of
the
city
by
the
American
forces
early
in
1945.
They
add
that
the
Mitsuis
had
never
sold,
or
otherwise
disposed
of
the
shares
and
that
these
must
have
been
looted
during
the
liberation.
After
the
war,
pursuant
to
the
all
property
vested
in
the
United
States,
or
any
of
its
officials,
under
the
Trading
with
the
Enemy
Act,
located
in
the
Philippines
at
the
time
of
such
vesting,
or
the
proceeds
thereof,
shall
be
transferred
to
the
Republic
of
the
Philippines
(this
is
why
the
Republic
is
a
party).
Issue:
Whether
or
not
plaintiffs
had
purchased
the
shares
of
stock.
Held:
NO.
It
appears
that
the
only
evidence
on
the
alleged
sale
of
the
shares
of
stock
in
question
is
the
testimony
of
de
los
Santos.
Campos
and
Hess,
the
alleged
vendors,
could
not
take
the
witness
stand
because
both
are
already
dead.
The
record
shows
that
Madrigal
had
never
disposed
of
said
shares
of
stock
in
any
manner,
except
by
turning
over
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Bitong
v.
Court
of
Appeals
Facts:
The
2
cases
originated
from
a
derivative
suit
filed
by
petitioner-
Bitong
before
the
Securities
and
Exchange
Commission.
Petitioner
complained
of
irregularities
committed
by
Eugenia
Apostol,
President
and
Chairperson
of
the
Board
of
Directors
of
Mr.
&
Ms.
Publishing
Co,
Inc.
(Mr.
&
Ms.
Co.)
She
claims
that
Eugenia
and
her
husband
Jose
were
liable
for
fraud,
misrepresentation,
disloyalty,
evident
bad
faith,
conflict
of
interest
and
mismanagement
in
directing
the
affairs
of
Mr.
&
Ms.
Co.
to
the
damage
and
prejudice
of
the
corporation,
its
stockholders,
including
petitioner.
These
acts
include
cash
advances
to
the
Philippine
Daily
Inquirer
(of
which
Spouses
Apostol
were
stockholder,
directors
and
officers),
as
well
as
purchase
of
PDI
shares
with
money
of
Mr.
&
Ms.
Co.
Respondents
aver
that
petitioner
does
not
have
personality
to
initiate
and
prosecute
a
derivative
suit
because
she
was
merely
a
holder-in-trust
of
JAKA
shares.
It
was
recounted
that
Mr
&
Ms
Co.
stemmed
from
the
restructuring
of
a
failed
prior
venture
by
organizing
a
new
corporation
with
the
help
of
JAKA
Investment
Corporation
and
the
Apostols.
Issue:
Whether
or
not
Bitong
was
a
stockholder,
therefore
giving
her
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
personality
to
prosecute
a
derivative
suit
against
private
respondents.
Held:
NO.
The
records
are
unclear
on
how
petitioner
allegedly
acquired
the
shares
of
stock
of
JAKA.
Petitioner
being
the
CEO
of
JAKA
and
the
sole
person
in
charge
of
all
the
business
and
financial
transactions
and
affairs
of
JAKA
was
supposed
to
be
in
the
best
position
to
show
convincing
evidence
on
the
alleged
transfer
of
shares
to
her,
if
indeed
there
was
a
transfer.
As
found
by
the
Securities
and
Exchange
Commission
Hearing
Panel,
there
was
overwhelming
evidence
despite
what
appears
on
the
certificate
of
stock
and
stock
and
transfer
book,
petitioner
was
not
a
bona
fide
stockholder
of
Mr.
&
Ms.
Co.
before
March
1989
or
at
the
time
the
complained
acts
were
committed
to
qualify
her
to
institute
a
stockholders
derivative
suit
against
private
respondents.
Bitong
admitted
that
Apostol
(as
president
of
the
corporation)
only
signed
her
certificate
of
stocks
in
1989
Doctrine:
For
a
valid
transfer
of
stocks,
the
requirements
are
as
follows:
1. There
must
be
delivery
of
the
stock
certificate
2. Certificate
must
be
endorsed
by
the
owner
or
his
attorney-in-
fact
or
other
legally
authorized
to
make
the
transfer
3. To
be
valid
against
3rd
persons,
the
transfer
must
be
recorded
in
the
books
of
the
corporation.
Considering
that
the
requirements
provided
under
Securities
and
Exchange
Commission.
63
of
The
Corporation
Code
should
be
mandatorily
complied
with,
the
rule
on
presumption
of
regularity
cannot
apply.
The
regularity
and
validity
of
the
transfer
must
be
proved.
Rural
Bank
of
Lipa
City
v.
Court
of
Appeals
Facts:
Reynaldo
Villanueva,
Sr.,
a
stockholder
of
the
Rural
Bank
of
Lipa
City,
executed
a
Deed
of
Assignment,
assigning
his
shares,
as
well
as
those
of
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.
The
spouses
Villanueva
was
indebted
to
the
bank
and
in
a
board
meeting
assured
the
bank
that
they
would
pay,
otherwise
the
bank
would
be
entitled
to
liquidate
their
shareholdings,
including
those
under
their
control.
The
spouses
failed
to
settle
their
obligation
and
ignored
the
Banks
demands,
whereupon
their
shares
of
stock
were
converted
into
Treasury
Stocks.
In
January
1994,
a
new
set
of
officers
was
elected
but
the
spouses
Villanueva
were
not
notified,
and
so
they
questioned
the
validity
of
the
proceedings.
The
new
set
of
officers
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.
Issue:
Whether
there
was
a
valid
transfer
of
the
shares
to
the
Bank
that
would
preclude
the
spouses
Villanueva
of
any
right
to
participate
as
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
stockholder
or
board
member
Held:
NO.
While
it
may
be
true
that
there
was
an
assignment
of
the
spouses
shares
to
the
petitioners,
said
assignment
was
not
sufficient
to
effect
the
transfer
of
shares
since
there
was
no
endorsement
of
the
Facts:
Plaintiffs
Baltazar
and
Rose
(Batazar
Group)
were
incorporators
of
Lingayen
Gulf
Electric
Power
Co,
subscribed
to
600
and
400
shares
of
the
capital
stock,
respectively.
Of
the
600
shares
of
capital
stock
subscribed
by
Baltazar,
he
had
fully
paid
535
shares
of
stock,
and
the
Corporation
issued
to
him
several
certificates
of
stock,
corresponding
to
the
535
shares.
Of
the
400
shares
of
stock
subscribed
by
Rose,
he
had
375
shares
of
fully
paid
stock,
duly
covered
by
certificates
of
stock
issued
to
him.
The
respondents
Ungson,
Estrada,
Fernandez
and
Yuson
(Ungson
Group)
were
stockholders
of
the
Corporation,
all
holding
a
total
number
of
fully
paid-up
shares
of
stock,
of
less
than100
shares.
and
the
defendant
Acena
(part
of
the
Ungson
Group),
was
an
incorporator
and
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
stockholder,
holding
600
shares
of
stock.
Ungson,
Estrada,
Fernandez
and
Yuzon,
where
Directors
of
the
Corporation.
The
Ungson
group,
passed
three
(3)
resolutions
which
essentially
says
that:
said
payments;
its
call
for
payment
of
unpaid
subscription
and
its
declaration
of
delinquency
for
non-payment
of
said
call
affecting
only
the
remaining
number
of
shares
of
its
capital
stock
for
which
no
fully
paid
capital
stock
shares
certificates
have
been
issued,
and
only
do
not
have
voting
rights
by
said
declaration
of
delinquency.
Doctrine:
The
present
law
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.
A
corporation
may
now,
in
the
absence
of
provisions
in
their
by-laws
to
the
contrary,
apply
payment
made
by
D.
Lost
or
Destroyed
Certificates
(Section
63
and
73)
Section
73.
Lost
or
destroyed
certificates.
The
following
procedure
shall
be
followed
for
the
issuance
by
a
corporation
of
new
certificates
of
stock
in
lieu
of
those
which
have
been
lost,
stolen
or
destroyed:
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
1.
The
registered
owner
of
a
certificate
of
stock
in
a
corporation
or
his
legal
representative
shall
file
with
the
corporation
an
affidavit
in
triplicate
setting
forth,
if
possible,
the
circumstances
as
to
how
the
certificate
was
lost,
stolen
or
destroyed,
the
number
of
shares
represented
by
such
certificate,
the
serial
number
of
the
certificate
and
the
name
of
the
corporation
which
issued
the
same.
He
shall
also
submit
such
other
information
and
evidence
which
he
may
deem
necessary;
2.
After
verifying
the
affidavit
and
other
information
and
evidence
with
the
books
of
the
corporation,
said
corporation
shall
publish
a
notice
in
a
newspaper
of
general
circulation
published
in
the
place
where
the
corporation
has
its
principal
office,
once
a
week
for
three
(3)
consecutive
weeks
at
the
expense
of
the
registered
owner
of
the
certificate
of
stock
which
has
been
lost,
stolen
or
destroyed.
The
notice
shall
state
the
name
of
said
corporation,
the
name
of
the
registered
owner
and
the
serial
number
of
said
certificate,
and
the
number
of
shares
represented
by
such
certificate,
and
that
after
the
expiration
of
one
(1)
year
from
the
date
of
the
last
publication,
if
no
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
section,
that
Except
in
case
of
fraud,
bad
faith,
or
negligence
on
the
part
of
the
corporation
and
its
officers,
no
action
may
be
brought
against
any
corporation
which
shall
have
issued
certificate(s)
of
stock
in
lieu
of
those
lost,
stolen
or
destroyed
and
open
itself
to
claims
for
damages.
1
E.
Forged
and
Unauthorized
Transfers.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
transfer
book.
Neugene
Marketing,
Inc.
v.
Court
of
Appeals,
303
SCRA
295
(1999).
and
instead
she
delivered
said
certificate
to
R.J.
Campos
&
Co.
indorsed
in
blank,
thereby
clothing
the
latter
with
apparent
title
to
the
shares
represented
by
said
certificate
including
apparent
authority
to
negotiate
it.
This
was
the
proximate
cause
of
the
damage
suffered
by
her.
She
is,
therefore,
estopped
from
claiming
further
title
to
or
interest
therein
as
the
stock
at
the
time
it
received
the
same
from
R.J.
Campos
and
Company.
Doctrine:
A
bona
fide
pledgee
or
transferee
of
a
stock
from
the
apparent
owner
is
not
chargeable
with
knowledge
of
the
limitations
placed
on
it
by
the
real
owner,
or
of
any
secret
agreement
relating
to
the
use
which
might
be
made
of
the
stock
by
the
holder
(12
Fletcher,
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Held:
NO.
The
Court
found
that
the
certificates
of
stock
were
stolen
and
therefore
not
validly
transferred,
and
the
transfers
of
stock
relied
upon
by
Tan
et
al
were
fraudulently
recorded
in
the
Stock
and
Transfer
Book
of
NEUGENE
under
the
column
Certificates
Cancelled.
As
nominees
of
which
shall
be
set
forth
in
detail
the
time
and
place
of
holding
the
meeting,
how
authorized,
the
notice
given,
whether
the
meeting
was
regular
or
special,
if
special
its
object,
those
present
and
absent,
and
every
act
done
or
ordered
done
at
the
meeting.
Upon
the
demand
of
any
director,
trustee,
stockholder
or
member,
the
time
when
any
the
Uy
family,
the
approval
by
the
Charles
O.
Sy,
Lok
Chun
Suen
and
Arsenio
Yang,
Jr.,
Jr.,
was
necessary
for
the
validity
and
effectivity
of
the
transfer
of
the
stock
certificates
registered
under
their
(Yang
Jr
et
al)
names.
In
the
case
under
consideration,
not
only
did
the
transfers
of
stock
in
question
lack
the
requisite
approval,
Yang
Jr
et
al
categorically
declared
under
oath
that
subject
certificates
of
stock
of
theirs
were
stolen
from
the
confidential
vault
of
the
Uy
family
and
illegally
X.
STOCK
AND
TRANSFER
BOOK
(Sections
63,
72
and
74):
Section
74.
Books
to
be
kept;
stock
transfer
agent.
Every
corporation
shall
keep
and
carefully
preserve
at
its
principal
office
a
record
of
all
business
transactions
and
minutes
of
all
meetings
of
stockholders
or
members,
or
of
the
board
of
directors
or
trustees,
in
who
voted
for
such
refusal:
and
Provided,
further,
That
it
shall
be
a
defense
to
any
action
under
this
section
that
the
person
demanding
to
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
examine
and
copy
excerpts
from
the
corporation's
records
and
minutes
has
improperly
used
any
information
secured
through
any
prior
examination
of
the
records
or
minutes
of
such
corporation
or
of
any
other
corporation,
or
was
not
acting
in
good
faith
or
for
a
legitimate
purpose
in
making
his
demand.
transfer
books.
The
remedy
of
the
one
who
wants
such
claim
over
the
unpaid
shares
to
be
recorded
is
to:
a. Require
the
owner
to
pay
the
shares
completely.
b. Resort
to
subrogation
(i.e.
substitution
of
debtors)
may
be
allowed
if
the
consent
of
the
corporation
(Board
of
Directors),
as
creditor,
is
secured.
Stock
corporations
must
also
keep
a
book
to
be
known
as
the
"stock
and
transfer
book",
in
which
must
be
kept
a
record
of
all
stocks
in
the
names
of
the
stockholders
alphabetically
arranged;
the
installments
paid
and
unpaid
on
all
stock
for
which
subscription
has
been
made,
and
the
date
of
payment
of
any
installment;
a
statement
of
every
alienation,
sale
or
transfer
of
stock
made,
the
date
thereof,
and
by
and
to
whom
made;
and
such
other
entries
as
the
by-laws
may
prescribe.
The
stock
and
transfer
book
shall
be
kept
in
the
principal
office
of
the
corporation
or
in
the
office
of
its
stock
transfer
agent
and
shall
be
open
for
inspection
by
any
director
or
stockholder
of
the
corporation
at
reasonable
hours
on
business
days.
No
stock
transfer
agent
or
one
engaged
principally
in
the
business
of
registering
transfers
of
stocks
in
behalf
of
a
stock
corporation
shall
be
allowed
to
operate
in
the
Philippines
unless
he
secures
a
license
from
the
Securities
and
Exchange
Commission
and
pays
a
fee
as
may
be
fixed
by
the
Commission,
which
shall
be
renewable
annually:
Provided,
That
a
stock
corporation
is
not
precluded
from
performing
or
making
transfer
of
its
own
stocks,
in
which
case
all
the
rules
and
regulations
imposed
on
stock
transfer
agents,
except
the
payment
of
a
license
fee
herein
provided,
shall
be
applicable.
(51a
and
32a;
B.
P.
No.
268.)
Facts:
In
the
original
case,
the
Court
ordered
Salvosa
to
transfer
and
deliver
to
Escao
116
active
shares
and
an
undetermined
number
of
shares
in
escrow
of
Filipinas
Mining.
A
writ
of
garnishment
was
served
to
Filipinas
Mining
to
satisfy
judgment,
and
the
shares
were
subsequently
sold
in
a
public
auction.
HOWEVER,
the
said
shares
of
stocks
were
sold
to
Bengzon
then
to
Standard
investment
of
the
Philippines
during
the
pendency
of
the
said
case.
The
transfers,
however,
were
not
recorded
in
the
books
of
Filipinas
Mining
and
it
was
only
after
around
3
years
that
the
sale
to
Standard
Investment
was
recorded.
On
January
24,
1941
Filipinas
Mining
issued
in
favour
of
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Standard
Investment
certificate
of
stocks
for
18,580
shares
formerly
held
in
escrow.
This
then
prompted
Escao
to
file
this
present
case
against
Filipinas
Mining
Corp
and
Standard
and
Investment.
Issue:
Whether
or
not
the
issuance
by
Filipinas
Mining
of
the
said
shares
of
stock
to
Standard
was
valid
as
against
the
attaching
judgment
creditor
(Escao)
of
the
original
owner,
Salvosa.
Held:
NO.
The
transfer
of
the
escrow
shares
in
question
from
Salvosa
to
Bengzon
and
from
Bengzon
to
the
Standard
Investment
of
the
Philippines,
not
having
been
recorded
in
the
books
of
the
corporation
as
required
by
Section
35
of
the
Corporation
Law,
could
not
prevail
over
the
garnishment
previously
made
by
the
plaintiff
of
the
said
shares.
Doctrine:
In
accordance
with
Section
35,
for
transfer
of
shares
to
be
valid
against
the
corporation
and
third
parties
it
must
be
recorded
in
the
book
of
records
of
the
corporation.
Even
if
the
law
expressly
stated
that
this
is
for
issued
shares,
the
Court
held
that
through
analogy
such
requirement
also
applies
to
unissued
shares
held
in
escrow.
There
is
no
valid
reason
for
treating
unissued
shares
held
in
escrow
differently
from
the
issued
shares
insofar
as
the
sale
and
transfer
is
concerned.
In
both
cases
the
possibility
of
fraudulent
transfers
exists
and
the
aim
of
requiring
such
recording
of
transfer
is
to
prevent
this.
In
this
case,
therefore,
the
transfer
of
shares
(whether
issued
shares
or
unissued
shares
held
in
escrow)
must
be
recorded
in
the
book
of
record
of
the
corporation
in
order
to
be
valid
against
the
corporation
and
third
parties.
Facts:
Chua
Soco
subscribed
for
500
shares
of
stock
of
China
Bank
at
P100
per
share
and
paid
25,000
representing
half
of
the
subscription
for
which
a
receipt
was
issued.
Subsequently,
Chua
Soco
issued
a
promissory
note
in
favor
of
the
plaintiff,
Fua
Cun
and
secured
the
note
with
a
chattel
mortgage
on
the
said
shares
of
stock.
There
came
the
a
point
that
Chua
Soco
became
indebted
to
China
Bank
and
failed
to
pay
such
which
lead
to
the
attachment
of
the
same
shares
of
stock
in
favor
of
the
bank.
Fua
Cun
contested
this
and
claims
that
he
acquired
the
right
to
the
250
fully
paid
shares
and
he
must
be
given
priority
over
the
ownership
plus
damages.
The
bank
argues
that
the
interest
held
by
Chua
Soco
was
merely
an
equity
which
could
not
be
made
the
subject
of
a
chattel
mortgage.
Issue:
Whether
or
not
Fua
Cun
has
better
rights
over
the
bank.
Held:
YES.
Chua
Soco
does
not
own
half
of
the
shares.
His
right
consists
only
in
an
equity
entitling
him
to
a
certificate
for
the
total
number
of
shares
subscribed
for
by
him
upon
payment
of
the
remaining
portion
of
the
subscription
price.
There
can
be
no
doubt
that
an
equity
in
shares
of
stock
may
be
assigned
and
that
the
assignment
is
valid
as
between
the
parties
and
as
to
persons
to
whom
notice
is
brought
home.
Such
an
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
assignment
exists
here,
though
it
was
made
for
the
purpose
of
securing
a
debt.
The
attachment
was
levied
after
the
bank
had
received
notice
of
the
assignment
of
Chua
Soco's
interests
to
the
plaintiff
and
was
therefore
subject
to
the
rights
of
the
latter.
It
follows
that
as
against
these
rights
the
defendant
bank
holds
no
lien
whatever.
Doctrine:
In
the
absence
of
special
agreement
to
the
contrary,
a
subscriber
for
a
certain
number
of
shares
of
stock
does
not,
upon
payment
of
one-half
of
the
subscription
price,
become
entitled
to
the
issuance
of
certificates
for
one-half
the
number
of
shares
subscribed
for;
the
subscriber's
right
consists
only
in
an
equity
entitling
him
to
a
certificate
for
the
total
number
of
shares
subscribed
for
by
him
upon
on
the
Stock
and
Transfer
Book
of
the
company.
Despite
the
agreement,
Ceron
mortgaged
to
Matuto
the
shares
he
held
(but
were
actually
owned
by
Monserrat).
Ceron
showed
Matute
the
Stock
and
Transfer
Book
of
the
company.
Matute
saw
that
the
stocks
were
in
the
name
of
Ceron,
free
from
any
lien
or
encumbrance.
When
Ceron
mortgaged
the
stocks,
he
did
not
inform
Matute
of
Monserrats
reservation.
Facts:
Monserrat
was
the
president
and
manager
of
Manila
Yellow
Taxicab
Co.,
Inc.,
and
the
owner
of
P1,200
common
shares
of
stock
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
the
rights
the
transferor
has
to
the
transferee.
A
chattel
mortgage
is
not
the
transfer
referred
to
in
the
(old)
corporation
law,
which
transfer
should
be
entered
and
noted
upon
the
books
of
a
corporation
in
order
to
be
valid.
Only
the
transfer
or
absolute
conveyance
of
the
ownership
of
the
title
to
shares
needs
to
be
entered
and
noted
upon
the
books
of
the
issuance
of
new
shares
in
his
name,
the
officers
of
the
Corporation
refused
because
prior
to
Chua
Guans
demand,
and
even
before
the
notice
of
mortgage
of
Chiu,
several
attachments
against
the
shares
covered
by
the
certificates
had
been
recorded
in
its
books
(the
corporation
received
the
notice
of
mortgage
only
after
2
years
from
date
of
registration).
Chua
Guan
filed
a
writ
of
mandamus
to
require
the
officers
to
transfer
the
shares
of
stock
to
him
by
cancelling
the
old
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
principal
office.
Thus,
the
mortgage
should
have
been
registered
in
the
Register
of
Deeds
of
Manila
and
Nueva
Ecija.
(It
should
be
understood
that
the
property
mortgaged
is
not
the
certificate
but
the
participation
and
share
of
the
owner
in
the
assets
of
the
corporation.)
as
against
third
parties,
the
same
must
be
recorded
in
the
books
of
the
corporation.
Therefore,
the
transfer
of
the
75
shares
in
the
Corporation
made
by
the
Diosomito
to
Barcelon
was
not
valid
as
to
Uson,
on
January
18,
1932,
the
date
on
which
she
obtained
her
attachment
lien
on
said
shares
of
stock
which
still
stood
in
the
name
of
Diosomito
on
the
books
of
the
Corporation.
Facts:
Uson
filed
a
civil
action
for
debt
against
Diosomito,
and
an
attachment
was
duly
issued
and
levied
upon
Diosomitos
property
including
his
75
shares
in
the
North
Electric
Co.,
Inc.
Uson
won
the
case
and
so
the
shares
were
sold
in
a
public
auction
to
satisfy
the
judgment.
Uson
was
the
highest
bidder,
but
not
H.P.L.
Jollye
now
claims
to
be
the
owner
of
the
75
shares.
He
presented
a
certificate
of
stock
issued
to
him
by
the
company.
Apparently,
Diosomito,
the
original
owner
of
the
shares,
sold
the
same
to
Barcelon
and
delivered
to
the
latter
the
corresponding
certificates
Nos.
2
and
19.
Barcelon
later
sold
the
shares
to
Jollye.
It
must
be
noted
that
the
transfer
of
shares
by
Diosomito
to
Barcelon
was
registered
and
noted
on
the
books
of
the
corporation
9
months
AFTER
the
attachment
had
been
levied
on
the
said
shares.
Issue:
Whether
or
not
a
transfer
of
shares,
not
registered
or
noted
on
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Bachrach
Motor
Co.
v.
Lacson
Ledesma
Facts:
Bachrach
Motors
and
Philippine
National
Bank
were
both
creditors
of
Lacson
Ledesma,
battling
over
his
properties
in
Bacolod
for
the
purpose
of
satisfying
their
claims.
Subject
to
the
controversy
are
Ledesmas
stocks
with
the
Talisay-Silay
Milling
Co.
Around
1923,
Ledesma
mortgaged
various
real
properties
to
PNB
for
the
purpose
of
securing
his
debts,
and
in
the
same
transactions,
he
pledged
Stock
Certificate
No.772
containing
stocks
and
stock
dividends
in
favor
of
PNB.
On
the
other
hand,
around
1927,
Bachrach
Motors
obtained
a
favorable
judgment
in
civil
case
against
Ledesma.
A
writ
of
execution
of
said
judgment
was
issued
on
the
same
year,
and
Jose
Y.
Orosa
(special
sheriff),
in
compliance
with
the
writ
of
execution,
attached
on
the
stocks
of
Ledesma.
That
notice
of
said
attachment
was
served
not
only
upon
the
Ledesma
but
also
upon
Talisay-Silay
Milling
Co.,
Inc.
Bachrachs
was
claiming
that
it
had
a
preferred
right
over
PNB,
and
they
argued
that
the
stock
certificate
pledged
to
PNB
were
not
the
shares
themselves.
And
the
shares
being
intangible
in
character
cannot
be
delivered
by
pledge
to
the
possession
of
PNB.
Issue:
Whether
or
not
the
certificate
of
stocks
or
of
stock
dividends
may
be
pledged.
Held:
YES.
There
was
a
valid
transfer
and
PNB
had
the
preferred
right
over
the
stocks/stock
dividends
of
Ledesma.
The
stock
dividends
in
question
were
pledged
to
the
bank
5
months
prior
to
the
garnishment
of
Bachrach.
It
is
admitted
that
the
delivery
of
the
certificate
in
question
and
the
pledge
thereof
were
not
made
to
appear
in
a
public
instrument.
It
is
true,
according
to
Article
1865
of
the
Civil
Code,
that
in
order
that
a
pledge
may
be
effective
as
against
third
person,
evidence
of
its
date
must
appear
in
a
public
instrument
in
addition
to
the
delivery
of
the
thing
pledged
to
the
creditor.
HOWEVER,
Section
4
of
the
Chattel
Mortgage
Law
implicitly
modified
Article
1865
of
the
Civil
Code
in
the
sense
that
a
contract
of
pledge
and
that
of
chattel
mortgage
to
be
effective
as
against
third
persons,
need
not
appear
in
a
public
instrument.
Provided,
that
the
thing
pledged
or
mortgaged
be
delivered
or
placed
in
the
possession
of
the
creditor.
Doctrine:
See
above.
Only
fully
paid
shares
for
which
certificates
of
stock
have
been
issued
are
subject
to
the
registration
requirement
in
the
stock
and
transfer
book
in
cases
dealing
with
their
sales
and
absolute
disposition.
Nava
v.
Peers
Marketing
Corp.,
74
SCRA
65
(1976).
Nava
v.
Peers
Marketing
Corp.
Facts:
Teofilo
Po
subscribed
to
80
shares
of
Peers
Marketing
and
paid
25%
of
the
amount
of
his
subscription.
Po
then
sold
to
Nava
20
of
his
80
shares.
Nava
requested
the
officers
of
Peers
Marketing
to
register
the
sale
in
the
books
of
the
corporation
but
the
corporation
refused
because
Po
was
delinquent
in
the
payment
of
the
balance
of
his
subscription.
Nava
filed
a
mandamus
action
to
compel
the
corporation
to
register
the
shares
in
Navas
name.
The
respondents
(executive
VP
and
secretary)
pleaded
the
defense
that
no
shares
of
stock
which
holds
an
unpaid
claim
are
transferable
in
the
books
of
the
corporation.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
which
ordinarily
are
or
should
be
written
therein.
Lanuza
v.
Court
of
Appeals,
454
SCRA
54
(2005).
A.
Probative
Value
of
Stock
and
Transfer
Book
BUT:
The
stock
and
transfer
book
records
the
names
and
addresses
of
all
stockholders
arranged
alphabetically,
the
installments
paid
and
unpaid
on
all
stock
for
which
subscription
has
been
made,
and
the
date
of
payment
thereof,
a
statement
of
every
alienation,
sale
or
transfer
of
stock
made
the
date
thereof
and
by
and
to
whom
made,
and
such
other
entries
as
may
be
prescribed
by
law.
A
stock
and
transfer
book,
like
other
corporate
books
and
records,
is
not
in
any
sense
a
public
record,
and
thus
is
not
exclusive
evidence
of
the
matters
and
things
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
B.
Validity
of
Transfers:
Facts:
The
Potenciano
group
owned
87.5%
of
the
outstanding
capital
stock
of
Batangas
Laguna
Tayabas
Bus
Company,
Inc.
(BLTB).
The
Potenciano
group
sold
to
BMB
Property
Holdings,
Inc.,
represented
by
its
President,
Benjamin
Bitanga,
their
shares
of
stock
representing
47.98%
of
the
total
outstanding
capital
stock
of
BLTB.
Barely
a
month
after
the
Sale
Agreement
was
executed,
at
a
meeting
of
the
stockholders
of
BLTB,
members
of
the
Bitanga
group
were
elected
as
directors
of
the
corporation,
replacing
the
Potenciano
group.
During
a
meeting
of
the
Board
of
Directors,
the
newly
elected
directors
of
BLTB
(Bitanga
group)
scheduled
the
annual
stockholders
meeting
on
May
19,
1998,
to
be
held
at
the
principal
office
of
BLTB
in
San
Pablo,
Laguna.
Potenciano
requested
for
postponement
but
it
was
not
acted
upon
by
Bitanga.
On
the
scheduled
day
of
the
meeting,
the
majority
of
the
stockholders
present
rejected
the
postponement
and
voted
to
proceed
2196,
at
p.
644;
and
FLETCHER,
Securities
and
Exchange
Commission.
2197,
at
p.
648.
with
the
meeting.
The
Potenciano
group
was
re-elected
to
the
Board
of
Directors,
and
a
new
set
of
officers
was
thereafter
elected.
However,
the
Bitanga
groups
refused
to
relinquish
their
positions
and
this
caused
unrest
in
the
company.
It
is
not
disputed
that
the
transfer
of
the
shares
of
the
group
of
Dolores
Potenciano
to
the
Bitanga
group
has
not
yet
been
recorded
in
the
books
of
the
corporation.
Issue:
Whether
or
not
the
Potenciano
group,
in
whose
names
those
shares
still
stand,
were
the
ones
entitled
to
attend
and
vote
at
the
stockholders
meeting
of
the
BLTB
on
19
May
1998.
Held:
YES.
The
Potenciano
group,
in
whose
names
those
shares
still
stand,
were
the
ones
entitled
to
attend
and
vote
at
the
stockholders
meeting.
Indeed,
until
registration
is
accomplished,
the
transfer,
though
valid
between
the
parties,
cannot
be
effective
as
against
the
corporation.
Thus,
the
unrecorded
transferee,
the
Bitanga
group
in
this
case,
cannot
vote
nor
be
voted
for.
Doctrine:
The
purpose
of
registration,
therefore,
is
two-fold:
to
enable
the
transferee
to
exercise
all
the
rights
of
a
stockholder,
including
the
right
to
vote
and
to
be
voted
for,
and
to
inform
the
corporation
of
any
change
in
share
ownership
so
that
it
can
ascertain
the
persons
entitled
to
the
rights
and
subject
to
the
liabilities
of
a
stockholder.
Until
challenged
in
a
proper
proceeding,
a
stockholder
of
record
has
a
right
to
participate
in
any
meeting;
his
vote
can
be
properly
counted
to
determine
whether
a
stockholders
resolution
was
approved,
despite
the
claim
of
the
alleged
transferee.
On
the
other
hand,
a
person
who
has
purchased
stock,
and
who
desires
to
be
recognized
as
a
stockholder
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
vote
and
to
be
voted
for,
and
to
inform
the
corporation
of
any
change
in
share
ownership
so
that
it
can
ascertain
the
persons
entitled
to
the
rights
and
subject
to
the
liabilities
of
a
stockholder.
Until
challenged
in
a
proper
proceeding,
a
stockholder
of
record
has
a
right
to
participate
in
any
meeting;
his
vote
can
be
properly
counted
to
determine
whether
a
for
the
purpose
of
voting,
must
secure
such
a
standing
by
having
the
transfer
recorded
on
the
corporate
books.
Until
the
transfer
is
registered,
the
transferee
is
not
a
stockholder
but
an
outsider.
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Garcia
v.
Jomouad
Facts:
Spouses
Jose
and
Sally
Atinon
won
a
collection
case
against
Jaime
Dico
so
sheriff
Nicolas
Jomouad
proceeded
to
execute
the
Propriety
Ownership
Certificate
in
the
Cebu
Country
Club
which
was
in
Dicos
name.
Claiming
ownership
over
the
subject
certificate,
Nemesio
Garcia
filed
the
aforesaid
action
for
injunction
with
prayer
for
preliminary
injunction
to
enjoin
respondents
from
proceeding
with
the
auction.
Garcia
avers
that
Dico
was
his
manager
at
Young
Auto
Supply.
To
assist
him
in
entertaining
clients,
Garcia
lent
his
POC,
then
bearing
the
number
1459,
in
the
Cebu
Country
Club
to
Dico
so
the
latter
could
enjoy
the
signing
of
privileges
of
its
members.
The
Club
issued
POC
No.
0668
in
the
name
of
Dico.
Thereafter,
Dico
resigned
as
manager.
Upon
demand
of
Garcia,
Dico
returned
the
POC.
The
latter
then
executed
a
Deed
of
Transfer
in
favor
of
Garcia.
The
Club
was
furnished
with
a
copy
of
said
deed
but
the
transfer
was
not
recorded
in
the
books
of
the
club
because
Garcia
failed
to
present
proof
of
payment
of
the
requisite
capital
gains
tax.
Issue:
Whether
or
not
a
bona
fide
transfer
of
the
shares
of
a
corporation,
not
registered
or
noted
in
the
books
of
the
corporation,
is
valid
as
against
a
subsequent
lawful
attachment
of
said
shares,
regardless
of
whether
the
attaching
creditor
had
actual
notice
of
said
transfer
or
not.
Held:
NO.
The
transfer
of
the
subject
certificate
made
by
Dico
to
Garcia
was
not
valid
as
to
the
spouses
Atinon,
the
judgment
creditors,
as
the
same
still
stood
in
the
name
of
Dico,
the
judgment
debtor,
at
the
time
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Bank
of
Lipa
City,
Inc.
v.
Court
of
Appeals,
[366
SCRA
188
(2001)]
the
execution
not
a
deed
of
sale
does
not
necessarily
make
the
transfer
effective.
Republic
v.
Estate
of
Hans
Menzi,
475
SCRA
20,
38
(2005).
C.
Who
May
Make
Entries:
Entries
made
on
the
stock
and
transfer
book
by
any
person
other
than
the
corporate
secretary,
such
as
those
made
by
the
President
and
Chairman,
cannot
be
given
any
valid
effect.
Torres,
Jr.
v.
Court
of
Appeals,
278
SCRA
793
(1997).
G.
Meaning
of
Unpaid
Claims:
D.
Registration
with
Securities
and
Exchange
Commission
changes
503
(1997).
H.
Equitable
Mortgage
Assignment:
E.
BIR
Certification
to
Effect
Transfer
of
Shares
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
Section
55.
Right
to
vote
of
pledgors,
mortgagors,
and
administrators.
In
case
of
pledged
or
mortgaged
shares
in
stock
corporations,
the
pledgor
or
mortgagor
shall
have
the
right
to
attend
and
vote
at
meetings
of
stockholders,
unless
the
pledgee
or
mortgagee
is
expressly
given
by
the
pledgor
or
mortgagor
such
right
in
writing
which
is
recorded
on
the
appropriate
corporate
books.
(n)
Executors,
administrators,
receivers,
and
other
legal
representatives
duly
appointed
by
the
court
may
attend
and
vote
in
behalf
of
the
stockholders
or
members
without
need
of
any
written
proxy.
(27a)
SUMMARY
OF
CURRENT
DOCTRINAL
RULINGS
ON
SHARES
OF
STOCK
If
we
analyze
the
doctrinal
rules
laid
down
by
the
Supreme
Court
in
the
various
decisions
is
has
rendered
covering
dealings
with
shares
of
stock,
we
can
draw
up
the
following
summary:
1. A
mortgage
or
pledge
of
shares
of
stock
that
would
involve
the
outright
assignment
or
delivery
and
indorsement
of
the
certificates
of
stock
to
the
pledgee
or
mortgagee
would
constitute
a
valid
mortgage
even
without
registration
with
the
register
of
deeds,
but
it
would
always
be
subject
to
prior
Tayag
v.
Benguet
Consolidated,
Inc.,
26
SCRA
242
(1968);
cf.
Perkins
v.
Dizon,
69
Phil.
186
(1939).
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
mortgage
happened
first
in
point
of
time
prior
to
service
of
the
writ
to
the
proper
corporate
officer,
the
pledge
or
mortgage
shall
be
preferred;
whereas,
if
the
service
of
the
writ
to
the
proper
court
officer
happened
ahead
of
the
registration
of
the
pledge
or
mortgage,
then
the
attaching
creditor
would
be
In
effect,
by
the
strict
application
of
Section
63
of
the
Corporation
Code
to
cover
only
the
sale,
assignment
or
absolute
disposition
of
shares
of
stock,
the
Supreme
Court
has
placed
a
bias
against
voluntary
sales,
assignments
or
dispositions
of
shares
of
stock
vis--vis
pledges,
preferred;
7. As
between
a
pledge/mortgage
duly
constituted
(even
when
not
registered
in
the
stock
and
transfer
book)
and
the
buyer
or
assignee
of
the
shares,
if
the
pledge
or
mortgage
was
constituted
and
registered
ahead
of
the
registration
of
the
sale
or
assignment
in
the
stock
and
transfer
book
(even
when
the
sale
or
assignment
was
perfected
and
consummated
ahead
of
when
not
registered
in
the
stock
and
transfer
book)
and
the
buyer
or
assignee
of
the
shares,
if
writ
was
properly
served
upon
the
corporate
officer
ahead
of
the
registration
of
the
sale
or
assignment
in
the
stock
and
transfer
book
(even
when
the
sale
or
assignment
was
perfected
and
consummated
ahead
of
the
service
of
the
writ)
the
attachment/levy
would
still
be
preferred
because
the
registration
of
the
sale/assignment
in
the
stock
and
transfer
book
is
a
necessary
ingredient
to
make
the
who
actually
registers
his
purchase
in
the
stock
and
transfer
book
at
the
time
when
nothing
was
annotated
therein
of
any
lien,
would
be
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)
precluded
from
using
the
stock
and
transfer
book
as
his
conclusive
basis
to
determine
the
clean
title
of
his
registered
seller
as
a
basis
for
securing
his
title
to
the
shares
of
stock.
In
the
same
manner
a
pledgee
or
mortgagee
who
registers
his
pledge
or
mortgage
in
the
register
of
deeds
may
rely
upon
the
stock
and
transfer
book
as
the
conclusive
basis
by
which
to
determine
the
validity
and
priority
of
the
pledge
or
mortgage
of
the
shares
still
standing
in
the
name
of
the
pledgor
and
mortgagor,
and
yet
a
buyer
in
good
faith
and
for
value,
and
even
to
whom
the
clean
certificate
of
stock
have
been
duly
endorsed
and
delivered,
and
who
actually
registers
his
purchase
in
the
stock
and
transfer
book
at
the
time
when
they
stood
clean
in
the
name
of
the
registered
seller,
is
precluded
from
using
the
stock
and
transfer
book
as
his
conclusive
basis
to
determine
the
clean
title
of
his
registered
seller
as
the
basis
for
securing
his
title
to
the
shares
of
stock.
In
these
cases,
the
registration
requirements
under
stock
and
transfer
books,
instead
of
becoming
the
basis
by
which
title
to
shares
of
stock
can
clearly
and
conclusively
be
voluntarily
sold
and
bought,
and
the
basis
for
assurance
and
protection
to
the
investing
public,
has
been
transformed
into
the
very
stumbling
block
to
achieving
the
ideal
situation
by
which
shares
of
stock
can
voluntarily
be
dealt
with,
accompanied
with
a
reasonable
assurance
of
the
clean
title
thereto.
Making
registration
in
the
stock
and
transfer
book
as
the
mandatory
means
by
which
dealings
with
shares
of
stock
can
be
valid
and
effective
as
against
both
the
corporation
and
third
parties
would
make
the
procedure
simple
and
easier
to
verify.
After
all
as
the
Supreme
Court
said
in
Chua
Guan
"Loans
upon
stock
securities
should
be
facilitated
in
NOTES
BY
RACHELLE
ANNE
GUTIERREZ
(UPDATED
APRIL
3,
2014)