MENDOZA, ROXANNE

Y. SHARES OF STOCK/STOCK CERTIFICATES

STOCKHOLDERS OF F. GUANZON AND SONS, INC., vs.REGISTER OF DEEDS OF

MANILA,
While shares of stock constitute personal property they do not represent property of the corporation. A share of stock only typifies
an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law
and equity. A certificate of liquidation which results in the transfer and distribution of the assets of the corporation to the
shareholder is in the nature of conveyance.
FACTS:
The five stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the assets of
the corporation reciting, among other things, that by virtue of a resolution of the stockholders dissolving the
corporation, they have distributed among themselves in proportion to their shareholdings, as liquidating
dividends, the assets of said corporation, including real properties located in Manila.
The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied registration on
seven grounds, of which the following were disputed by the stockholders:
3. The number of parcels not certified to in the acknowledgment;
5. P430.50 Reg. fees need be paid;
6. P940.45 documentary stamps need be attached to the document;
7. The judgment of the Court approving the dissolution and directing the disposition of the assets of the
corporation need be presented.
The Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6.
The stockholders interposed the present appeal.
ISSUE: Whether the certificate of liquidation is in the nature of a transfer or conveyance and therefore must
contain a statement of the number of parcel of land involved in the distribution in the acknowledgment
appearing therein. YES
HELD:
Appellants contend that the certificate of liquidation is not a conveyance or transfer but merely a distribution
of the assets of the corporation which has ceased to exist for having been dissolved. Not being a conveyance
the certificate need not contain a statement of the number of parcel of land involved in the distribution in the
acknowledgment appearing therein. Hence the amount of documentary stamps to be affixed thereon should
only be P0.30 and not P940.45, as required by the register of deeds. Neither is it correct to require appellants
to pay the amount of P430.50 as registration fee.
The Commissioner of Land Registration, however, entertained a different opinion. He concurred in the view
expressed by the register of deed to the effect that the certificate of liquidation in question, though it involves
a distribution of the corporation's assets, in the last analysis represents a transfer of said assets from the
corporation to the stockholders. Hence, in substance it is a transfer or conveyance.
The court agrees with the opinion of these two officials. A corporation is a juridical person distinct from the
members composing it. Properties registered in the name of the corporation are owned by it as an entity

separate and distinct from its members. While shares of stock constitute personal property they do not
represent property of the corporation. The corporation has property of its own which consists chiefly of real
estate (Nelson v. Owen,). A share of stock only typifies an aliquot part of the corporation's property, or the
right to share in its proceeds to that extent when distributed according to law and equity (Hall & Faley v.
Alabama Terminal), but its holder is not the owner of any part of the capital of the corporation. Nor is he
entitled to the possession of any definite portion of its property or assets. The stockholder is not a co-owner
or tenant in common of the corporate property (Halton v. Hohnston).
It is clear that the act of liquidation made by the stockholders of the F. Guanzon and Sons, Inc. of the latter's
assets is not and cannot be considered a partition of community property, but rather a transfer or conveyance
of the title of its assets to the individual stockholders. Indeed, since the purpose of the liquidation, as well as
the distribution of the assets of the corporation, is to transfer their title from the corporation to the
stockholders in proportion to their shareholdings, and this is in effect the purpose which they seek to
obtain from the Register of Deeds of Manila, that transfer cannot be effected without the corresponding
deed of conveyance from the corporation to the stockholders. It is, therefore, fair and logical to consider the
certificate of liquidation as one in the nature of a transfer or conveyance.

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
BITULOK SAWMILL, INC., DINGALAN LUMBER CO., INC., SIERRA MADRE LUMBER
CO., INC., NASIPIT LUMBER CO., INC., WOODWORKS, INC., GONZALO PUYAT, TOMAS
B. MORATO, FINDLAY MILLAR LUMBER CO., INC., ET AL., INSULAR LUMBER CO.,
ANAKAN LUMBER CO., AND CANTILAN LUMBER CO., INC., defendants-appellees.
A corporation has no power to release an original subscriber from paying for his shares without a valuable consideration for such
release. This is because subscriptions to the capital of the corporation constitutes a fund to which creditors have a right to look for
satisfaction of their claims and that an assignee in insolvency can maintain an action upon any unpaid stock subscription in order
to realize assets for the payment of debts.
FACTS:
The Philippine Lumber Distributing Agency, Inc. was organized sometime in the early part of 1947
upon the initiative and insistence of the late President Manuel Roxas of the Republic of the Philippines who
for the purpose, had called several conferences between him and the subscribers and organizers of the
Philippine Lumber Distributing Agency, Inc. The purpose was praiseworthy, to insure a steady supply of
lumber, which could be sold at reasonable prices to enable the war sufferers to rehabilitate their devastated
homes. He convinced the lumber producers to form a lumber cooperative and to pool their sources together
in order to wrest, particularly, the retail trade from aliens who were acting as middlemen in the distribution of
lumber. At the beginning, the lumber producers were reluctant to organize the cooperative agency as they
believed that it would not be easy to eliminate from the retail trade the alien middlemen who had been in this
business from time immemorial, but because the late President Roxas made it clear that such a cooperative
agency would not be successful without a substantial working capital which the lumber producers could not
entirely shoulder, and as an inducement he promised and agreed to finance the agency by making the
Government invest P9.00 by way of counterpart for every peso that the members would invest therein.
This was the assurance relied upon that the amount thus contributed by such lumber producers was
not enough for the operation of its business especially having in mind the primary purpose of putting an end
to alien domination in the retail trade of lumber products. Nor was there any appropriation by the legislature
of the counterpart fund to be put up by the Government, namely, P9.00 for every peso invested by defendant
lumber producers. Accordingly, "the late President Roxas instructed the Hon. Emilio Abello, then Executive
Secretary and Chairman of the Board of Directors of the Philippine National Bank, for the latter to grant said
agency an overdraft in the original sum of P250,000.00 which was later increased to P350,000.00, which was
approved by said Board of Directors of the Philippine National Bank on July 28, 1947, payable on or before
April 30, 1958, with interest at the rate of 6% per annum, and secured by the chattel mortgages on the stock
of lumber of said agency." The Philippine Government did not invest the P9.00 for every peso coming from
defendant lumber producers. The loan extended to the Philippine Lumber Distributing Agency by the
Philippine National Bank was not paid. Hence, these suits.
ISSUE:
Whether or not PNB may compel the lumber producers to pay the balance of their subscriptions?
HELD:

It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which
creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain
an action upon any unpaid stock subscription in order to realize assets for the payment of its debt.... A
corporation has no power to release an original subscriber to its capital stock from the obligation of paying
for his shares, without a valuable consideration for such release; and as against creditors a reduction of the
capital stock can take place only in the manner and under the conditions prescribed by the statute or the
charter or the articles of incorporation.
It would be unwarranted to ascribe to the late President Roxas the view that the payment of the
stock subscriptions, as thus required by law, could be condoned in the event that the counterpart fund to be
invested by the Government would not be available. Even if such were the case, however, and such a promise
were in fact made, to further the laudable purpose to which the proposed corporation would be devoted and
the possibility that the lumber producers would lose money in the process, still the plain and specific wording
of the applicable legal provision as interpreted by this Court must be controlling. It is a well-settled principle
that with all the vast powers lodged in the Executive, he is still devoid of the prerogative of suspending the
operation of any statute or any of its terms.

AQUILINO RIVERA, ISAMU AKASAKO and FUJIYAMA HOTEL & RESTAURANT,

INC., petitioners,
vs.
THE HON. ALFREDO C. FLORENDO, as Judge of the Court of First Instance of Manila (Branch
XXXVI), LOURDES JUREIDINI and MILAGROS TSUCHIYA, respondents.
Mandamus will not lie where the shares of stock are not indorsed by the registered owner who is specifically objecting to the
registration thereof in the corporate books.
FACTS:
Petitioner corporation was organized and register under Philippine laws with a capital stock of
P1,000,000.00 divided into 10,000 shares of P100.00 par value each by the herein petitioner Rivera and four
(4) other incorporators. Sometime thereafter petitioner Rivera increased his subscription from the original
1,250 to a total of 4899 shares.
Subsequently, Isamu Akasako, a Japanese national and co-petitioner who is allegedly the real owner
of the shares of stock in the name of petitioner Aquilino Rivera, sold 2550 shares of the same to private
respondent Milagros Tsuchiya for a consideration of P440,000.00 with the assurance that Milagros Tsuchiya
will be made the President and Lourdes Jureidini a director after the purchase. Aquilino Rivera who was in
Japan also assured private respondents by overseas call that he will sign the stock certificates because Isamu
Akasako is the real owner. However, after the sale was consummated and the consideration was paid with a
receipt of payment therefor shown, Aquilino Rivera refused to make the indorsement unless he is also paid.
It also appears that the other incorporators sold their shares to both respondent Jureidini and
Tsuchiya such that both respondents became the owners of a total of 3300 shares or the majority out of 5,649
outstanding subscribed shares of the corporation, and that there was no dispute as to the legality of the
transfer of the stock certificate Exhibits "B-1" to "B-4" to Jureidini, all of which bear the signatures of the
president and the secretary as required by the Corporation Law with the proper indorsements of the
respective owners appearing thereon. Exhibits "B-1" to "B-4" are specifically indorsed to her while Exhibits
"B-2" and "B-3" are indorsed in blank. Aquilino Rivera admitted the genuineness of an the signatures of the
officers of the corporation and of an the indorsee therein.
Nonetheless, private respondents attempted several times to register their stock certificates with the
corporation but the latter refused to register the same. Thus, private respondents filed a special civil action for
mandamus and damages with preliminary mandatory injunction and/or receivership naming herein
petitioners as respondents.
ISSUE:
Whether or not mandamus will lie for the registration of the shares of stocks in the corporate books?
HELD:
Mandamus will not lie in the instant case where the shares of stock in question are not even indorsed
by the registered owner Rivera who is specifically resisting the registration thereof in the books of the
corporation. Under the above ruling, even the shares of stock which were purchased by private respondents
from the other incorporators cannot also be the subject of mandamus on the strength of mere indorsement
of the supposed owners of said shares in the absence of express instructions from them. The rights of the
parties will have to be threshed out in an ordinary action.

GLORIA M. DE ERQUIAGA, administratrix of the estate of the late SANTIAGO DE ERQUIAGA

& HON. FELICIANO S. GONZALES, petitioners,
vs.
HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO, JOSES V. REYNOSO,
JR., EERNESTO , SYLVIA REYNOSO, LOURDES REYNOSO, CECILE REYNOSO, EDNA
REYNOSO, ERLINDA REYNOSO & EMILY REYNOSO, respondents.
A stockholder acquires voting rights only when the shares of stock to be voted are registered in his name in the books of the
corporation. Until registration is accomplished, the transfer though valid between the parties cannot be effective against the
corporation.
FACTS:
Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the Erquiaga
Development Corporation which owns the Hacienda San Jose in Irosin, Sorsogon (p. 212, Rollo). On
November 4,1968, he entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100 shares (or
100%) of Erquiaga Development Corporation for P900,000 payable in installments on definite dates fixed in
the contract but not later than November 30, 1968. Because Reynoso failed to pay the second and third
installments on time, the total price of the sale was later increased to P971,371.70 payable on or before
December 17, 1969. The difference of P71,371.70 represented brokers' commission and interest.
As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to Erquiaga who
thereupon transferred all his shares (3,100 paid-up shares) in Erquiaga Development Corporation to Reynoso,
as well as the possession of the Hacienda San Jose, the only asset of the corporation. However, as provided in
paragraph 3, subparagraph (c) of the contract to sell, Reynoso pledged 1,500 shares in favor of Erquiaga as
security for the balance of his obligation (p. 100, Rollo). Reynoso failed to pay the balance of P561,321.70 on
or before December 17, 1969, as provided in the promissory notes he delivered to Erquiaga. So, on March 2,
1970, Erquiaga, through counsel, formally informed Reynoso that he was rescinding the sale of his shares in
the Erquiaga Development Corporation.
ISSUE:
Whether or not the respondent buyer of the shares of stock may exercise voting rights?
HELD:
Until registration is accomplished, the transfer, though valid between the parties, cannot be effective
as against the corporation. Thus, the unrecorded transferee cannot enjoy the status of a stockholder; he
cannot vote nor be voted for, and he will not be entitled to dividends. The Corporation will be protected
when it pays dividend to the registered owner despite a previous transfer of which it had no knowledge. The
purpose of registration therefore is two-fold; to enable the transferee to exercise all the rights of a
stockholder, 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.

EMBASSY FARMS, INC., petitioner,

vs.
HON. COURT OF APPEALS (INTERMEDIATE APPELLATE COURT), HON. ZENAIDA S.
BALTAZAR, Judge of the Regional Trial Court, Branch CLVIII, (158), Pasig, Metro Manila,
VOLTAIRE B. CRUZ, Deputy Sheriff, Branch CLVIII, Regional Trial Court, Pasig, Metro Manila
and EDUARDO B. EVANGELISTA, respondents.
PARAS, J.:
For an effective transfer of shares of stock the mode and manner of transfer as prescribed by law must be followed. As provided
under the Corporation Code of the Philippines, shares of stock may be transferred by delivery to the transferee of the certificate
properly indorsed.
FACTS:
It appears on record that sometime on August 2, 1984, Alexander G. Asuncion (AGA for short) and
Eduardo B. Evangelists (EBE for short) entered into a Memorandum of Agreement. Under said agreement
EBE obligated himself to transfer to AGA 19 parcels of agricultural land registered in his name with an
aggregate area of 104,447 square meters located in Loma de Gato, Marilao, Bulacan, together with the stocks,
equipment and facilities of a piggery farm owned by Embassy Farms, Inc., a registered corporation wherein
ninety (90) percent of its shares of stock is owned by EBE. EBE also obligated himself to cede, transfer and
convey "in a manner absolute and irrevocable any and all of his shares of stocks" in Embassy Farins Inc. to
AGA or his nominees "until the total of said shares of stock so transferred shall constitute 90% of the paidin-equity of said corporation" within a reasonable time from signing of the document. Likewise, EBE
obligated to turnover to AGA the effective control and management of the piggery upon the signing of the
agreement.
On the other hand, AGA obligated himself, upon signing of the agreement to pay to EBE the total sum of
close to P8,630,000.00. Within reasonable time from signing of the agreement AGA obligated himself to
organize and register a new corporation with an authorized capital stock of P10,000,000.00 which upon
registration will take over all the rights and liabilities of AGA.
Pursuant to clause 8 of the Memorandum of Agreement, on August 2, 1984, EBE turned over to AGA the
effective control and management of the piggery at Embassy Farms. Likewise, in accordance with clause 15
of the Memorandum of Agreement EBE served as President and Chief Executive of the Embassy Farms
with a monthly salary of P15,000. EBE also endorsed in blank all his shares of stock including that of his wife
and three nominees with minor holdings in Embassy Farms Inc. Out of the total 3,125 shares of stocks EBE
has 2,725 shares, his wife Epifania has 250 shares, while Angel Santos, Armando Martin and Teofilo Mesina
had 50 shares, each registered in their names. Said shares of 3,125 correspond to the paid subscription
because as reflected in the Articles of Incorporation (Annexes "B") EBE subscribed 10,900 shares, Epifania
Evangelista 1,000 shares, while Angel Santos, Armando Martin and Teofilo Mesina had 200 shares each
subscription in the capital stocks of the corporation. However, despite the indorsement, EBE retained
possession of said shares and opted to deliver to AGA only upon full compliance of the latter of his
obligations under the Memorandum of Agreement.
Notwithstanding the non-delivery of the shares of stocks, in a Deed of Transfer of Shares of Stock dated
August 1984, but notarized on June 20, 1985, AGA transferred a total of 8,602 shares to several persons.
For failure to comply with his obligations, EBE intimated the institution of appropriate legal action.
On April 10, 1986, AGA preempted EBE by filing an action for rescission of the Memorandum of
Agreement with damages. The case alleged among others, EBE's misrepresentation on the piggery business
since said business is actually losing and EBE's failure to execute the deeds of conveyance of the 19 parcels of
land.

ISSUE: Whether it is AGA or EBE or both parties who have reneged on their obligations under the
memorandum of agreement.
HELD:
From the pleadings submitted by the parties it is clear that although EBE has indorsed in blank the shares
outstanding in his name he has not delivered the certificate of stocks to AGA because the latter has not fully
complied with his obligations under the memorandum of agreement. There being no delivery of the indorsed
shares of stock AGA cannot therefore effectively transfer to other person or his nominees the undelivered
shares of stock. For an effective transfer of shares of stock the mode and manner of transfer as prescribed by
law must be followed. As provided under Section 3 of Batas Pambansa Bilang 68, otherwise known as the
Corporation Code of the Philippines, shares of stock may be transferred by delivery to the transferee of the
certificate properly indorsed. Title may be vested in the transferee by the delivery of the duly indorsed
certificate of stock. However, no transfer shall be valid, except as between the parties until the transfer is
properly recorded in the books of the corporation (Sec. 63, Corporation Code of the Philippines).
In the case at bar the indorsed certificate of stock was not actually delivered to AGA so that EBE is still the
controlling stockholder of Embassy Farms despite the execution of the memorandum of agreement and the
turnover of control and management of the Embassy Farms to AGA on August 2, 1984.
When AGA filed on April 10, 1986 an action for the rescission of contracts with damages the Pasig Court
merely restored and established the status quo prior to the execution of the memorandum of agreement by
the issuance of a restraining order on July 10, 1987 and the writ of preliminary injunction on July 30, 1987. It
would be unjust and unfair to allow AGA and his nominees to control and manage the Embassy Farms
despite the fact that AGA who is the source of their supposed shares of stock in the corporation is not asking
for the delivery of the indorsed certificate of stock but for the rescission of the memorandum of agreement.
Rescission would result in mutual restitution (Magdalena Estate v. Myrick, 71 Phil. 344) so it is but proper to
allow EBE to manage the farm. Compared to AGA or his nominees EBE would be more interested in the
preservation of the assets, equipment and facilities of Embassy Farms during the pendency of the main case.

ALFONSO S. TAN, Petitioner,

vs.
SECURITIES AND EXCHANGE COMMISSION, VISAYAN EDUCATIONAL SUPPLY CORP.,
TAN SU CHING, ALFREDO B. UY, ANGEL S. TAN and PATRICIA AGUILAR, Respondents.
PARAS, J.:
FACTS:
Respondent corporation was registered on October 1, 1979. As incorporator, petitioner had four hundred
(400) shares of the capital stock standing in his name at the par value of P100.00 per share, evidenced by
Certificate of Stock No. 2. He was elected as President and subsequently reelected, holding the position as
such until 1982 but remained in the Board of Directors until April 19, 1983 as director.
On January 31, 1981, while petitioner was still the president of the respondent corporation, two other
incorporators, namely, Antonia Y. Young and Teresita Y. Ong, assigned to the corporation their shares,
represented by certificate of stock No. 4 and 5 after which, they were paid the corresponding 40% corporate
stock-in-trade.
Petitioner's certificate of stock No. 2 was cancelled by the corporate secretary and respondent Patricia Aguilar
by virtue of Resolution No. 1981 (b), which was passed and approved while petitioner was still a member of
the Board of Directors of the respondent corporation.
Due to the withdrawal of the aforesaid incorporators and in order to complete the membership of the five (5)
directors of the board, petitioner sold fifty (50) shares out of his 400 shares of capital stock to his brother
Angel S. Tan. Another incorporator, Alfredo B. Uy, also sold fifty (50) of his 400 shares of capital stock to
Teodora S. Tan and both new stockholders attended the special meeting, Angel Tan was elected director and
on March 27, 1981, the minutes of said meeting was filed with the SEC. These facts stand unchallenged.
Accordingly, as a result of the sale by petitioner of his fifty (50) shares of stock to Angel S. Tan on April 16,
1981, Certificate of Stock No. 2 was cancelled and the corresponding Certificates Nos. 6 and 8 were issued,
signed by the newly elected fifth member of the Board, Angel S. Tan as Vice-president, upon instruction of
Alfonso S. Tan who was then the president of the Corporation.
With the cancellation of Certificate of stock No. 2 and the subsequent issuance of Stock Certificate No. 6 in
the name of Angel S. Tan and for the remaining 350 shares, Stock Certificate No. 8 was issued in the name of
petitioner Alfonso S. Tan, Mr. Buzon, submitted an Affidavit (Exh. 29), alleging that:
9. That in view of his having taken 33 1/3 interest, I was personally requested by Mr. Tan Su Ching to
request Mr. Alfonso Tan to make proper endorsement in the cancelled Certificate of Stock No. 2 and
Certificate No. 8, but he did not endorse, instead he kept the cancelled (1981) Certificate of Stock No.
2 and returned only to me Certificate of Stock No. 8, which I delivered to Tan Su Ching.
10. That the cancellation of his stock (Stock No. 2) was known by him in 1981; that it was Stock No.
8, that was delivered in March 1983 for his endorsement and cancellation. (Ibid, p. 18)

From the same Affidavit, it was alleged that Atty. Ramirez prepared a Memorandum of Agreement with
respect to the transaction of the fifty (50) shares of stock part of the Stock Certificate No. 2 of petitioner,
which was submitted to its former owner, Alfonso Tan, but which he purposely did not return.
On January 29, 1983, during the annual meeting of the corporation, respondent Tan Su Ching was elected as
President while petitioner was elected as Vice-president. He, however, did not sign the minutes of said
meeting which was submitted to the SEC on March 30, 1983. When petitioner was dislodged from his
position as president, he withdrew from the corporation on February 27, 1983, on condition that he be paid
with stocks-in-trade equivalent to 33.3% in lieu of the stock value of his shares in the amount of P35,000.00.
After the withdrawal of the stocks, the board of the respondent corporation held a meeting on April 19, 1983,
effecting the cancellation of Stock Certificate Nos. 2 and 8 in the corporate stock and transfer book 1 and
submitted the minutes thereof to the SEC on May 18, 1983.

Five (5) years and nine (9) months after the transfer of 50 shares to Angel S. Tan, brother of petitioner
Alfonso S. Tan, and three (3) years and seven (7) months after effecting the transfer of Stock Certificate Nos.
2 and 8 from the original owner (Alfonso S. Tan) in the stock and transfer book of the corporation, the latter
filed the case before the Cebu SEC Extension Office, more specifically on December 3, 1983, questioning for
the first time, the cancellation of his aforesaid Stock Certificates Nos. 2 and 8.
ISSUE: Whether or not the deprivation of his shares despite the non-endorsement or surrender of his Stock
Certificate Nos. 2 and 8, was without the process contrary to the provision of Section 63 of the Corporation
Code
HELD:
Petitioner further claims that "(T)he cancellation and transfer of petitioner's shares and Certificate of Stock
No. 2 as well as the issuance and cancellation of Certificate of Stock No. 8 (Exh. M) was patently and
palpably unlawful, null and void, invalid and fraudulent." And, that Section 63 of the Corporation Code of
the Philippines is "mandatory in nature", meaning that without the actual delivery and endorsement of the
certificate in question, there can be no transfer, or that such transfer is null and void.
These arguments are all motivated by self-interest, using foreign authorities that are slanted in his favor and
even misquoting local authorities to prop up his erroneous posture and all these attempts are intended to
stifle justice, truth and equity.
Moreover, it is safe to infer from the facts deduced in the instant case that, there was already delivery of the
unendorsed Stock Certificate No. 2, which is essential to the issuance of Stock Certificate Nos. 6 and 8 to
angel S. Tan and petitioner Alfonso S. Tan, respectively. What led to the problem was the return of the
cancelled certificate (No. 2) to Alfonso S. Tan for his endorsement and his deliberate non-endorsement.
For all intents and purposes, however, since this was already cancelled which cancellation was also reported to
the respondent Commission, there was no necessity for the same certificate to be endorsed by the petitioner.
All the acts required for the transferee to exercise its rights over the acquired stocks were attendant and even
the corporation was protected from other parties, considering that said transfer was earlier recorded or
registered in the corporate stock and transfer book.
Following the doctrine enunciated in the case of Tuazon v. La Provisora Filipina, where this Court held, that:
But delivery is not essential where it appears that the persons sought to be held as
stockholders are officers of the corporation, and have the custody of the stock book . . . (67
Phi. 36).
Furthermore, there is a necessity to delineate the function of the stock itself from the actual delivery or
endorsement of the certificate of stock itself as is the question in the instant case. A certificate of stock is not
necessary to render one a stockholder in corporation.
Nevertheless, 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 stock in the corporation but is merely evidence of the
holder's interest and status in the corporation, his ownership of the share represented thereby, but 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 in stock or the nation of the relation of shareholder to the
corporation. (13 Am. Jur. 2d, 769)
Under the instant case, the fact of the matter is, the new holder, Angel S. Tan has already exercised his rights
and prerogatives as stockholder and was even elected as member of the board of directors in the respondent
corporation with the full knowledge and acquiescence of petitioner. Due to the transfer of fifty (50) shares,
Angel S. Tan was clothed with rights and responsibilities in the board of the respondent corporation when he
was elected as officer thereof.

G.R. No. 74306 March 16, 1992

ENRIQUE RAZON, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and VICENTE B. CHUIDIAN, in his capacity as
Administrator of the Estate of the Deceased JUAN T. CHUIDIAN, respondents.
G.R. No. 74315 March 16, 1992
VICENTE B. CHUIDIAN, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, ENRIQUE RAZ0N, and E. RAZON,
INC., respondents.
GUTIERREZ, JR., J.:
FACTS:
The main issue in these consolidated petitions centers on the ownership of 1,500 shares of stock in E. Razon,
Inc. covered by Stock Certificate No. 003 issued on April 23, 1966 and registered under the name of Juan T.
Chuidian in the books of the corporation. The then Court of First Instance of Manila declared that Enrique
Razon, the petitioner in G.R. No. 74306 is the owner of the said shares of stock. The then Intermediate
Appellate Court, however, reversed the trial court's decision and ruled that Juan T. Chuidian, the deceased
father of petitioner Vicente B. Chuidian in G.R. No. 74315 is the owner of the shares of stock. Enrique
Razon wanted the appellate court's decision reversed and the trial court's decision affirmed while Vicente
Chuidian asked that all cash and stock dividends and all the pre-emptive rights accruing to the 1,500 shares of
stock be ordered delivered to him. Both parties filed separate motions for reconsideration. The appellate
court denied both motions.
In his complaint, Vicente B. Chuidian prayed that defendants Enrique B. Razon, E. Razon, Inc., Geronimo
Velasco, Francisco de Borja, Jose Francisco, Alfredo B. de Leon, Jr., Gabriel Llamas and Luis M. de Razon be
ordered to deliver certificates of stocks representing the shareholdings of the deceased Juan T. Chuidian in
the E. Razon, Inc. with a prayer for an order to restrain the defendants from disposing of the said shares of
stock, for a writ of preliminary attachment v. properties of defendants having possession of shares of stock
and for receivership of the properties of defendant corporation .
In their answer, defendants alleged that all the shares of stock in the name of stockholders of record of the
corporation were fully paid for by defendant, Razon; that said shares are subject to the agreement between
defendants and incorporators; that the shares of stock were actually owned and remained in the possession of
Razon. Appellees also alleged that neither the late Juan T. Chuidian nor the appellant had paid any amount
whatsoever for the 1,500 shares of stock in question.
Sometime in 1962, Enrique Razon organized the E. Razon, Inc. for the purpose of bidding for the arrastre
services in South Harbor, Manila. The incorporators consisted of Enrique Razon, Enrique Valles, Luisa M. de
Razon, Jose Tuason, Jr., Victor Lim, Jose F. Castro and Salvador Perez de Tagle.
On April 23, 1966, stock certificate No. 003 for 1,500 shares of stock of defendant corporation was issued in
the name of Juan T. Chuidian.
On the basis of the 1,500 shares of stock, the late Juan T. Chuidian and after him, the plaintiff-appellant, were
elected as directors of E. Razon, Inc. Both of them actually served and were paid compensation as directors
of E. Razon, Inc.
From the time the certificate of stock was issued on April 1966 up to April 1971, Enrique Razon had not
questioned the ownership by Juan T. Chuidian of the shares of stock in question and had not brought any
action to have the certificate of stock over the said shares cancelled.

The certificate of stock was in the possession of defendant Razon who refused to deliver said shares to the
plaintiff, until the same was surrendered by defendant Razon and deposited in a safety box in Philippine Bank
of Commerce.
Defendants allege that after organizing the E. Razon, Inc., Enrique Razon distributed shares of stock
previously placed in the names of the withdrawing nominal incorporators to some friends including Juan T.
Chuidian
Stock Certificate No. 003 covering 1,500 shares of stock upon instruction of the late Chuidian on April 23,
1986 was personally delivered by Chuidian on July 1, 1966 to the Corporate Secretary of Attorney Silverio B.
de Leon who was himself an associate of the Chuidian Law Office. Since then, Enrique Razon was in
possession of said stock certificate even during the lifetime of the late Chuidian, from the time the late
Chuidian delivered the said stock certificate to defendant Razon until the time of defendant Razon. By
agreement of the parties delivered it for deposit with the bank under the joint custody of the parties as
confirmed by the trial court in its order of August 7, 1971.
Thus, the 1,500 shares of stook under Stock Certificate No. 003 were delivered by the late Chuidian to
Enrique because it was the latter who paid for all the subscription on the shares of stock in the defendant
corporation and the understanding was that he (defendant Razon) was the owner of the said shares of stock
and was to have possession thereof until such time as he was paid therefor by the other nominal
incorporators/stockholders.
In G.R. No. 74306, petitioner Enrique Razon assails the appellate court's decision on its alleged
misapplication of the dead man's statute rule under Section 20(a) Rule 130 of the Rules of Court. According
to him, the "dead man's statute" rule is not applicable to the instant case. Moreover, the private respondent,
as plaintiff in the case did not object to his oral testimony regarding the oral agreement between him and the
deceased Juan T. Chuidian that the ownership of the shares of stock was actually vested in the petitioner
unless the deceased opted to pay the same; and that the petitioner was subjected to a rigid cross examination
regarding such testimony.
ISSUE: Whether the ownership of the 1,500 shares of stock in E. Razon, Inc. belongs to Razon or to the late
Chuidian.
HELD:
E. Razon, Inc. was organized in 1962 by petitioner Enrique Razon for the purpose of participating in the
bidding for the arrastre services in South Harbor, Manila. The incorporators were Enrique Razon, Enrique
Valles, Luisa M. de Razon, Jose Tuazon, Jr., Victor L. Lim, Jose F. Castro and Salvador Perez de Tagle. The
business, however, did not start operations until 1966. According to the petitioner, some of the incorporators
withdrew from the said corporation. The petitioner then distributed the stocks previously placed in the names
of the withdrawing nominal incorporators to some friends, among them the late Juan T. Chuidian to whom
he gave 1,500 shares of stock. The shares of stock were registered in the name of Chuidian only as nominal
stockholder and with the agreement that the said shares of stock were owned and held by the petitioner but
Chuidian was given the option to buy the same. In view of this arrangement, Chuidian in 1966 delivered to
the petitioner the stock certificate covering the 1,500 shares of stock of E. Razon, Inc. Since then, the
Petitioner had in his possession the certificate of stock until the time, he delivered it for deposit with the
Philippine Bank of Commerce under the parties' joint custody pursuant to their agreement as embodied in
the trial court's order.
The petitioner maintains that his aforesaid oral testimony as regards the true nature of his agreement with the
late Juan Chuidian on the 1,500 shares of stock of E. Razon, Inc. is sufficient to prove his ownership over the
said 1,500 shares of stock.
The petitioner's contention is not correct.

In the instant case, there is no dispute that the questioned 1,500 shares of stock of E. Razon, Inc. are in the
name of the late Juan Chuidian in the books of the corporation. Moreover, the records show that during his
lifetime Chuidian was elected member of the Board of Directors of the corporation which clearly shows that
he was a stockholder of the corporation. (See Section 30, Corporation Code) From the point of view of the
corporation, therefore, Chuidian was the owner of the 1,500 shares of stock. In such a case, the petitioner
who claims ownership over the questioned shares of stock must show that the same were transferred to him
by proving that all the requirements for the effective transfer of shares of stock in accordance with the
corporation's by laws, if any, were followed or in accordance with the provisions of law.
The petitioner failed in both instances. The petitioner did not present any by-laws which could show that the
1,500 shares of stock were effectively transferred to him. In the absence of the corporation's by-laws or rules
governing effective transfer of shares of stock, the provisions of the Corporation Law are made applicable to
the instant case.
The law is clear that in order for a transfer of stock certificate to be effective, the certificate must be properly
indorsed and that title to such certificate of stock is vested in the transferee by the delivery of the duly indorsed
certificate of stock. (Section 35, Corporation Code) Since the certificate of stock covering the questioned
1,500 shares of stock registered in the name of the late Juan Chuidian was never indorsed to the petitioner,
the inevitable conclusion is that the questioned shares of stock belong to Chuidian. The petitioner's
asseveration that he did not require an indorsement of the certificate of stock in view of his intimate
friendship with the late Juan Chuidian cannot overcome the failure to follow the procedure required by law or
the proper conduct of business even among friends. To reiterate, indorsement of the certificate of stock is a
mandatory requirement of law for an effective transfer of a certificate of stock.
Moreover, the preponderance of evidence supports the appellate court's factual findings that the shares of
stock were given to Juan T. Chuidian for value. Juan T. Chuidian was the legal counsel who handled the legal
affairs of the corporation. We give credence to the testimony of the private respondent that the shares of
stock were given to Juan T. Chuidian in payment of his legal services to the corporation. Petitioner Razon
failed to overcome this testimony.
In G.R. No. 74315, petitioner Vicente B. Chuidian insists that the appellate court's decision declaring his
deceased father Juan T. Chuidian as owner of the 1,500 shares of stock of E. Razon, Inc. should have
included all cash and stock dividends and all the pre-emptive rights accruing to the said 1,500 shares of stock.
The petition is impressed with merit.
The cash and stock dividends and all the pre-emptive rights are all incidents of stock ownership.
The rights of stockholders are generally enumerated as follows:
. . . [F]irst, to have a certificate or other evidence of his status as stockholder issued to him; second, to vote at
meetings of the corporation; third, to receive his proportionate share of the profits of the corporation; and
lastly, to participate proportionately in the distribution of the corporate assets upon the dissolution or
winding up. (Purdy's Beach on Private Corporations, sec. 554) (Pascual v. Del Saz Orozco, 19 Phil. 82, 87)
WHEREFORE, judgment is rendered as follows:
a) In G.R. No. 74306, the petition is DISMISSED. The questioned decision and resolution of the then
Intermediate Appellate Court, now the Court of Appeals, are AFFIRMED.
b) In G.R. No. 74315, the petition is GRANTED. The questioned Resolution insofar as it denied the
petitioner's motion to clarify the dispositive portion of the decision of the then Intermediate Appellate Court,
now Court of Appeals is REVERSED and SET ASIDE. The decision of the appellate court is MODIFIED
in that all cash and stock dividends as, well as all pre-emptive rights that have accrued and attached to the
1,500 shares in E. Razon, Inc., since 1966 are declared to belong to the estate of Juan T. Chuidian.

RURAL BANK OF SALINAS, INC. v. COURT OF APPEALS

G.R. No. 96674, 26 June 1992, SECOND DIVISION (J. Paras)
On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special
Power of Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the
latter full power and authority to sell or otherwise dispose of and/or mortgage 473 shares of stock
of the Bank registered in his name (represented by the Bank's stock certificates nos. 26, 49 and 65), to
execute the proper documents therefor, and to receive and sign receipts for the dispositions.
On February 27, 1980, and pursuant to said Special Power of Attorney, Melania Guerrero, as
Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in favor of
private respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco Guerrero, Jr. (5
shares).
Almost four months later, or two (2) days before the death of Clemente Guerrero on June 24,
1980, Melania Guerrero, pursuant to the same Special Power of Attorney, executed a Deed of Assignment for
the remaining one (1) share of stock in favor of Francisco Guerrero, Sr.
Subsequently, Melania Guerrero presented to Rural Bank of Salinas the two (2) Deeds of Assignment for
registration with a request for the transfer in the Bank's stock and transfer book of the 473 shares of stock so
assigned, the cancellation of stock certificates in the name of Clemente G. Guerrero, and the issuance of new
stock certificates covering the transferred shares of stocks in the name of the new owners thereof. However,
petitioner Bank denied the request of Melania Guerrero.
On December 5, 1980, Melania Guerrero filed with the Securities and Exchange Commission" (SEC)
an action for mandamus against Rural Bank of Salinas, its President and Corporate Secretary.
Petitioners filed their Answer with counterclaim on December 19, 1980 alleging the upon the death of
Clemente G. Guerrero, his 473 shares of stock became the property of his estate, and his property and that of
his widow should first be settled and liquidated in accordance with law before any distribution can be effected
so that petitioners may not be a party to any scheme to evade payment of estate or inheritance tax and in
order to avoid liability to any third persons or creditors of the late Clemente G. Guerrero.
The SEC Hearing Officer rendered a Decision granting the writ of Mandamus prayed for by the private
respondents and directing petitioners to cancel stock certificates nos. 26, 49 and 65 of the Bank, all in the
name of Clemente G. Guerrero, and to issue new certificates in the names of private respondents,
except Melenia Guerrero. On appeal, the SEC En Banc affirmed the decision of the Hearing Officer.
Petitioner filed a petition for review with the Court of Appeals but said Court likewise affirmed the decision
of the SEC.
ISSUE: whether or not the respondent court erred in sustaining the Securities and Exchange
Commission when it compelled by Mandamus the Rural Bank of Salinas to register in its stock and
transfer book the transfer of 473 shares of stock to private respondents
HELD: No.
The right of a transferee/assignee to have stocks transferred to his name is an inherent right
flowing from his ownership of the stocks. Thus:
Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie to
compel the officers of the corporation to transfer said stock in the books of the corporation" (26, Cyc. 347,
Hyer vs. Bryan, 19 Phil. 138; Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).

The corporation's obligation to register is ministerial.

In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to
decide the question of ownership. (Fletcher, Sec. 5528, page 434).
The duty of the corporation to transfer is a ministerial one and if it refuses to make such
transaction without good cause, it may be compelled to do so by mandamus. (See. 5518, 12 Fletcher 394)
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 affirming the Decision of its Hearing Officer directing the
registration of the 473 shares in the stock and transfer book in the names of private respondents. 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.

MANUEL A. TORRES, JR. v. COURT OF APPEALS

G.R. No. 120138, 5 September 1997, FIRST DIVISION (J. Kapunan)
The 1987 annual stockholders meeting and election of directors of Tormil corporation was scheduled on 25
March 1987 in compliance with the provisions of its by-laws.
Pursuant thereto, Judge Torres assigned from his own shares, one (l) share each to petitioners
Tobias, Jocson, Jurisprudencia, Azura and Pabalan. These assigned shares were in the nature of
"qualifying shares," for the sole purpose of meeting the legal requirement to be able to elect them
(Tobias and company) to the Board of Directors as Torres' nominees.
The reason behind the aforestated action was to remedy the "inequitable lopsided set-up obtaining
in the corporation, where, notwithstanding his controlling interest in the corporation, the late Judge
held only a single seat in the nine-member Board of Directors and was, therefore, at the mercy of
the minority, a combination of any two (2) of whom would suffice to overrule the majority
stockholder in the Board's decision making functions."
Petitioners insist that the assignment of "qualifying shares" to the nominees of the late Judge Torres
(herein petitioners) does not partake of the real nature of a transfer or conveyance of shares of
stock as would call for the "imposition of stringent requirements (with respect to the) recording of
the transfer of said shares." Anyway, petitioners add, there was substantial compliance with the above-stated
requirement since said assignments were entered by the late Judge Torres himself in the corporation's
stock and transfer book on 6 March 1987, prior to the 25 March 1987 annual stockholders meeting and
which entries were confirmed on 8 March 1987 by petitioner Azura who was appointed Assistant Corporate
Secretary by Judge Torres.
Petitioners further argue that:
10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to penalize the late Judge
Torres by invalidating the questioned entries in the stock and transfer book, simply because he
initially made those entries (they were later affirmed by an acting corporate secretary) and because
the stock and transfer book was in his possession instead of the elected corporate secretary, if the
background facts herein-before narrated and the serious animosities that then reigned between the
deceased Judge and his relatives are to be taken into account;
xxx xxx xxxxxx xxx xxx
10.12. Indeed it was a practice in the corporate respondent, a family corporation with only a measly
number of stockholders, for the late judge to have personal custody of corporate records; as
president, chairman and majority stockholder, he had the prerogative of designating an acting
corporate secretary or to himself make the needed entries, in instances where the regular secretary, who
is a mere subordinate, is unavailable or intentionally defaults, which was the situation that obtained
immediately prior to the 1987 annual stockholders meeting of Tormil, as the late Judge Torres had so
indicated in the stock and transfer book in the form of the entries now in question.
ISSUE: Whether or not the assignment of shares of stock is valid and qualified the transferees to be directors
HELD: No.
In the absence of (any) provision to the contrary, the corporate secretary is the custodian of
corporate records. Corollary, he keeps the stock and transfer book and makes proper and necessary
entries therein.
Contrary to the generally accepted corporate practice, the stock and transfer book of TORMIL was not kept
by Ms. Maria Cristina T. Carlos, the corporate secretary but by respondent Torres, the President and

Chairman of the Board of Directors of TORMIL. In contravention to the above cited provision, the
stock and transfer book was not kept at the principal office of the corporation either but at the place
of respondent Torres.
These being the obtaining circumstances, any entries made in the stock and transfer book on March
8, 1987 by respondent Torres of an alleged transfer of nominal shares to Pabalan and Co. cannot
therefore be given any valid effect. Where the entries made are not valid, Pabalan and Co. cannot
therefore be considered stockholders of record of TORMIL. Because they are not stockholders, they
cannot therefore be elected as directors of TORMIL. To rule otherwise would not only encourage
violation of clear mandate of Sec. 74 of the Corporation Code that stock and transfer book shall be
kept in the principal office of the corporation but would likewise open the flood gates of confusion in the
corporation as to who has the proper custody of the stock and transfer book and who are the real
stockholders of records of a certain corporation as any holder of the stock and transfer book, though
not the corporate secretary, at pleasure would make entries
therein.
The fact that respondent Torres holds 81.28% of the outstanding capital stock of TORMIL is of no moment
and is not a license for him to arrogate unto himself a duty lodged to the corporate secretary.

CHINA BANKING CORPORATION v. COURT OF APPEALS

G.R. No. 117604, 26 March 1997, FIRST DIVISION (J. Kapunan)
On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private respondent Valley
Golf & Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitioner
China Banking Corporation (CBC, for brevity).
On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge agreement be
recorded in its books. In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed
by Calapatia in petitioner's favor was duly noted in its corporate books.
On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was secured
by the aforestated pledge agreement still existing between Calapatia and petitioner. Due to Calapatia's
failure to pay his obligation, petitioner, on 12 April 1985, filed a petition for extrajudicial foreclosure
before a Notary Public requesting the latter to conduct a public auction sale of the pledged stock.
On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings and
requested that the pledged stock be transferred to its (petitioner's) name and the same be recorded in
the corporate books.
However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede to petitioner's request in
view of Calapatia's unsettled accounts with the club.
Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioner
emerged as the highest bidder at P20,000.00 for the pledged stock. Consequently, petitioner was issued the
corresponding certificate of sale.
On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission
(SEC) for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock
certificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for
damages, attorney's fees and costs of litigation.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI,
stating in the main that "(c)onsidering that the said share is delinquent, (VGCCI) had valid reason not to
transfer the share in the name of the petitioner in the books of (VGCCI) until liquidation of delinquency."
SEC denied the motion for reconsideration. The Court of Appeals rendered its decision nullifying and
setting aside the orders of the SEC and its hearing officer on ground of lack of jurisdiction over the subject
matter and, consequently, dismissed petitioner's original complaint. The Court of
Appeals declared that the controversy between CBC and VGCCI is not intra-corporate.
ISSUES: (1) whether or not the nature of the controversy between petitioner and private respondent
corporation is intra-corporate.
(2) Whether or not VGCCI had the right to sell the share in question in accordance with the express
provision found in its by-laws due to Calapatia's failure to settle his delinquent accounts
HELD:
(1)
As to the first query, there is no question that the purchase of the subject share or membership certificate at
public auction by petitioner (and the issuance to it of the corresponding Certificate of Sale)

transferred ownership of the same to the latter and thus entitled petitioner to have the said share registered
in its name as a member of VGCCI.
By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and,
therefore, the conflict that arose between petitioner and VGCCI aptly exemplies an intra-corporate
controversy between a corporation and its stockholder under Sec. 5(b) of P.D. 902-A.
(2)
Finally, Sec. 63 of the Corporation Code which provides that "no shares of stock against which the
corporation holds any unpaid claim shall be transferable in the books of the corporation" cannot be
utilized by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid
subscription, and not to any indebtedness which a subscriber or stockholder may owe the
corporation arising from any other transaction." In the case at bar, the subscription for the share in
question has been fully paid as evidenced by the issuance of Membership Certificate No. 1219. What
Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted provision does not
apply.

NORA A. BITONG v. COURT OF APPEALS, et al.

G.R. No. 123553, 13 July 1998, FIRST DIVISION (Belosillo, J.)
A mere typewritten statement advising a stockholder of the extent his ownership in a corporation without qualification
and/or authentication cannot be considered a formal certificate of stock.
Nora Bitong, the former Treasurer and a member of the Board of Directors of Mr. & Ms. Publishing
Co., Inc. (Company) from October 1976 to April 1989, filed a derivative suit with the Securities and
Exchange Commission (SEC) allegedly for the benefit of the Company against Eugenia Apostol, President
and Chairperson of the Board of Directors of the Company, and Jose Apostol for the irregularities
committed from 1983 to 1987 in the Company. Bitong further claimed that all transactions and agreements
entered into by the Company were not supported by any bond and/or stockholders resolution.
The petition sought to, among others, hold Eugenia and Jose Apostol liable for damages suffered by
the Company and the other stockholders, including Bitong, by reason of their improper and fraudulent acts in
directing the affairs of the Company. Bitong contends that she became the registered and beneficial owner of
997 shares of stock of Mr. & Ms. after she acquired them from JAKA through a deed of sale executed in
1983 and recorded in the Stock and Transfer Book of Mr. & Ms. under Certificate of Shares of Stock No.
008. She pointed out that Senator Enrile decided that JAKA should completely divest itself of its holdings
in Mr. & Ms. and this resulted in the sale to her of JAKAs interest and holdings in that publishing firm.
Private respondents Apostol spouses, stockholders Magsanoc and Nuyda, and the Company, on the
other hand, refuted the allegations of Bitong, asserting that the original stockholders of Company., that is,
JAKA Investments Corporation (JAKA), Luis Villafuerte, Ramon Siy, the Apostols and Ex Libris,
continued to be virtually the same up to 1989. Thereafter it was agreed among them that, they being close
friends, the Company would be operated as a partnership or a close corporation and no shares of stock would
be sold to third parties without first offering the shares to the other stockholders so that transfers would be
limited to and only among the original stockholders. Apostol, et al. further contended that Bitong, being
merely a holder-in-trust of JAKA shares, only represented and continued to represent JAKA in the board.
They further argued that Bitong was not the true party to this case, the real party being JAKA, which
continued to be the true stockholder of the Company; hence, Bitong did not have the personality to initiate
and prosecute the derivative suit which, consequently, must be dismissed.
The SEC Hearing Panel dismissed the derivative suit and gave credence to the assertion of
respondent Eugenia D. Apostol that the Company was operated like a close corporation where important
matters were discussed and approved through informal consultations at breakfast conferences.
The SEC En Banc, however, reversed the decision of the Hearing Panel, prompting Apostol spouses,
et al. to file a petition for review before the Court of Appeals.
The Court of Appeals rendered a decision reversing the SEC En Banc and held that from the
evidence on record, Bitong was not the owner of any share of stock in the Company and therefore not the
real party-in-interest to prosecute the complaint she had instituted against private respondents.
ISSUE:
Whether there was a valid transfer of stocks in favor of Bitong which would give her legal personality
to sue as a stockholder
RULING: NO.

Bitong contends that she was a holder of the proper certificates of shares of stock and that the
transfer was recorded in the Stock and Transfer Book of Mr. & Ms. She invokes Sec. 63 of The Corporation
Code which provides that no transfer shall be valid except as between the parties until the transfer is recorded
in the books of the corporation, and upon its recording the corporation is bound by it and is estopped to
deny the fact of transfer of said shares. Bitong alleges that even in the absence of a stock certificate, a
stockholder solely on the strength of the recording in the stock and transfer book can exercise all the rights as
stockholder, including the right to file a derivative suit in the name of the corporation. And, she need not
present a separate deed of sale or transfer in her favor to prove ownership of stock.
Section 63 of The Corporation Code expressly provides Sec. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall
be divided into shares for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall
be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact
or other person legally authorized to make the transfer. No transfer however shall be valid except as
between the parties until the transfer is recorded in the books of the corporation showing 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 x x x x
This provision above quoted envisions a formal certificate of stock which can be issued only upon
compliance with certain requisites. First, the certificates must be signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A mere
typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or
authentication cannot be considered as a formal certificate of stock. Second, delivery of the certificate is an essential
element of its issuance. Hence, there is no issuance of a stock certificate where it is never detached from the
stock books although blanks therein are properly filled up if the person whose name is inserted therein has no
control over the books of the company. Third, the par value, as to par value shares, or the full subscription as
to no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where the
person requesting the issuance of a certificate is a transferee from a stockholder.
The certificate of stock itself once issued is a continuing affirmation or representation that the stock
described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the
absence of evidence to the contrary. However, this presumption may be rebutted. Similarly, books and
records of a corporation which include even the stock and transfer book are generally admissible in evidence
in favor of or against the corporation and its members to prove the corporate acts, its financial status and
other matters including ones status as a stockholder. They are ordinarily the best evidence of corporate acts
and proceedings.
Xxx for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the
stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and, (c) to be valid against third parties, the transfer must be recorded
in the books of the corporation. At most, in the instant case, petitioner has satisfied only the third
requirement. Compliance with the first two requisites has not been clearly and sufficiently shown.
Considering that the requirements provided under Sec. 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. As it is, even the credibility of the stock and transfer book and the entries
thereon relied upon by petitioner to show compliance with the third requisite to prove that she was a
stockholder since 1983 is highly doubtful.

MARSH THOMSON v. COURT OF APPEALS and the AMERICAN CHAMBER OF

COMMERCE OF THE PHILIPPINES
G.R. No. 116631, 28 October 1998, FIRST DIVISION (Quisumbing, J.)
Authority granted to a corporation to regulate the transfer of its stock does not empower it to restrict the right of a
stockholder to transfer his shares, but merely authorizes the adoption of regulations as to the formalities and procedure to be
followed in effecting transfer.
Petitioner Marsh Thomson (Thomson) was the Executive Vice-President and, later on, the
Management Consultant of private respondent, the American Chamber of Commerce of the Philippines, Inc.
(AmCham) for over ten years, 1979-1989. While Thomson was still working with AmCham, his superior, A.
Lewis Burridge, retired as AmCham's President. Before Burridge decided to return to his home country, he
wanted to transfer his proprietary share in the Manila Polo Club (MPC) to Thomson. However, through the
intercession of Burridge, AmCham paid for the share but had it listed in Thomson's name. This was made
clear in an employment advice. Burridge transferred said proprietary share to Thomson, as confirmed in a
letter of notification to the Manila Polo Club.
Upon his admission as a new member of the MPC, Thomson paid the transfer fee from his own
funds; but AmCham subsequently reimbursed this amount. MPC issued Proprietary Membership Certificate
in favor of Thomson. Thomson, however, failed to execute a document recognizing AmCham's beneficial
ownership over said share. Following AmCham's policy and practice, there was a yearly renewal of
employment contract between the Thomson and AmCham. Separate letters of employment advice mentioned
the MPC share. Thomson never complied with follow-up requests, asking him to execute such documents as
are necessary to acknowledge that the Chamber is the beneficial owner of his membership in the Club. When
Thomson's contract of employment was up for renewal in 1989, he notified AmCham that he would no
longer be available as Executive Vice President. Still, AmCham asked Thomson to stay on for another six (6)
months. Thomson accepted and indicated his acceptance of the consultancy arrangement with a counterproposal in his letter, retention of the Polo Club share, subject to my reimbursing the purchase price to the
Chamber. AmCham rejected petitioner's counter-proposal.
Pending the negotiation for the consultancy arrangement, AmCham executed a Release and
Quitclaim, stating that "AMCHAM, its directors, officers and assigns, employees and/or representatives do
hereby release, waive, abandon and discharge J. MARSH THOMSON from any and all existing claims that
the AMCHAM, its directors, officers and assigns, employees and/or representatives may have against J.
MARSH THOMSON." The quitclaim, expressed in general terms, did not mention specifically the MPC
share. AmCham sent a letter to Thomson demanding the return and delivery of the MPC share which it owns
and placed in Thomson's name. Failing to get a favorable response, AmCham filed a complaint against
Thomson to return the Manila Polo Club share to AmCham and transfer said share to the nominee of
AmCham. RTC ruled in favor of Thomson on the ground that the Articles of Incorporation and By-laws of
Manila Polo Club prohibit artificial persons, such as corporations, to be club members. CA reversed and
ordered Thomson to transfer the MPC share to the nominee of AmCham.
ISSUE:
Whether the order that Thomson should transfer said share to AmCham's nominee violates the
prohibition on corporate membership under the MPC AOI and by-laws
RULING: NO.

Thomson contends that the Articles of Incorporation and By-laws of Manila Polo Club prohibit
corporate membership. However, AmCham does not insist nor intend to transfer the club membership in its
name but rather to its designated nominee. For as properly ruled by the Court of Appeals:
The matter prayed for does not involve the transfer of said share to the appellant, an
artificial person. The transfer sought is to the appellant's nominee. Even if the MPC ByLaws and Articles prohibit corporate membership, there would be no violation of said
prohibition for the appellant's nominee to whom the said share is sought to be transferred
would certainly be a natural person. . . .
As to whether or not the transfer of said share the appellant's nominee would be
disapproved by the MPC, is a matter that should be raised at the proper time, which is only
if such transfer is disapproved by the MPC.
The Manila Polo Club does not necessarily prohibit the transfer of proprietary shares by its members.
The Club only restricts membership to deserving applicants in accordance with its rules, when the amended
Articles of Incorporation states that: "No transfer shall be valid except between the parties, and shall be registered
in the Membership Book unless made in accordance with these Articles and the By-Laws". Thus, as between
parties herein, there is no question that a transfer is feasible. Moreover, authority granted to a corporation to
regulate the transfer of its stock does not empower it to restrict the right of a stockholder to transfer his
shares, but merely authorizes the adoption of regulations as to the formalities and procedure to be followed
in effecting transfer.
In this case, the petitioner was the nominee of the private respondent to hold the share and enjoy the
privileges of the club. But upon the expiration of petitioner's employment as officer and consultant of
AmCham, the incentives that go with the position, including use of the MPC share, also ceased to exist. It
now behooves petitioner to surrender said share to private respondent's next nominee, another natural
person. Obviously this arrangement of trust and confidence cannot be defeated by the petitioner's citation of
the MPC rules to shield his untenable position, without doing violence to basic tenets of justice and fair
dealing. Petition for Review on Certiorari is DENIED.

NEMESIO GARCIA v. NICOLAS JOMOUAD, et al.

G.R. No. 133969, 26 January 2000, FIRST DIVISION (Kapunan, J.)
Section 63 of the Corporation Code provides that no transfer shall be valid except as 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 certificate or certificates and the number of shares transferred. Said provision of law strictly requires the recording of the
transfer in the books of the corporation and not elsewhere, to be valid as against third parties. The unrecorded transfer of a
proprietary ownership certificate is not valid as against the judgment creditor of the transferor who can therefore levy the shares
pursuant to a judgment despite the unrecorded transfer.
Nemesio Garcia filed an action for injunction against respondent-spouses Jose and Sally Atinon and
Nicolas Jomouad, ex-officio sheriff of Cebu. Said action stemmed from an earlier case for collection of sum of
money filed by the spouses Atinon against Jaime Dico. In that case, the trial court rendered judgment
ordering Dico to pay the spouses Atinon. After said judgment became final and executory, Sheriff Jomouad
proceeded with its execution. In the course thereof, the Proprietary Ownership Certificate (POC) in the Cebu
Country Club, which was in the name of Dico, was levied on and scheduled for public auction. Claiming
ownership over the subject certificate, Garcia filed the aforesaid action for injunction to enjoin Jomouad and
Spouses Atinon from proceeding with the auction.Garcia avers that Dico, the judgment debtor of the spouses
Atinon, was employed as manager of his (Garcia's) Young Auto Supply. In order to assist him in entertaining
clients, Garcia "lent" his POC in the Cebu Country Club to Dico so the latter could enjoy the "signing"
privileges of its members. The Club issued POC in the name of Dico. Thereafter, Dico resigned as manager
of Garcia's business. Upon demand of Garcia, Dico returned POC to him. Dico then executed a Deed of
Transfer covering the subject certificate 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. Lower court dismissed Garcias complaint for injunction. CA affirmed the
RTC decision.
ISSUE:
Whether 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
RULING: NO.
Sec. 63 of the Corporation Code reads:
Sec. 63 Certificate of stock and transfer of shares. The capital stock of corporations shall be divided into
shares for which certificates signed by the president or vice-president, countersigned by the secretary
or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with
the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the number of
shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation.
The sole issue in this case is similar to that raised in Uson vs. Diosomito xxx. In that case, we held that the
attachment prevails over the unrecorded transfer stating thus

[w]e think that the true meaning of the language is, and the obvious intention of the legislature in
using it was, that all transfers of shares should be entered, as here required, on the books of the
corporation. And it is equally clear to us that all transfers of shares not so entered are invalid as to
attaching or execution creditors of the assignors, as well as to the corporation and to subsequent
purchasers in good faith, and, indeed, as to all persons interested, except the parties to such transfers.
All transfers not so entered on the books of the corporation are absolutely void; not because they are
without notice or fraudulent in law or fact, but because they are made so void by statute.
Applying the foregoing jurisprudence in this case, we hold that the transfer of the subject certificate
made by Dico to petitioner 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 of the levy on execution. XXX the entry in the
minutes of the meeting of the Club's board of directors noting the resignation of Dico as proprietary member
thereof does not constitute compliance with Section 63 of the Corporation Code. Said provision of law
strictly requires the recording of the transfer in the books of the corporation, and not elsewhere, to be valid as
against third parties. Accordingly, the CA committed no reversible error in rendering the assailed decision.
PETITION DENIED.

THE RURAL BANK OF LIPA CITY, INC. vs. COURT OF APPEALS

For a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed by law. The requirements are:
(a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other
persons legally authorized to make the transfer; and (c) To be valid against third parties, the transfer must be recorded in the
books of the corporation. A deed of assignment of shares without requisite endorsement and delivery is only valid between the
parties. It does not necessarily make the transfer effective as against the corporation. 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.
Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a
Deed of Assignment, wherein he assigned his shares, as well as those of eight (8) other shareholders under his
control, in favor of the stockholders of the Bank. Sometime thereafter, Spouses Villanueva executed an
Agreement wherein they acknowledged their indebtedness to the Bank in the amount of 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. They assured the Board that their debt would be paid; 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 demanding: (1) the surrender of all the stock certificates issued to them; and (2) the delivery of
sufficient collateral to secure the balance of their debt. The Villanuevas ignored the banks demands,
whereupon their shares of stock were converted into Treasury Stocks.
The stockholders of the Bank met to elect the new directors and set of officers. The Villanuevas were
not notified of said meeting. Not being notified, the spouses questioned the legality of the said stockholders
meeting and the validity of all the proceedings therein. In reply, the new set of officers of the Bank said 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. Hence, a petition was filed for the annulment of the stockholders
meeting and election of directors and officers. The SEC issued an order enjoining the petitioners from acting
as directors and officers of the bank and a temporary restraining order preventing petitioners from holding
the stockholders meeting and electing the board of directors and officers of the Bank.
A petition for Certiorari and Annulment with Damages was filed by the Rural Bank. SEC en banc denied
the petition. A subsequent motion for reconsideration was likewise denied. Hence, a petition for review was
thus filed before the Court of Appeals which dismissed the petition for lack of merit.
Hence, the instant petition.
ISSUE:
Whether or not there was a valid transfer of stocks.
HELD:
We find no merit in the instant petition.
The Corporation Code specifically provides:

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 bylaws. Shares of stocks so issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in
the books of the corporation so as to show the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of
the corporation. (Underscoring ours)
Petitioners argue that by virtue of the Deed of Assignment, 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 sufficient to effect
the transfer of shares since there was no endorsement of the certificates 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 certificate duly endorsed by the owner is the operative act of transfer of shares
from the lawful owner to the transferee. Thus, title may be vested in the transferee only by delivery of the
duly indorsed certificate of stock.
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 certificate;
(b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally
authorized to make the transfer; and
(c) To be valid against third parties, the transfer must be recorded in the books of the corporation. As it
is, compliance with any of these requisites has not been clearly and sufficiently shown.
It may be argued that despite non-compliance with the requisite endorsement and delivery, the
assignment was valid between the parties, meaning the private respondents as assignors and the petitioners as
assignees. While the assignment may be valid and binding on the petitioners and private respondents, it does
not necessarily make the transfer effective. Consequently, the petitioners, as mere assignees, cannot enjoy the
status of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends, insofar as the
assigned shares are concerned. Parenthetically, 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.

BATANGAS LAGUNA TAYABAS BUS COMPANY, INC., et al. vs.

BENJAMIN M. BITANGA, et al.
For a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed by law. The requirements are:
(a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other
persons legally authorized to make the transfer; and (c) To be valid against third parties, the transfer must be recorded in the
books of the corporation. A deed of assignment of shares without requisite endorsement and delivery is only valid between the
parties. It does not necessarily make the transfer effective as against the corporation. 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.
The Potencianos, Delfin C. Yorro, and Maya Industries, Inc., entered into a Sale and Purchase
Agreement, whereby they sold to BMB Property Holdings, Inc., represented by its President, Benjamin
Bitanga, their shares of stock in BLTB representing 47.98% of the total outstanding capital stock of BLTB.
Barely a month after the Agreement was executed, Bitanga and Monina Grace Lim were elected as new
directors.
During a meeting of the Board, the newly elected directors scheduled the annual stockholders
meeting. Before the scheduled meeting, Michael Potenciano wrote Bitanga, requesting for a postponement of
the stockholders meeting due to the absence of a thirty-day advance notice. However, there was no response
on whether or not the request for postponement was favorably acted upon. On the scheduled date of the
meeting, a notice of postponement of the stockholders meeting was published in the Manila
Bulletin. Inasmuch as there was no notice of postponement prior to that, a total of 286 stockholders arrived
and attended the meeting. The majority of the stockholders present rejected the postponement and voted to
proceed with the meeting. The Potenciano group was re-elected to the Board of Directors, however, the
Bitanga group refused to relinquish their positions and continued to act as directors and officers of BLTB.
The Bitanga group filed with the SEC a Complaint for Damages and Injunction which, however, was
denied. Likewise, the Potenciano group filed a Complaint for Injunction and Damages with Preliminary
Injunction and Temporary Restraining Order with the SEC which issued a TRO enjoining the Bitanga group
from acting as officers and directors of BLTB.
The Bitanga group filed another complaint which was granted. It declared that the stockholders meeting
was void on the grounds that, first, Michael Potenciano had himself asked for its postponement due to
improper notice; and, second, there was no quorum, since BMB Holdings, Inc., represented by the Bitanga
group, which then owned 50.26% of BLTBs shares having purchased the same from the Potenciano group,
was not present at the said meeting.
The Potenciano group filed a petition for certiorari with the SEC En Banc. The SEC En Banc set aside
the Order of the Hearing Panel and issued the writ of preliminary injunction prayed for. The Bitanga group
immediately filed a petition for certiorari with the Court of Appeals which reversed the assailed Orders of the
SEC En Banc and reinstating the Order of the Hearing Panel. The Court of Appeals denied the Motions for
Reconsideration.
Hence, this petition.
ISSUE:
Whether or not the SEC En Banc committed error in jurisdiction as to entitle the Bitanga group to the
extraordinary remedy of certiorari. (No)

HELD:
Petition is GRANTED.
In the Order of the SEC En Banc, the validity of the BLTB stockholders meeting held was sustained, in
light of the time-honored doctrine in corporation law that a transfer of shares is not valid unless recorded in
the books of the corporation. The SEC En Banc went on to rule that
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. Hence, the group of Dolores Potenciano, in whose
names those shares still stand, were the ones entitled to attend and vote at the stockholders meeting of the
BLTB. This being the case, the Hearing Panel committed grave abuse of discretion in holding otherwise and
in concluding that there was no quorum in said meeting.
Based on the foregoing premises, the SEC En Banc issued a writ of preliminary injunction against the
Bitanga group. In so ruling, the SEC En Banc merely exercised its wisdom and competence as a specialized
administrative agency specifically tasked to deal with corporate law issues. We are in full accord with the SEC
En Banc on this matter. 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. 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 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.

VICENTE C. PONCE vs. ALSONS CEMENT CORPORATION,

and FRANCISCO M. GIRON, JR.
Pursuant to Section 63 of the Corporation Code, a transfer of shares of stocks not recorded in the stock and transfer book of the
corporation is non-existent as far as the corporation is concerned. 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 certificates in the name
of the transferee even when there has been compliance with the requirements of Section 64 of the Corporation Code. 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. It has been made clear that before a transferee may ask for the issuance of
stock certificates, he must first 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 certificates. With more reason, in our view, a corporate secretary may not be compelled to issue stock
certificates without such registration.
Petitioner and Fausto Gaid, an incorporator of Victory Cement Corporation (now ACC), having
239,500 shares in said corporation, 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 petitioner. From the time of incorporation of ACC up to the present, no certificates of stock were
issued in the name of Fausto G. Gaid and/or the petitioner despite repeated demands. Thus, petitioner filed a
complaint with the SEC for mandamus and damages against Alsons Cement Corporation and its corporate
secretary Francisco M. Giron, Jr.
Respondents moved to dismiss the complaint on the ground of failure to state a cause of action, which
the SEC granted. Petitioner appealed. The Commission En Banc reversed the appealed Order. Their motion
for reconsideration having been denied, herein respondents appealed 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. Petitioners motion for reconsideration was likewise denied.
Hence, the instant petition for review.
ISSUE:
1) Whether or not registration of a transfer of shares of stocks in the stock and transfer book is
required.
2) Whether or not a corporate secretary may be compelled to register transfer of shares on the
basis of an indorsement of stock certificates.
HELD: Petition is DENIED.
1. The Corporation Code states that:
SEC. 63. Certificate of stock and transfer of shares.The capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or vice-president, countersigned by the secretary or
assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the bylaws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in
the books of the corporation so as to show the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of
the corporation.
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. 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 certificates 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 certificate or certificates 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.
From the corporations 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 certificates 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. 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 specific legal duty to issue stock certificates in the transferees name.
It follows that, as held by the Court of Appeals: x x x 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.
2. Under the provisions of our statute touching the transfer of stock (secs. 35 and 36 of Act No.
1459), the mere indorsement of stock certificates 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 officers 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 certificate, claiming to be the owner, will not necessarily be recognized as
such by the corporation and its officers, 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.
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 certificates, he must first 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
certificates. With more reason, in our view, a corporate secretary may not be compelled to issue stock
certificates without such registration.

REPUBLIC OF THE PHILIPPINES (PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT) VS. SANDIGANBAYAN AND VICTOR AFRICA
[GR 107789, 30 April 2003]
PCGG cannot vote sequestered shares, except when there are demonstrably weighty and defensible grounds or when essential to
prevent disappearance or wastage of corporate property. The court developed the two-tiered test in determining whether the
PCGG may vote sequestered shares: (1) whether there is prima facie evidence showing that the said shares are ill-gotten and thus
belong to the State; and (2) whether there is an immediate danger of dissipation thus necessitating their continued sequestration
and voting by the PCGG while main issue is pending with the Sandiganbayan. The two-tiered test however does not apply in
cases involving funds of public character.
Facts:

On 7 August 1991, the Presidential Commission on Good Government (PCGG) conducted an

Eastern Telecommunications, Philippines, Inc. (ETPI) stockholders meeting during which a PCGG
controlled board of directors was elected. A special stockholders meeting was later convened by the registered
ETPI stockholders wherein another set of board of directors was elected, as a result of which two sets of
such board and officers were elected.
Victor Africa, a stockholder of ETPI, alleging that the PCGG had since 29 January 1988 been
"illegally 'exercising' the rights of stockholders of ETPI," especially in the election of the members of the
board of directors, filed a motion before the Sandiganbayan. He prayed that said court order the "calling and
holding of ETPI annual stockholders meeting for 1992 under the courts control and supervision and
prescribed guidelines. The PCGG did not object to Africa's motion provided that "(1) An Order be issued
upholding the right of PCGG to vote all the Class "A" shares of ETPI; (2) In the alternative, in the remote
event that PCGG's right to vote the sequestered shares be not upheld, an Order be issued (a) disregarding the
Stock and Transfer Book and Booklet of Stock Certificates of ETPI in determining who can vote the shares
in an Annual Stockholders Meeting of ETPI, (b) allowing PCGG to vote 23.9% of the total subscription in
ETPI, and (c) directing the amendment of the Articles of Incorporation and By-laws of ETPI providing for
the minimum safeguards for the conservation of assets prior to the calling of a stockholders meeting. By the
assailed Resolution of 13 November 1992, the Sandiganbayan resolved Africa's motion, ordering the conduct
of an annual stockholders meeting of ETPI, for 1992. Assailing the foregoing resolution, the PCGG filed
before the Supreme Court a petition for Certiorari, Mandamus and Prohibition (GR 107789).
By Resolution of 26 November 1992, the Supreme Court enjoined the Sandiganbayan from (a)
implementing its Resolution of 13 November 1992, and (b) holding the stockholders' meeting of ETPI
scheduled on 27 November 1992. On 7 December 1992, Aerocom Investors and Managers, Inc.
(AEROCOM), Benito Nieto, Carlos Nieto, Manuel Nieto III, Ramon Nieto, Rosario Arellano, Victoria
Legarda, Angela Lobregat, Ma. Rita de los Reyes, Carmen Tuazon and Rafael Valdez, all stockholders of
record of ETPI, filed a motion to intervene in GR 107789. Their motion was granted by the Supreme Court.
After the parties submitted their respective memoranda, the PCGG, in early 1995, filed of increasing the
authorized capital stock of ETPI. It claimed that the increase in authorized capital stock was necessary in
light of the requirements laid down by Executive Order 109 and Republic Act 7975. By Resolution of 7 May
1996, the Supreme Court resolved to refer the PCGG's very urgent petition to hold the special stockholders'
meeting to the Sandiganbayan for reception of evidence and resolution. In compliance therewith, the
Sandiganbayan issued a Resolution of 13 December 1996, granting the PCGG "authority to cause the holding
of a special stockholders' meeting of ETPI for the sole purpose of increasing ETPI's authorized capital stock
and to vote therein the sequestered Class 'A' shares of stock."
The PCGG-controlled ETPI board of directors thus authorized the ETPI Chair and Corporate
Secretary to call the special stockholders meeting in which notices were sent to those entitled to vote for a

meeting on 17 March 1997. The meeting was held as scheduled and the increase in ETPI's authorized capital
stock from P250 Million to P2.6 Billion was "unanimously approved."
On 1 April 1997, Africa filed before the Supreme Court a motion to cite the PCGG "and its
accomplices" in contempt and "to nullify the 'stockholders meeting' conducted by PCGG and its
accomplices. He contends that only the Supreme Court, and not the Sandiganbayan, has the power to
authorize the PCGG to call a stockholders meeting and vote the sequestered shares. He further contended
that assuming that the Sandiganbayan had such power, its Resolution of 13 December 1996 authorizing the
PCGG to hold the stockholders meeting had not yet become final because the motions for reconsideration of
said resolution were still pending. Further, Africa alleged that he was not given notice of the meeting, and the
PCGG had no right to vote the sequestered Class "A" shares.
A motion for leave to intervene relative to Africa's "Motion to Cite the PCGG and its Accomplices
in Contempt" was filed by ETPI. The Supreme Court granted the motion for leave but ETPI never filed any
pleading relative to Africa's motion to cite the PCGG in contempt. By Resolution of 16 February 2001, the
Sandiganbayan finally resolved to deny the motions for reconsideration of its Resolution of 13 December
1996, prompting Africa to file on 6 April 2001 before the Supreme Court a petition for Review on Certiorari
(GR 147214), challenging the Sandiganbayan Resolutions of 13 December 1996 (authorizing the holding of a
stockholders meeting to increase ETPI's authorized capital stock and to vote therein the sequestered Class
"A" shares of stock) and 16 February 2001 (denying reconsideration of the December 13, 1996 Resolution).
The petitions were consolidated.
Issue:
Whether the PCGG can vote the sequestered ETPI Class "A" shares in the stockholders meeting for the
election of the board of directors.
Whether the Sandiganbayan can order the Division Clerk of Court to call the stockholders meeting and in
appointing then Sandiganbayan Associate Justice Sabino de Leon, Jr. to control and supervise the same.
Held:
1. When sequestered shares registered in the names of private individuals or entities are alleged to have been
acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the sequestered shares in
the name of private individuals or entities are shown, prima facie, to have been (1) originally government
shares, or (2) purchased with public funds or those affected with public interest, then the two-tiered test does
not apply. Rather, the public character exception in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that
is, the government shall vote the shares.
2. The Clerk of Court, who is already saddled with judicial responsibilities, need not be burdened with the
additional duties of a corporate secretary. Moreover, the Clerk of Court may not have the requisite knowledge
and expertise to discharge the functions of a corporate secretary. The case of Board of Directors and Election
Committee of SMB Workers Savings and Loan Asso., Inc. v. Tan, etc., et al. (105 Phil. 426 (1959). Vide also 5
Fletcher Cyc Corp (Perm Ed) 2074; 18A Am Jur 2d ) provides a solution to the Sandiganbayan's dilemma of
calling a meeting when ETPI had two sets of officers. There, the Supreme Court upheld the creation of a
committee empowered to call, conduct and supervise the election of the board of directors. Such a committee
composed of impartial persons knowledgeable in corporate proceedings would provide the needed expertise
and objectivity in the calling and the holding of the meeting without compromising the Sandiganbayan or its
officers. The appointment of the committee members and the delineation of the scope of the duties of the
committee may be made pursuant to an agreement by the parties or in accordance with the provisions of Rule
9 (Management Committee) of the Interim Rules of Procedure for Intra-Corporate Controversies insofar as
they are applicable.

PCGG cannot vote sequestered shares, except when there are demonstrably weighty and defensible
grounds or when essential to prevent disappearance or wastage of corporate property. The court developed
the two-tiered test in determining whether the PCGG may vote sequestered shares: (1) whether there is
prima facie evidence showing that the said shares are ill-gotten and thus belong to the State; and (2) whether
there is an immediate danger of dissipation thus necessitating their continued sequestration and voting by the
PCGG while main issue is pending with the Sandiganbayan. The two-tiered test however does not apply in
cases involving funds of public character. In such cases, the government is granted the authority to vote said
shares, namely: (1) where government shares are taken over by private persons or entities who/ which
registered them in their own names; and (2) where the capitalization or shares that were acquired with public
funds somehow landed in private hands.
Although a stock certificate is sometimes regarded as quasi- negotiable in the sense that it may be
transferred by delivery, it is well settled that the instrument is non negotiable, because the holder thereof
takes it without prejudice to such rights or defenses as the registered owner or creditor may have under the
law, except in so far as such rights or defenses are subject to limitations imposed by the principles governing
estoppels. That the PCGG found the stock certificates endorsed in blank does not necessarily make it the
owner of the shares represented therein. The true ownership has to be ascertained in a proper proceeding.

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE PRESIDENTIAL

COMMISSION ON GOOD GOVERNMENT
V.
ESTATE OF HANS MENZI (THROUGH ITS EXECUTOR, MANUELLO G. MONTECILLO),
EMILIP T. YAP, EDUARDO M. COJUANGCO JR., ESTATE OF FERDINAND MARCOS, SR.,
AND IMELDA R. MARCOS
G.R. NO. 152578
November 23, 2005
En Banc
Tinga, J.
The fact that the stock certificates covering the shared registered in the names of certain persons were found in the possession of
another does not necessarily prove that the latter owned the shares. a stock certificate is merely a tangible evidence of ownership of
shares of stock. Its presence or absence does not affect the right of the registered owner to dispose of the shares covered by the stock
certificate.
Facts:

President Corazon C. Aquino issued Executive Order (EO) No. 1, creating the Presidential
Commission on Good Government (PCGG) tasked with, among others, the recovery of all ill-gotten wealth
accumulated by former President Ferdinand Marcos, his immediate family, relatives, subordinates and close
associates. This was followed by EO Nos. 2 and 14, respectively freezing all assets and properties in the
Philippines in which the former President, his wife, their close relatives, subordinates, business associates,
dummies, agents or nominees have any interest or participation, and defining the jurisdiction over cases
involving the ill-gotten wealth. Pursuant to the executive orders, several writs of sequestration were issued
by the PCGG in pursuit of the reputedly vast Marcos fortune. Following a lead that Marcos had substantial
holdings in Bulletin Publishing Corporation (Bulletin), the PCGG issued a Writ of Sequestration dated April
22, 1986, sequestering the shares of Marcos, Emilio T. Yap (Yap), Eduardo M. Cojuangco, Jr. (Cojuangco),
and their nominees and agents in Bulletin. Another was issued, this time sequestering the shares of stock,
assets, properties, records and documents of Hans Menzi Holdings and Management, Inc. (HMHMI).
The subject of this cases are three blocks of share of Bulleting Publishing Corp.. The following are
the shares: (1) 154 block - 154,472 shares, (2) 198 block- 198, 052.5 shares, and (3) 214 block- 214, 424.5
shares. Sandiganbayan rendered in an earlier decision for an action for reconveyance that the following
shares were ill-gotten: (1) 46, 000 shares which belong to the 214 block, and under the name of Eduardo
Cojuangco and the (2) entire 198 block, which were originally under the names of Campos, Cojuangco and
Zalamea then subsequently sold to Hans Menzi Holdings and Management, Inc. (HMHMI). In the same
decision by Sandiganbayan, the 154 block was declared to be not ill-gotten and that the estate of Hans Menzi
must thus surrender for cancellation the certificates of stock which were in its possession. The present appeal
pertains to the propriety of declaring the 154 block as not ill-gotten and 198 and 214 blocks as ill-gotten.
In G.R. No. 152578 (re: 154 block), the facts are as follows: Menzi purchased the entire interest in
1957. In 1961, US Automotive purchased Bulletin shares from Menzi. A stock option was later executed in
1968 between Menzi and US Automotive giving each other preferential rights in the purchase of each others
Bulletin shares. Later, the articles of incorporation of Bulletin were amended to place restrictions on the
transfer of its shares to non- stockholders whereby stockholders seeking tos ell must first make an offer to
Bulletin itself. Menzi sold the 154 block to US Automotive in 1984, in which the Vice President of US
Automotive executed a promissory note in favor of Menzi. After such, Menzi died and a petition for probate
of his last will was file. In the proceedings, the executor moved for the confirmation of the sale. The probate
court granted. The executor received 2 checks, after which he issued a receipt.

Issue: Whether the sale of Menzi to US Automotive is valid

Held: Yes. The requisites for valid transfer is provided under Section 63 of the Corporation Code.
Sec. 63. Certificate of stock and transfer of shares.The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president or
vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal
of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued
are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation
showing 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 supplied]
The Corporation Code acknowledges that the delivery of a duly indorsed stock certificate is sufficient
to transfer ownership of shares of stock in stock corporations. Such mode of transfer is valid between the
parties. In order to bind third persons, however, the transfer must be recorded in the books of the
corporation.
Clearly then, the absence of a deed of assignment is not a fatal flaw which renders the transfer invalid
as the Republic posits. In fact, as has been held in Rural Bank of Lipa City, Inc. v. Court of Appeals, the
execution of a deed of sale does not necessarily make the transfer effective. In that case, petitioners argued
that by virtue of the deed of assignment, private respondents had relinquished to them all their rights as
stockholders of the bank. This Court, however, ruled that the delivery of the stock certificate duly indorsed
by the owner is the operative act that transfers the shares. The absence of delivery is a fatal defect which is
not cured by mere execution of a deed of assignment. Consequently, 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.There appears to be no dispute in this case that the stock certificates
covering the 154 block were duly indorsed and delivered to the buyer, US Automotive. The parties to the
sale, in fact, do not question the validity and legality of the transfer.
Moreover, the executors authority to negotiate the transfer is found in the general power of attorney
executed by Menzi. Also, the formers authority to accept payment springs from Menzis wills and the order
of the probate court confirming the sale. As found by the Sandiganbayan, it was Menzi
himself who sold to US Automotive, hence, the non-inclusion of the subject shares in Menzis will and inthe
inventory of his estate is attributable to the fact that at the time the aforesaid were taken, they already
belonged to US Automotive

G.R. 154487 AND 154518 RE 198 AND 214 BLOCKS

Issue: Whether the covered shares were validly ceded by Campos and Zalamea to the Government
Held: Yes.
Parenthetically, the fact that the stock certificates covering the shares registered under the names of
Campos, Cojuangco and Zalamea were found in Menzis possession does not necessarily prove that the latter
owned the shares. A stock certificate is merely a tangible evidence of ownership of shares of stock Its
presence or absence does not affect the right of the registered owner to dispose of the shares covered by the
stock certificate. Hence, as registered owners, Campos and Zalamea validly ceded their shares in favor of the
Government. This assignment is now a fait accomplifor the benefit of the entire nation.
Cojuangco purposely skipped the presentation of his defense evidence and consequently failed to
prove his affirmative allegations. The Court rejected Cojuangcos contention that his allegation that the
shares were registered in his name as a nominee of Hans Menzi was not an affirmative defense but a specific
denial, as such the allegation need not be proven unless the Republic presents adequate evidence to prove its
case.
It is procedurally required for each party in a case to prove his own affirmative allegations by the
degree of evidence required by law. In civil cases such as this one, the degree of evidence required of a party
in order to support his claim is preponderance of evidence, or that evidence adduced by one party which is
more conclusive and credible than that of the other party. It is therefore incumbent upon the plaintiff who is
claiming a right to prove his case. Corollarily, the defendant must likewise prove its own allegations to
buttress its claim that it is not liable. The party who alleges a fact has the burden of proving it. The
burden of proof may be on the plaintiff or the defendant. It is on the defendant if he alleges an
affirmative defense which is not a denial of an essential ingredient in the plaintiffs cause of action,
but is one which, if established, will be a good defense i.e., an avoidance of the claim.
In the instant case, Cojuangcos allegations are in the nature of affirmative defenses which should be
adequately substantiated. He did not deny that Bulletin shares were registered in his name but alleged that he
held these shares not as nominee of Marcos, as the Republic claimed, but as nominee of Menzi. He did not,
however, present any evidence to support his claim and, in fact, filed a Manifestation dated July 20, 1999
stating that he sees no need to present any evidence in his behalf.

NAUTICA CANNING CORPORATION, et. al v. ROBERTO C. YUMUL,

G.R. No. 164588, 19 October 2005 FIRST DIVISION YNARES-SANTIAGO, J.
Roberto C. Yumul (Yumul) was appointed Chief Operating Officer/General Manager of Nautica
Canning Corporation (Nautica). First Dominion Prime Holdings, Inc., (Dominion) Nauticas parent
company, through its Chairman Alvin Y. Dee (Dee), granted Yumul an Option to Purchase up to 15% of the
total stocks it subscribed from Nautica. A Deed of Trust and Assignment was executed assigning 14,999 of
Dominions subscribed shares in Nautica to Yumul. The deed stated that the 14,999 shares were acquired and
paid for in the name of the ASSIGNOR only for convenience, but actually executed in behalf of and in trust for the
ASSIGNEE.
Nautica declared a P35,000,000 cash dividend, P8,250,000 of which was paid to Yumul representing
his 15% share. After Yumuls resignation from Nautica, he wrote a letter to Dee requesting the latter to
formalize his offer to buy Yumuls 15% share in and demanding the issuance of the corresponding certificate
of shares in his name should Dee refuse to buy the same. Dee, through Atty. Fernando R. Arguelles, Jr.
(Arguelles), Nauticas corporate secretary, denied the request claiming that Yumul was not a stockholder of
Nautica.
Yumul requested twice that the Deed of Trust and Assignment be recorded in the Stock and Transfer
Book of Nautica, and that he, as a stockholder, be allowed to inspect its books and records. Yumuls requests
were denied allegedly because he neither exercised the option to purchase the shares nor paid for the
acquisition price of the 14,999 shares. Atty. Arguelles maintained that the cash dividend received by Yumul is
held by him only in trust for First Dominion Prime Holdings, Inc.
Thus, Yumul filed on October 3, 1996, before the SEC a petition for mandamus with damages, with
prayer that the Deed of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica and that
the certificate of stocks corresponding thereto be issued in his name. The SEC En Banc ruled in favor of
Yumul. On appeal, the Court of Appeals affirmed the decision of the SEC En Banc.
ISSUE:
Whether Yumul was a stockholder of the corporation even though he was just a nominal owner of
one share as the beneficial ownership belonged to Dee who paid for said share when Nautica was
incorporated
HELD:
Petition partially GRANTED.
Indeed, it is possible for a business to be wholly owned by one individual. The validity of its
incorporation is not affected when such individual gives nominal ownership of only one share of
stock to each of the other four incorporators. This is not necessarily illegal. But, this is valid only
between or among the incorporators privy to the agreement. It does bind the corporation which, at
the time the agreement is made, was non-existent. Thus, incorporators continue to be stockholders
of a corporation unless, subsequent to the incorporation, they have validly transferred their
subscriptions to the real parties in interest. 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.
In the case at bar, the SEC and the Court of Appeals correctly found Yumul to be a
stockholder of Nautica, of one share of stock recorded in Yumuls name, although allegedly held in
trust for Dee. Nauticas Articles of Incorporation and By-laws, as well as the General Information
Sheet filed with the SEC indicated that Yumul was an incorporator and subscriber of one

share. Even granting that there was an agreement between Yumul and Dee whereby the former is
holding the share in trust for Dee, the same is binding only as between them. From the
corporations vantage point, Yumul is its stockholder with one share, considering that there is no
showing that Yumul transferred his subscription to Dee, the alleged real owner of the share, after
Nauticas incorporation.
Moreover, the contents of the articles of incorporation bind the corporation and its stockholders. Its
contents cannot be disregarded considering that it was the basic document which legally triggered the creation
of the corporation.
Besides, other than petitioners self-serving assertion that the beneficial ownership belongs to Dee,
they failed to show that the subscription was transferred to Dee after Nauticas incorporation. The conduct
of the parties also constitute sufficient proof of Yumuls status as a stockholder. On April 4, 1995, Yumul
was elected during the regular annual stockholders meeting as a Director of Nauticas Board of
Directors. Thereafter, he was elected as president of Nautica. Thus, Nautica and its stockholders knowingly
held respondent out to the public as an officer and a stockholder of the corporation.
Section 23 of Batas Pambansa (BP) Blg. 68 or The Corporation Code of the Philippines requires that every
director must own at least one share of the capital stock of the corporation of which he is a director. Before
one may be elected president of the corporation, he must be a director. Since Yumul was elected as Nauticas
Director and as President thereof, it follows that he must have owned at least one share of the corporations
capital stock.
Thus, from the point of view of the corporation, Yumul was the owner of one share of stock. As
such, the SEC correctly ruled that he has the right to inspect the books and records of Nautica, pursuant to
Section 74 of BP Blg. 68 which states that the records of all business transactions of the corporation and the
minutes of any meetings shall be open to inspection by any director, trustee, stockholder or member of the
corporation at reasonable hours on business days and he may demand, in writing, for a copy of excerpts from
said records or minutes, at his expense.

TRANS MIDDLE EAST (PHILS.) v. SANDIGANBAYAN (5th Division) et. al

G.R. No. 172556, 9 June 2006, EN BANC, TINGA, J.
Trans Middle East (Phil.) Equities Inc. (TMEE) is the registered owner of 6,119,067 common shares
of stock in the then PCBank, now Equitable-PCI Bank (EPCIB). These shares were sequestered by the
Presidential Commission on Good Government (PCGG) on the theory that as they actually belong to
Benjamin Romualdez they constitute illegally acquired wealth. Thereafter, a complaint was filed
against Romualdez by the PCGG before the Sandiganbayan for the recovery of these shares. Upon motion,
TMEE was allowed to intervene by the Sandiganbayan, and it sought to enjoin the PCGG from voting these
shares.
In 1991, the Sandiganbayan issued resolutions that enjoined the PCGG from voting the shares of
TMEE and authorized TMEE in exercising its voting rights. These resolutions were challenged before the
Supreme Court and a TRO enjoining the implementation of the Sandiganbayan resolutions was issued.
In April of 1998, PCGG filed with the Sandiganbayan a Motion seeking to enjoin the holding of the
EPCIB stockholders meeting on 30 April 1998. In a Resolution dated 29 April 1998,
the Sandiganbayan dismissed the motion. Accordingly, the Sandiganbayan proceeded to recognize the right of
TMEE to vote the shares of stock registered in its name, and to allow it to vote at the stockholders meeting
of 30 April 1998.
PCGG filed a motion praying that the Sandiganbayan issue an order re-enforcing and/or re-issuing
the TRO issued by this Court in G.R. Nos. 105808 and 105809 and to execute the TRO under the Decision
of the Supreme Court dated January 13, 1995. The PCGG argued that due to the fact that the stockholders
meeting of EPCIB was scheduled on 23 May 2006, there was an urgent need for the re-enforcement
or reissuance of the TRO affirmed by the Supreme Court in its 1995 Decision.
On 22 May 2006, the Sandiganbayan issued the Resolution now assailed before the Court.
The Sandiganbayan acknowledged that the 1998 and 2003 Resolutions it earlier issued had indeed modified
the TRO issued by this Court, and that it had the authority, as granted by the Court, to modify or terminate
such TRO.
On the following day, TMEE filed the instant petition with this Court, with a prayer for the issuance
of a Temporary Restraining Order or a Writ of Preliminary Injunction to preserve and maintain the status
quo wherein TMEE [was] allowed to vote the shares registered in its name and restraining the respondents
from enforcing the [22 May 2003 Sandiganbayan] Resolution granting the motion to re-enforce/re-issue
TRO, until the final resolution of this Court.
In the absence of an injunctive order restraining the holding of the stockholders meeting on 23 May
2006, the meeting was held. Over the objections of TMEE, the election of a new Board of Directors of
EPCIB was held. Since TMEE was not allowed to vote its shares, it was unable to elect any representative to
the Board of Directors despite the fact that it maintained enough shares to be entitled to at least one board
seat. Thus, in its Supplemental Petition attached to a Motion for Leave of Court to File Supplemental
Petition, TMEE prayed for the issuance of a resolution directing the maintenance of the status quo prior to
the disputed electionn of directors; restraining the new Board and the officers elected by them from further
performing their functions; and directing the Chairman and Corporate Secretary to recognize and allow the
old Board and officers to serve in a hold-over capacity until further orders from this Court.
ISSUE:

Whether PCGG is entitled to any injunctive relief like the one granted by the Sandiganbayan in a
Resolution of the dated 22 May 2006
Whether the election at the 23 May 2006 annual stockholders meeting can be nullified

HELD:

PCGG is not entitled to any injunctive relief. Resolution is void.

For injunctive relief to avail to the PCGG, it must be able to demonstrate the existence of a clear legal
right to be entitled to such relief. In the absence of a clear legal right, the issuance of the injunctive relief
constitutes grave abuse of discretion. There could only be two putative sources of such legal right of the
PCGG the 1986 sequestration order and the 1995 Decision of this Court which affirmed the 1992 TRO
issued by the Supreme Court. Yet closer scrutiny of either reveals no foundational recognition of a clear legal
right of the PCGG.
It is settled that as a general rule, the registered owner of the shares of a corporation, even if
they are sequestered by the government through the PCGG, exercises the right and the privilege of
voting on them. The PCGG as a mere conservator cannot, as a rule, exercise acts of dominion by
voting these shares. The registered owner of sequestered shares may only be deprived of these voting
rights, and the PCGG authorized to exercise the same, only if it is able to establish that (1) there
is prima facie evidence showing that the said shares are ill-gotten and thus belong to the State; and
(2) there is an imminent danger of dissipation, thus necessitating the continued sequestration of the
shares and authority to vote thereupon by the PCGG while the main issue is pending before
the Sandiganbayan.
Clearly, the existence of the writ of sequestration alone would not legally justify barring TMEE
from voting its shares. Such preclusion may only occur if there is prima facie evidence showing that
the said shares are ill-gotten and there is an imminent danger of dissipation. The Sandiganbayan or any
other court has yet to pronounce any findings to those effects. In fact, the Sandiganbayan, in its 1998
Resolution, instead declared that TMEE possessed a prima facie right as owner of the registered owner of
the sequestered shares, and that there appeared to be no strong grounds for apprehension of dissipation or
loss of assets of TMEE. Concerns over dissipation have likewise been assuaged that the shares have been
deposited in escrow with the Land Bank of the Philippines on the initiative of TMEE itself. In any event, the
nullification in 2003 of the very writ of sequestration by the Sandiganbayan further militates against any
recognition that the sequestration order established a clear legal right that entitled the PCGG to injunctive
relief.
The 2003 Resolution nullifying the sequestration order over TMEEs shares was based on the fact, of
which there appears to be no serious contest, that the said order, dated 15 April 1986, was signed by only one
PCGG
commissioner
in
violation
of
the
PCGG
Rules
and
Regulations promulgated on 11 April 1986. The 2003 Resolution particularly cited the Courts 1998
Decision in Republic v. Sandiganbayan, penned by Chief Justice Panganiban, which categorically ruled that the
writ [of sequestration] must bear the signatures of two commissioners, because their signatures are the best
evidence of their approval thereof. The Court also noted that the PCGG Rules took effect on 11 April 1986,
and that the signing of sequestration orders by two commissioners had already been encouraged after April
11, 1986.
The finding of the Sandiganbayan that the writ of sequestration was null and void was material to the
determination whether the PCGG had the right to the injunctive relief it sought. This point is especially
relevant, since if the sequestration order against TMEE is declared null and void, the earlier TRO will
become functus officio. The TRO cannot continue to exist if the sequestration order is null and void from the
beginning. Based on the 2003 Sandiganbayan Resolution, the sequestration order against TMEE is deemed
void as of 15 April 1986, or more than 20 years ago. Not only the clarity, but the very existence of the legal
right on which the PCGG grounds its right to relief became controverted as a result of the 2003 Resolution.

The election at the 23 May 2006 annual stockholders meeting cannot be nullified.

We consider the consequences of the annulment of the assailed Resolution on the subsequently held
stockholders meeting and election of the Board of Directors of EPCIB. It appears that there is no serious
dispute that TMEE would have been entitled to one seat on the Board had it been able to vote its
shares. TMEE asserts that it has 51,827,640 EPCIB shares,[ equivalent to 7.13% of the outstanding capital
stock of the bank. Respondent Board of Directors admits that the shares of TMEE constitute 7.13% of the
outstanding capital stock of the bank. Since Section 24 of the Corporation Code allows a stockholder such as
TMEE to cumulate all of his shares in the voting for directors, a 7.13 % stock interest in the outstanding
capital stock is sufficient to elect one seat in the 15-seat EPCIB Board of Directors. However, relying on the
null and void Resolution of the Sandiganbayan, respondents Board of Directors and Corporate Secretary
prevented TMEE from voting its shares and electing its nominee or representative to the Board of Directors.
Clearly, TMEE is entitled to one seat on the Board of Directors of EPCIB. There is the
option of annulling the entire election, but such step would be too drastic in light of the fact that
only one of the 15 seats should be necessarily affected upon the seating of TMEEs nominee to the
Board of Directors. The more prudent step on the part of the Court is to declare that one nominee or
representative of TMEE is entitled to be seated immediately on the Board of Directors, and to direct
the respondents EPCIB Board and Board Corporate Secretary to admit and recognize said nominee
or representative of TMEE to the Board of Directors in place of the person who was elected to the
Board at the 23 May 2006 annual stockholders meeting had TMEE not been disallowed to vote its
shares.

PACIFIC BASIN SECURITIES CO., INC., v. ORIENTAL PETROLEUM and MINERALS

CORP. and EQUITABLE BANKING CORP.
G.R. No. 143972, 31 August 2007 THIRD DIVISION AUSTRIA-MARTINEZ, J.:
Pacific Basin Securities, Inc. (Pacific Basin), through the stock brokerage firm First Resources
Management and Securities Corporation (FIRST RESOURCES), purchased 308,300,000 Class A shares of
Oriental and Minerals Corporation (ORIENTAL). Pacific Basin fully paid for the ORIENTAL shares. The
shares were listed and traded in the Makati Stock Exchange. These shares turned out to be owned
by Piedras Petroleum Mining Corporation (Piedras Petroleum), a sequestered company controlled by the
nominees of the Presidential Commission on Good Government (PCGG).
PCGG sent a letter to Equitable Banking Corporation (EQUITABLE), ORIENTALs stock and
transfer agent, confirming Piedras Petroleums sale of the ORIENTAL. In the same letter, PCGG requested
EQUITABLE to record the acquisition of said shares and to issue the corresponding certificates of stock in
favor of Pacific Basin.
The requests were left unheeded. EQUITABLE alleged that it cannot effect the transfer of the
ORIENTAL shares to Pacific Basin on the following grounds: first, that the endorser of the stock certificate
was not among the authorized signatories of Piedras Petroleum; and second, there was no board resolution
from Piedras Petroleum which authorized the sale of the ORIENTAL shares. The requirements were
complied with and they consequently renewed the demand for the transfer of the shares to Pacific Basin and
the issuance of new certificates of stock. Again, these requests proved futile.
Pacific Basin filed a Petition for Mandamus with Prayer for a Writ of Preliminary Mandatory
Injunction and/or Restraining Order and Writ of Preliminary Prohibitory Injunction .The Securities and
Exchange Commission (SEC) Hearing Officer ruled in favor of Pacific Basin. The SEC en banc rendered its
Decision affirmed the decision with modifications On appeal, the Court of Appeals
affirmed in toto the Decision of the SEC en banc.
ISSUE:

Whether the ORIENTAL shares are government-owned and, as government property, these can be
disposed of only through public bidding thereby making the sale by Piedras Petroleum of the ORIENTAL
shares to Pacific Basin through the stock market is not valid
Whether it is not a ministerial duty on the part of ORIENTAL to record the transfer in the stock and
transfer book of ORIENTAL and issue new stock certificates in favor of Pacific Basin
HELD:

Petition DENIED.

Sequestered shares are not government owned.

Prior to the sale, Pacific Basin, Piedras Petroleum was the owner of the subject ORIENTAL
shares. Piedras Petroleum is a sequestered company controlled by the nominees of the PCGG. The fact
that Piedras Petroleum was placed under sequestration by the PCGG does not ipso facto make it a
government-owned corporation.
The PCGG, as a mere conservator, does not automatically become the owner of a
sequestered property in behalf of the government. There must be a final determination by the courts
if the property is in fact ill-gotten and was acquired by using government funds. Thus,

ORIENTAL cannot conclusively claim that the subject shares are government property by virtue of a
sequestration order on Piedras Petroleum. Such conclusion is non sequitur.
ORIENTAL and EQUITABLE insist that Proclamation No. 50 is the law which should govern the
sale of the ORIENTAL shares to Pacific Basin. However, the subject ORIENTAL shares do not fall within
the ambit of assets, as the term contemplates properties which are government-owned. To repeat, the
ORIENTAL shares originally owned by Piedras Petroleum, a sequestered corporation controlled by
the nominees of PCGG, remain to be privately owned until such time when the court declares that
the subject shares were acquired through government funds.
Even on the assumption that the ORIENTAL shares are government assets, the Court finds
that the sale of the subject shares through the stock exchange is valid and binding, as there is no law
which mandates that listed shares which are owned by the government be sold only through public
bidding.
Moreover, even if the law indeed requires that the sale of the subject shares undergo public bidding,
the Court finds that sale through the stock exchange is already a substantial compliance with the public
bidding requirement.

It is ORIENTALs ministerial duty to record the transfer and issue new certificates.
It is beyond dispute that ORIENTAL holds no unpaid claim against Pacific Basin for the value of
the shares acquired by the latter. The Court sees no reason why ORIENTAL and EQUITABLE consistently
and continuously refused to record the transfer in the stock and transfer books of ORIENTAL and issue new
certificates in favor of Pacific Basin.
Section 63 of the Corporation Code provides:
Sec. 63. x x x Shares of stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. No transfer, however, shall be valid except as between the
parties, until the transfer is recorded in the books of the corporation x x x.

Clearly, the right of a transferee/ assignee to have stocks transferred to his name is an
inherent right flowing from his ownership of the stocks. The Court had ruled inRural Bank of Salinas, Inc.
v. Court of Appeals that the corporations obligation to register is ministerial, citing Fletcher, to wit:
In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try
to decide the question of ownership.
The duty of the corporation to transfer is a ministerial one and if it refuses to make such
transaction without good cause, it may be compelled to do so by mandamus.

The Court further held in Rural Bank of Salinas that the only limitation imposed by Section
63 of the Corporation Code is when the corporation holds any unpaid claim against the shares
intended to be transferred.
Pacific Basin satisfied the condition of full payment of the ORIENTAL shares. This fact was never
denied by both ORIENTAL and EQUITABLE. Therefore, upon Pacific Basins full payment of the
ORIENTAL shares, it became a ministerial duty on the part of ORIENTAL to record the transfer in the
stock and transfer book of ORIENTAL and issue new stock certificates in favor
of Pacific Basin. Thus, ORIENTALs and EQUITABLEs refusal to record the transfer is violative of
Section 63 of the Corporation Code and ORIENTALs own amended by-laws.

VALLEY GOLF AND COUNTRY CLUB V DE CARAM

Facts
Valley Golf and Country club (Valley Golf) is a non- stock non- profit corporation, which operates as a golf
course. The members and their guests are entitled to use its facilities and privileges. It also collects monthly
membership fees from its share holders
In 1961 the Late Congressman Fermin Caram is the husband of the respondenr Rosa Caram purchased and
paid in full one golf share with a par value of P 9000. However, according to the Valley Golf that in 1980
Caram stopped paying his monthly dues. Valley Golf sent a total of 5 letters with regard to Carams
delinquent account. The first two letters were sent to him before his death. However the other 3 were sent
after his death. The final letter issued a final dadline for him to settle his account and the failure to do would
result to the sale of his share in a public auction. The golf share was sold.
In 1986 since Cong. Caram died his wife the respondent initiated intestate proceedings to settle her husbands
estate unaware of the sale of the golf share. The probate court included the golf share as part of the estate. It
was only in 1990 that the heirs of Cong. Caram was made aware of the sale. Hence, they filed for a
reconveyance of the share with damages with the SEC. The SEC hearing officer ruled in favor of respondent.
The decision was affirmed on appeal with the SEC en banc. The CA also affirmed the decision of the SEC.
Hence this petition
Valley golfs central argument was that its sale was valid as it is authorized by its by- laws
Issue
May a non-stock corporation seize and dispose of the membership share of a fully-paid member on account
of its unpaid debts to the corporation when it is authorized to do so under the corporate by-laws but not by
the Articles of Incorporation? Such is the central issue raised in this petition, which arose after petitioner
Valley Golf & Country Club (Valley Golf) sold the membership share of a member who had been delinquent
in the payment of his monthly dues.
Held
Petition Denied
However, a distinction should be made between membership in a religious corporation, which
ordinarily does not involve the purchase of ownership shares, and membership in a non-stock corporation
such as Valley Golf, where the purchase of an ownership share is a condition sine qua non. Membership in
Valley Golf entails the acquisition of a property right. In turn, the loss of such property right could also
involve the application of aspects of civil law, in addition to the provisions of the Corporation Code. To put
it simply, when the loss of membership in a non-stock corporation also entails the loss of property rights, the
manner of deprivation of such property right should also be in accordance with the provisions of the Civil
Code.
It has been held that a by-law providing that if a member fails to pay dues for a year, he shall be
deemed to have relinquished his membership and may be excluded from the rooms of the association and his
certificate of membership shall be sold at auction, and any surplus of the proceeds be paid over him, does not
ipso facto terminate the membership of one whose dues are a year in arrears; the remedy given for nonpayment of dues is not exclusive because the corporation, so long as he remainsa member, may sue on his
agreement and collect them.42V.
With these foregoing concerns in mind, were the actions of Valley Golf concerning the Golf Share and

membership of Caram warranted? We believe not.

It may be conceded that the actions of Valley Golf were, technically speaking, in accord with the
provisions of its by- laws on termination of membership, vaguely defined as these are. Yet especially since the
termination of membership in Valley Golf is inextricably linked to the deprivation of property rights over the
Golf Share, the emergence of such adverse consequences make legal and equitable standards come to fore.
The commentaries of Lopez advert to an SEC Opinion dated 29 September 1987 which we can cite
with approval. Lopez cites:
[I]n order that the action of a corporation in expelling a member for cause may be valid, it is essential, in
the absence of a waiver, that there shall be a hearing or trial of the charge against him, with reasonable notice to
him and a fair opportunity to be heard in his defense. (Fletcher Cyc. Corp., supra) If the method of trial is not
regulated by the by-laws of the association, it should at least permit substantial justice. The hearing must be
conducted fairly and openly and the body of persons before whom it is heard or who are to decide the case must
be unprejudiced. (SEC opinion dated September 29, 1987, Bacalaran-Sucat Drivers Association)1avvphi1

It is unmistakably wise public policy to require that the termination of membership in a non-stock
corporation be done in accordance with substantial justice. No matter how one may precisely define such
term, it is evident in this case that the termination of Carams membership betrayed the dictates of substantial
justice.
Valley Golf alleges in its present petition that it was notified of the death of Caram only in March of
1990,43 a claim which is reiterated in its Reply to respondents Comment.44 Yet this claim is belied by the
very demand letters sent by Valley Golf to Carams mailing address. The letters dated 25 January 1987 and 7
March 1987, both of which were sent within a few months after Carams death are both addressed to "Est. of
Fermin Z. Caram, Jr.;" and the abbreviation "[e]st." can only be taken to refer to "estate." This is to be
distinguished from the two earlier letters, both sent prior to Carams death on 6 October 1986, which were
addressed to Caram himself. Inexplicably, the final letter dated 3 May 1987 was again addressed to Caram
himself, although the fact that the two previous letters were directed at the estate of Caram stands as
incontrovertible proof that Valley Golf had known of Carams death even prior to the auction sale.
Interestingly, Valley Golf did not claim before the Court of Appeals that they had learned of Carams
death only after the auction sale. It also appears that Valley Golf had conceded before the SEC that some of
the notices it had sent were addressed to the estate of Caram, and not the decedent himself.45
What do these facts reveal? Valley Golf acted in clear bad faith when it sent the final notice to Caram
under the pretense they believed him to be still alive, when in fact they had very well known that he had
already died. That it was in the final notice that Valley Golf had perpetrated the duplicity is especially
blameworthy, since it was that notice that carried the final threat that his Golf Share would be sold at public
auction should he fail to settle his account on or before 31 May 1987.
Valley Golf could have very well addressed that notice to the estate of Caram, as it had done with the
third and fourth notices. That it did not do so signifies that Valley Golf was bent on selling the Golf Share,
impervious to potential complications that would impede its intentions, such as the need to pursue the claim
before the estate proceedings of Caram. By pretending to assume that Caram was then still alive, Valley Golf
would have been able to capitalize on his previous unresponsiveness to their notices and proceed in feigned
good faith with the sale.lawphil.net Whatever the reason Caram was unable to respond to the earlier notices,
the fact remains that at the time of the final notice, Valley Golf knew that Caram, having died and gone,
would not be able to settle the obligation himself, yet they persisted in sending him notice to provide a color
of regularity to the resulting sale.
That reason alone, evocative as it is of the absence of substantial justice in the sale of the Golf Share, is
sufficient to nullify the sale and sustain the rulings of the SEC and the Court of Appeals.
Moreover, the utter and appalling bad faith exhibited by Valley Golf in sending out the final notice to
Caram on the deliberate pretense that he was still alive could bring into operation Articles Articles 19, 20 and
21 under the Chapter on Human Relations of the Civil Code.46 These provisions enunciate a general

obligation under law for every person to act fairly and in good faith towards one another. Non-stock
corporations and its officers are not exempt from that obligation.
VI.
Another point. The by-laws of Valley Golf is discomfiting enough in that it fails to provide any formal
notice and hearing procedure before a members share may be seized and sold. The Court would have been
satisfied had the by-laws or the articles of incorporation established a procedure which assures that the
member would in reality be actually notified of the pending accounts and provide the opportunity for such
member to settle such accounts before the membership share could be seized then sold to answer for the
debt. As we have emphasized, membership in Valley Golf and many other like-situated non-stock
corporations actually involves the purchase of a membership share, which is a substantially expensive
property. As a result, termination of membership does not only lead to loss of bragging rights, but the actual
deprivation of property.
The arrangement provided for in the afore-quoted by-laws of Valley Golf whereby a lien is constituted
on the membership share to answer for subsequent obligations to the corporation finds applicable parallels
under the Civil Code. Membership shares are considered as movable or personal property,47 and they can be
constituted as security to secure a principal obligation, such as the dues and fees. There are at least two
contractual modes under the Civil Code by which personal property can be used to secure a principal
obligation. The first is through a contract of pledge,48 while the second is through a chattel mortgage.49 A
pledge would require the pledgor to surrender possession of the thing pledged, i.e., the membership share, to
the pledge in order that the contract of pledge may be constituted.50 Is delivery of the share cannot be
effected, the suitable security transaction is the chattel mortgage. Under Article 2124 of the Civil Code,
movables may be the object of a chattel mortgage. The Chattel mortgage is governed by Act No. 1508,
otherwise known The Chattel Mortgage Law,51 and the Civil Code.
In this case, Caram had not signed any document that manifests his agreement to constitute his Golf
Share as security in favor of Valley Golf to answer for his obligations to the club. There is no document we
can assess that it is substantially compliant with the form of chattel mortgages under Section 5 of Act No.
1508. The by-laws could not suffice for that purpose since it is not designed as a bilateral contract between
Caram and Valley Golf, or a vehicle by which Caram expressed his consent to constitute his Golf Share as
security for his account with Valley Golf.

CALATAGAN GOLF CLUB V CLEMENTE

Facts
Clemente applied for 1 share of stock from Calatagan Golf Club. In his application form he indicated therein
his mailing address and his contact numbers. His share was fully paid so he was issued a stock certificate
The Articles of Incorporation and By laws of the corporation subjects the owners of shares of stock to pay
monthly dues. At first Clemente regularly paid his dues but he eventually ceased. Ten months after his last
failure to pay the corporation sent him two letters that were sent to his mailing address as indicated in his
application form. . However, this letters were returned back to the sender since the mailing address was
closed. The corporation again sent a letter to the closed mailing address supposedly informing Clemente of
the impending public auction for his sale. In 1993, the corporation sold Clementes share at a public auction
to Nestor Virata. A publication to that effect was made in a newspaper of general circulation. Clemente only
learned of the sale in 1997. He filed a complaint with the SEC to recover his share with damages. The SEC
ruled against him saying that his action has prescribed as it is past the 6 month period but the CA reversed
the formers decision applying art . 69 of the corporation code that the prescription period only applies to
unpaid subscriptions of capital stock. Hence this petition
Issue
Whether the action of Clemente had prescribed pursuant to Section 69 of the Corporation Code, and that the
requisite notices under both the law and the by-laws had been rendered to Clemente.
Held
Petition denied
The six month limitation to file the action to nullify the sale of delinquent shares under sec 69 of the
corporation code applies only to sale of delinquent stocks due to non- payment of the subscription price for
the share of the stock itself. In case of termination of membership in a non stock corporation , due to non
payment of dues of the member the grounds and procedure for membership termination under articles or by
laws should apply. It must also conform to the requirements of substantial justice . The corporation is clearly
in bad faith when it sent the notices of sale to the postal office box of the stockholder knowing fully well that
the boxed had already been closed.