Corporation Code Outline 4

OUTLINE 4 – Corporation Code 2013400036
Outline 4 should be reduced by 50% and the subscribers released from the obligation to pay any
BUS. ORG2 OUTLINE 4 (2016) unpaid balance of their subscription in excess of 50% of the same. As a result of the
Prof. M.I.P. Romero resolution, the supposed subscription of the various shareholders had been cancelled to
the extent stated and fully paid certificates were issued to each shareholders for ½ of his
Vlll. CAPITAL STRUCTURE OF CORPORATIONS subscription. It does not appear that the formalities prescribed in section 17 of the
A. Concepts: Corporation Law (Act No. 1459), as amended, relative to the reduction of capital stock in
1) Capital vis-à-vis Capital Stock corporations were observed, and in particular it does not appear that any certificate was
at any time filed in the Bureau of Commerce and Industry, showing such reduction.

2) Shares of Stock vis-à-vis Stock Certificate The Lower Court held the defendant was still liable for the unpaid balance of his
subscription.

3) Authorized Capital Stock Issue:
1) Whether or not the reduction of capital by 50% is valid?
4) Subscribed Capital Stock 2) Whether or not Rivera is released from his obligation to pay the remaining
balance of his subscription?
5) Paid-in Capital Held:

The Court held:

6) Outstanding Capital Stock – Sec. 137 1) That the reduction is not valid. “The resolution releasing the shareholders from
their obligation to pay 50 per centum of their respective subscriptions was an

attempted withdrawal of so much capital from the fund upon which the

company’s creditors were entitled ultimately to rely and, having been effected
7) Watered stock - Sec. 65 without compliance with the statutory requirements, was wholly ineffectual.”

2) That Rivera is not released from his obligation. “It is established doctrine

that subscription to the capital of a corporation constitute a find to which
B. Trust Fund Doctrine - vis-à-vis corporate assets creditors have a right to look for satisfaction of their claims and that the
- vis-à-vis subscribed capital stock assignee in insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts. A
Phil. Trust Co. v. Rivera 44 Phil. 469 corporation has no power to release an original subscriber to its capital
G.R. No. L-19761 January 29, 1923 stock from the obligation of paying for his shares, without a valuable
consideration for such release;; and as against creditors a reduction of the
Doctrine: A corporation has no power to release an original subscriber to its capital capital stock can take place only in the manner an under the conditions
stock from the obligation of paying for his shares, without a valuable consideration prescribed by the statute or the charter or the articles of incorporation”
for such release;; and as against creditors a reduction of the capital stock can take

place only in the manner an under the conditions prescribed by the statute or the
Ong Yong v. Tiu G.R. 144476;; 4/8/2003
charter or the articles of incorporation.

Facts: In 1918, the Cooperativa Naval Filipina was duly incorporated with a capital of G. R. No. 144478 /8 April 2003 / Trust Fund Doctrine
P100, 000 divided into 1,000 shares of a par value of P100 each. Mariano Rivera, an Facts: In 1994, the construction of the Masagana Citimall in Pasay City was threatened
incorporator, subscribed for 450 shares representing a value of P45, 000. In the course of with stoppage and incompletion when its owner, the First Landlink Asia Development
time, the company became insolvent and went into the hands of the Phil. Trust Co., as Corporation (FLADC), which was owned by David S. Tiu, Cely Y. Tiu, Moly Yu Gow,
assignee in bankruptcy, and was instituted to recover ½ of the stock subscription of Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius), encountered
Rivera, which admittedly has never been paid. Rivera claims that he did not pay because dire financial difficulties. It was heavily indebted to the Philippine National Bank (PNB) for
not long after the incorporation, a stockholders’ meeting occurred at which the capital P190 million. To stave off foreclosure of the mortgage on the two lots where the mall was
being built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong,
1
William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre- On 15 March 2002, the Tius filed before the Court a Motion for Issuance of a Writ of
Subscription Agreement they entered into, the Ongs and the Tius agreed to maintain Execution. Aside from their opposition to the Tius' Motion for Issuance of Writ of
equal shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a par Execution, the Ongs filed their own "Motion for Reconsideration;; Alternatively, Motion for
value of P100.00 each while the Tius were to subscribe to an additional 549,800 shares at Modification (of the February 1, 2002 Decision)" on 15 March 2002. Willie Ong filed a
P100.00 each in addition to their already existing subscription of 450,200 shares. separate "Motion for Partial Reconsideration" dated 8 March 2002, pointing out that there
Furthermore, they agreed that the Tius were entitled to nominate the Vice-President and was no violation of the Pre-Subscription Agreement on the part of the Ongs, among
the Treasurer plus 5 directors while the Ongs were entitled to nominate the President, the others. On 29 January 2003, the Special Second Division of this Court held oral
Secretary and 6 directors (including the chairman) to the board of directors of FLADC. arguments on the respective positions of the parties. On 27 February 2003, Dr. Willie
Moreover, the Ongs were given the right to manage and operate the mall. Accordingly, the Ong and the rest of the movants Ong filed their respective memoranda. On 28 February
Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock while 2003, the Tius submitted their memorandum
the Tius committed to contribute to FLADC a four-storey building and two parcels of land
respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000 shares) ISSUE: WON RECISSION IS THE PROPER REMEDY
and P49.8 million (for 49,800 shares) to cover their additional 549,800 stock subscription
therein. The Ongs paid in another P70 million 3 to FLADC and P20 million to the Tius over HELD:No. first of all, a subscription contract as defined under Section 60, Title VII of the
and above their P100 million investment, the total sum of which (P190 million) was used to Corporation Code:
settle the P190 million mortgage indebtedness of FLADC to PNB. The business harmony
between the Ongs and the Tius in FLADC, however, was shortlived because the Tius, on Any contract for the acquisition of unissued stock in an existing corporation or a
23 February 1996, rescinded the Pre-Subscription Agreement. The Tius accused the corporation still to be formed shall be deemed a subscription within the meaning of this
Ongs of (1) refusing to credit to them the FLADC shares covering their real property Title, notwithstanding the fact that theparties refer to it as a purchase or some other
contributions;; (2) preventing David S. Tiu and Cely Y. Tiu from assuming the positions of contract
and performing their duties as Vice-President and Treasurer, respectively, and (3) refusing
to give them the office spaces agreed upon. The controversy finally came to a head when A subscription contract necessarily involves the corporation as one of the
the case was commenced by the Tius on 27 February 1996 at the Securities and contracting parties since the subject matter of the transaction is property owned by the
Exchange Commission (SEC), seeking confirmation of their rescission of the Pre- corporation its shares of stock. Thus, the subscription contract (denominated by the
Subscription Agreement. After hearing, the SEC, through then Hearing Officer Rolando G. parties as a Pre-Subscription Agreement) whereby the Ongs invested P100 million for
Andaya, Jr., issued a decision on 19 May 1997 confirming the rescission sought by the 1,000,000 shares of stock was, from the viewpoint of the law, one between the Ongs and
Tius. On motion of both parties, the above decision was partially reconsidered but only FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract
insofar as the Ongs' P70 million was declared not as a premium on capital stock but an in their personal capacities with the Ongs since they were not selling any of their own
advance (loan) by the Ongs to FLADC and that the imposition of interest on it was correct. shares to them. It was FLADC that did.
Both parties appealed to the SEC en banc which rendered a decision on 11 September
1998, affirming the 19 May 1997 decision of the Hearing Officer. The SEC en banc
Considering therefore that the real contracting parties to the subscription agreement
confirmed the rescission of the Pre-Subscription Agreement but reverted to classifying the
were FLADC and the Ongs alone, a civil case for rescission on the ground of breach of
P70 million paid by the Ongs as premium on capital and not as a loan or advance to
contract filed by the Tius in their personal capacities will not prosper. Assuming it had
FLADC, hence, not entitled to Commercial Law - Corporation Law, 2005 ( 76 ) Narratives
valid reasons to do so, only FLADC (and certainly not the Tius) had the legal personality
(Berne Guerrero) earn interest. On appeal, the Court of Appeals (CA) rendered a decision
to file suit rescinding the subscription agreement with the Ongs inasmuch as it was the
on 5 October 1999, modifying the SEC order of 11 September 1998. Their motions for
real party in interest therein. Article 1311 of the Civil Code provides that contracts take
reconsideration having been denied, both parties filed separate petitions for review before
effect only between the parties, their assigns and heirs Therefore, a party who has not
the Supreme Court. On 1 February 2002, the Supreme Court promulgated its Decision,
taken part in the transaction cannot sue or be sued for performance or for cancellation
affirming the assailed decision of the Court of Appeals but with the modifications that the
thereof, unless he shows that he has a real interest affected thereby
P20 million loan extended by the Ongs to the Tius shall earn interest at 12% per annum to
be computed from the time of judicial demand which is from 23 April 1996;; that the P70
million advanced by the Ongs to the FLADC shall earn interest at 10% per annum to be All this notwithstanding, granting but not conceding that the Tius possess the legal
computed from the date of the FLADC Board Resolution which is 19 June 1996;; and that standing to sue for rescission based on breach of contract, said action will nevertheless
the Tius shall be credited with 49,800 shares in FLADC for their property contribution, still not prosper since rescission will violate the Trust Fund Doctrine and the procedures
specifically, the 151 sq. m. parcel of land. The Court affirmed the fact that both the Ongs for the valid distribution of assets and property under the Corporation Code.
and the Tius violated their respective obligations under the Pre-Subscription Agreement.
2
The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Halley contends that:
Trust Co. vs. Rivera, provides that subscriptions to the capital stock of a corporation 1. They all had already paid their subscriptions in full
constitute a fund to which the creditors have a right to look for the satisfaction of their 2. BMPI had a separate and distinct personality
claims. This doctrine is the underlying principle in the procedure for the distribution of 3. BOD and SH had resolved to dissolve BMPIRTC and CA
capital assets, embodied in the Corporation Code, which allows the distribution of
corporate capital only in three instances: (1) amendment of the Articles of Incorporation to • Defendant merely used the corporate fiction as a cloak/cover to create an
reduce the authorized capital stock, (2) purchase of redeemable shares by the injustice (against PRINTWELL)
corporation, regardless of the existence of unrestricted retained earnings, and (3) • Rejected allegations of full payment in view of irregularity in the issuance of ORs
dissolution and eventual liquidation of the corporation. Furthermore, the doctrine is (Payment made on a later date was covered by an OR with a lower serial
articulated in Section 41 on the power of a corporation to acquire its own shares and in number than payment made on an earlier date.
Section 122 on the prohibition against the distribution of corporate assets and property ISSUE:
unless the stringent requirements therefor are complied with. WON a stockholder who was in active management of the business of the corporation
and still has unpaid subscriptions should be made liable for the debts of the corporation
The distribution of corporate assets and property cannot be made to depend on the by piercing the veil of corporate fiction.

whims and caprices of the stockholders, officers or directors of the corporation, or even, HELD:
for that matter, on the earnest desire of the court a quo to prevent further squabbles and YES! Such stockholder should be made liable up to the extent of her unpaid
future litigations unless the indispensable conditions and procedures for the protection of subscription.
corporate creditors are followed. Otherwise, the corporate peace laudably hoped for by RATIO:
the court will remain nothing but a dream because this time, it will be the creditors turn to It was found that at the time the obligation was incurred, BMPI was under the control of
engage in squabbles and litigations should the court order an unlawful distribution in its stockholders who know fully well that the corporation was not in a position to pay its
blatant disregard of the Trust Fund Doctrine. account (thinly capitalized).
And, that the stockholders personally benefited from the operations of the corporation
even though they never paid their subscriptions in full. The stockholders cannot now
In the instant case, the rescission of the Pre-Subscription Agreement will effectively claim the doctrine of corporate fiction otherwise (to deny creditors to collect from SH) it
result in the unauthorized distribution of the capital assets and property of the corporation, would create an injustice because creditors would be at a loss (limbo) against whom it
thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a would assert the right to collect.
subscription agreement is not one of the instances when distribution of capital assets and On piercing the veil:
property of the corporation is allowed. Although the corporation has a personality separate and distinct from its SH, such
Halley v. Printwell, Inc. G.R. 157549;; May 30, 2011 personality is merely a legal fiction (for the convenience and to promote the ends of
FACTS: justice) which may be disregarded by the courts if it is used as a cloak or cover for fraud,
justification of a wrong, or an alter ego for the sole benefit of the SH.
• BMPI (Business Media Philippines Inc.) is a corporation under the control of its
As to the Trust Fund Doctrine:
stockholders, including Donnina Halley.
The RTC and CA correctly applied the Trust Fund Doctrine. Under which corporate
• In the course of its business, BMPI commissioned PRINTWELL to print debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate
Philippines, Inc. (a magazine published and distributed by BMPI) debts
• PRINTWELL extended 30-day credit accommodation in favor of BMPI and in a Subscriptions to the capital of a corporation constitutes a trust fund for the payment of the
period of 9 mos. BMPI placed several orders amounting to 316,000. creditors (by mere analogy) In reality, corporation is a simple debtor.
• However, only 25,000 was paid hence a balance of 291,000 Moreover, the corporation has no legal capacity to release an original subscriber to its
• PRINTWELL sued BMPI for collection of the unpaid balance and later on capital stock from the obligation of paying for his shares, in whole or in part, without
impleaded BMPI’s original stockholders and incorporators to recover on their valuable consideration, or fraudulently, to the prejudice of the creditors.
unpaid subscriptions. The creditor is allowed to maintain an action upon any unpaid subscriptions and
• It appears that BMPI has an authorized capital stock of 3M divided into thereby steps into the shoes of the corporation for the satisfaction of its debt.
300,000shares with P10 par value.
• Only 75,000 shares worth P750,000 were originally subscribed of whichP187,500 C. Doctrine of Equality of Shares – Sec. 6, par.5
were paid up capital. Sec. 6, par.5
• Halley subscribed to 35,000 shares worth P350,000 but only paid P87,500.
3
SHARES issued to, and subscribed by, the incorporating

Castillo v. Balinghasay Oct. 18, 2004 [G.R. No. 150976. October 18, 2004.] stockholders shall be classified as Class A shares while the
other ONE THOUSAND unissued shares shall be considered
CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S. FLORES, XERXES as Class B shares. Only holders of Class A shares can have
NAVARRO, MARIA ANTONIA TEMPLO and MEDICAL CENTER PARAÑAQUE, INC., the right to vote and the right to be elected as directors or as
petitioners, vs. ANGELES BALINGHASAY, RENATO BERNABE, ALODIA DEL ROSARIO, corporate officers. 2 (Emphasis supplied)
ROMEO FUNTILA, TERESITA GAYANILO, RUSTICO JIMENEZ, ARACELI ** JO,
ESMERALDA MEDINA, CECILIA MONTALBAN, VIRGILIO OBLEPIAS, CARMENCITA On July 31, 1981, Article VII of the Articles of Incorporation of MCPI was amended, to
PARRENO, CESAR REYES, REYNALDO SAVET, SERAPIO TACCAD, VICENTE read thus:
VALDEZ, SALVACION VILLAMORA, and HUMBERTO VILLAREAL, respondents.
SEVENTH. That the authorized capital stock of the
corporation is FIVE MILLION (P5,000,000.00) PESOS,
DOCTRINE: divided as follows:
One of the rights of a stockholder is the right to participate in the control and CLASS NO. OF SHARES PAR VALUE
management of the corporation that is exercised through his vote. The right to vote is a
right inherent in and incidental to the ownership of corporate stock, and as such is a "A" 1,000 P1,000.00
property right. The stockholder cannot be deprived of the right to vote his stock nor may
the right be essentially impaired, either by the legislature or by the corporation, without
"B" 4,000 P1,000.00
his consent, through amending the charter, or the by-laws.
Only holders of Class A shares have the right to vote and the right to be elected as
Section 6 of the Corporation Code being deemed written into Article VII of the Articles of
directors or as corporate officers. 3 (Emphasis supplied)
Incorporation of MCPI, it necessarily follows that unless Class "B" shares of MCPI
stocks are clearly categorized to be "preferred" or "redeemable" shares, the holders of
said Class "B" shares may not be deprived of their voting rights. Note that there is The foregoing amendment was approved by the SEC on June 7, 1983. While the
nothing in the Articles of Incorporation nor an iota of evidence on record to show that amendment granted the right to vote and to be elected as directors or corporate officers
Class "B" shares were categorized as either "preferred" or "redeemable" shares. The only to holders of Class "A" shares, holders of Class "B" stocks were granted the same
only possible conclusion is that Class "B" shares fall under neither category and thus, rights and privileges as holders of Class "A" stocks with respect to the payment of
under the law, are allowed to exercise voting rights. dividends.
On September 9, 1992, Article VII was again amended to provide as follows:
FACTS: Petitioners and the respondents are stockholders of MCPI, with the former
holding Class "B" shares and the latter owning Class "A" shares.
SEVENTH: That the authorized capital stock of the
corporation is THIRTY TWO MILLION PESOS
MCPI is a domestic corporation with offices at Dr. A. Santos Avenue, Sucat, Parañaque
(P32,000,000.00) divided as follows:
City. It was organized sometime in September 1977. At the time of its incorporation, Act
No. 1459, the old Corporation Law was still in force and effect. Article VII of MCPI's
original Articles of Incorporation, as approved by the Securities and Exchange CLASS NO. OF SHARES PAR VALUE
Commission (SEC) on October 26, 1977, reads as follows:
"A" 1,000 P1,000.00
SEVENTH. That the authorized capital stock of the corporation
is TWO MILLION (P2,000,000.00) PESOS, Philippine "B" 31,000 1,000.00
Currency, divided into TWO THOUSAND (2,000) SHARES at a
par value of P100 each share, whereby the ONE THOUSAND
Except when otherwise provided by law, only holders of Class "A" shares have the
4
right to vote and the right to be elected as directors or as corporate officers 4 (Stress and them. It brushed aside the petitioners' claim that the Class "A" shareholders were in
emphasis supplied). estoppel, as the election of Class "B" shareholders to the corporate board may be
deemed as a mere act of benevolence on the part of the officers. Finally, the court
The SEC approved the foregoing amendment on September 22, 1993. brushed aside the "founder's shares" theory of the petitioners for lack of factual basis.
On February 9, 2001, the shareholders of MCPI held their annual stockholders' meeting ISSUE: Whether or not holders of Class "B" shares of the MCPI may be deprived of the
and election for directors. During the course of the proceedings, respondent Rustico right to vote and be voted for as directors in MCPI. (NO)
Jimenez, citing Article VII, as amended, and notwithstanding MCPI's history, declared over
the objections of herein petitioners, that no Class "B" shareholder was qualified to run or ARGUMENTS:
be voted upon as a director. In the past, MCPI had seen holders of Class "B" shares voted
for and serve as members of the corporate board and some Class "B" share owners were Petitioners assert that Article VII of the Articles of Incorporation of MCPI, which denied
in fact nominated for election as board members. Nonetheless, Jimenez went on to them voting rights, is null and void for being contrary to Section 6 of the Corporation
announce that the candidates holding Class "A" shares were the winners of all seats in the Code. They point out that Section 6 prohibits the deprivation of voting rights except as to
corporate board. The petitioners protested, claiming that Article VII was null and void for preferred and redeemable shares only. Hence, under the present law on corporations, all
depriving them, as Class "B" shareholders, of their right to vote and to be voted upon, in shareholders, regardless of classification, other than holders of preferred or redeemable
violation of the Corporation Code (Batas Pambansa Blg. 68), as amended. shares, are entitled to vote and to be elected as corporate directors or officers. Since the
Class "B" shareholders are not classified as holders of either preferred or redeemable
RTC: On March 22, 2001, after their protest was given short shrift, herein petitioners filed shares, then it necessarily follows that they are entitled to vote and to be voted for as
a Complaint for Injunction, Accounting and Damages. Said complaint was founded on two directors or officers. CHEIcS
(2) principal causes of action, namely:
The respondents, in turn, maintain that the grant of exclusive voting rights to Class "A"
a. Annulment of the declaration of directors of the MCPI made shares is clearly provided in the Articles of Incorporation and is in accord with Section 5 9
during the February 9, 2001 Annual Stockholders' Meeting, and of the Corporation Law (Act No. 1459), which was the prevailing law when MCPI was
for the conduct of an election whereat all stockholders, incorporated in 1977. They likewise submit that as the Articles of Incorporation of MCPI is
irrespective of the classification of the shares they hold, should in the nature of a contract between the corporation and its shareholders and Section 6 of
be afforded their right to vote and be voted for;; and the Corporation Code could not retroactively apply to it without violating the non-
impairment clause 10 of the Constitution.
b. Stockholders' derivative suit challenging the validity of a
contract entered into by the Board of Directors of MCPI for the HELD: We find merit in the petition.
operation of the ultrasound unit. 5
When Article VII of the Articles of Incorporation of MCPI was amended in 1992, the
Subsequently, the complaint was amended to implead MCPI as party-plaintiff for purposes phrase "except when otherwise provided by law" was inserted in the provision
only of the second cause of action. governing the grant of voting powers to Class "A" shareholders. This particular
amendment is relevant for it speaks of a law providing for exceptions to the
RTC rendered the Partial Judgment. In finding for the respondents, the trial court ruled exclusive grant of voting rights to Class "A" stockholders. Which law was the
that corporations had the power to classify their shares of stocks, such as "voting and non- amendment referring to? The determination of which law to apply is necessary. There are
voting" shares, conformably with Section 6 7 of the Corporation Code of the Philippines. It two laws being cited and relied upon by the parties in this case. In this instance, the law
pointed out that Article VII of both the original and amended Articles of Incorporation in force at the time of the 1992 amendment was the Corporation Code (B.P. Blg. 68), not
clearly provided that only Class "A" shareholders could vote and be voted for to the the Corporation Law (Act No. 1459), which had been repealed by then.
exclusion of Class "B" shareholders, the exception being in instances provided by law,
such as those enumerated in Section 6, paragraph 6 of the Corporation Code.The RTC We find and so hold that the law referred to in the amendment to Article VII refers to the
found merit in the respondents' theory that the Articles of Incorporation, which defines the Corporation Code and no other law. At the time of the incorporation of MCPI in 1977, the
rights and limitations of all its shareholders, is a contract between MCPI and its right of a corporation to classify its shares of stock was sanctioned by Section 5 of Act
shareholders. It is thus the law between the parties and should be strictly enforced as to No. 1459. The law repealing Act No. 1459, B.P. Blg. 68, retained the same grant of right
5
of classification of stock shares to corporations, but with a significant change. Under FACTS:
Section 6 of B.P. Blg. 68, the requirements and restrictions on voting rights were explicitly
provided for, such that "no share may be deprived of voting rights except those classified Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of real estate
and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code" property. The said co-owners leased to Construction Components International Inc. the
and that "there shall always be a class or series of shares which have complete voting same property and providing that during the existence or after the term of this lease the
rights." Section 6 of the Corporation Code being deemed written into Article VII of lessor should he decide to sell the property leased shall first offer the same to the lessee
the Articles of Incorporation of MCPI, it necessarily follows that unless Class "B" and the letter has the priority to buy under similar conditions. Subsequently, lessee
shares of MCPI stocks are clearly categorized to be "preferred" or "redeemable" assigned its rights and obligations under the contract of lease in favor of Hydro Pipes
shares, the holders of said Class "B" shares may not be deprived of their voting Philippines, Inc.
rights. Note that there is nothing in the Articles of Incorporation nor an iota of A deed of exchange was executed between Delfin and Pelagia Pacheco and
evidence on record to show that Class "B" shares were categorized as either defendant Delpher Trades Corporation whereby the former conveyed to the latter the
"preferred" or "redeemable" shares. The only possible conclusion is that Class "B" leased property for 2,500 shares of stock of defendant corporation with a total value of
shares fall under neither category and thus, under the law, are allowed to exercise P1,500,000.00. On the ground that it was not given the first option to buy the leased
voting rights. property pursuant to the proviso in the lease agreement, respondent Hydro Pipes
Philippines, Inc., filed an amended complaint for reconveyance of the property in its favor
One of the rights of a stockholder is the right to participate in the control and management under conditions similar to those whereby Delpher Trades Corporation acquired the
of the corporation that is exercised through his vote. The right to vote is a right inherent in property from Pelagia Pacheco and Delphin Pacheco.
and incidental to the ownership of corporate stock, and as such is a property right. The Respondents on the other hand stated that there was no transfer of ownership
stockholder cannot be deprived of the right to vote his stock nor may the right be over the properties.
essentially impaired, either by the legislature or by the corporation, without his consent,
through amending the charter, or the by-laws. ISSUE:

Whether or not there was an effective transfer of property in this case.
When Article VII of the Articles of Incorporation of MCPI were amended in 1992, the board
of directors and stockholders must have been aware of Section 6 of the Corporation Code RULING:
and intended that Article VII be construed in harmony with the Code, which was then
already in force and effect. Since Section 6 of the Corporation Code expressly prohibits NO.
the deprivation of voting rights, except as to "preferred" and "redeemable" shares, then
Article VII of the Articles of Incorporation cannot be construed as granting exclusive voting After incorporation, one becomes a stockholder of a corporation by subscription
rights to Class "A" shareholders, to the prejudice of Class "B" shareholders, without or by purchasing stock directly from the corporation or from individual owners thereof. In
running afoul of the letter and spirit of the Corporation Code. the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original
unissued no par value shares of stocks of the Delpher Trades Corporation.
Consequently, the Pachecos became stockholders of the corporation by subscription
D. Classification of Shares – Rationale "The essence of the stock subscription is an agreement to take and pay for original
- Sec. 6, 7, 8, 9 unissued shares of a corporation, formed or to be formed.” It is significant that the
a) Par value shares Pachecos took no par value shares in exchange for their properties.
It is to be stressed that by their ownership of the 2,500 no par shares of stock,
the Pachecos have control of the corporation. Their equity capital is 55% as against 45%
b) No par value shares – Sec. 62;; of the other stockholders, who also belong to the same family group.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos.
Delpher Trades Corp. v. IAC (1988) 157 SCRA 349 What they really did was to invest their properties and change the nature of their
DELPHER TRADES CORPORATION, and DELPHIN PACHECO ownership from unincorporated to incorporated form by organizing Delpher Trades
vs. Corporation to take control of their properties and at the same time save on inheritance
INTERMEDIATE APPELLATE COURT taxes.
G.R. No. L-69259. January 26, 1988 The "Deed of Exchange" of property between the Pachecos and Delpher
Trades Corporation cannot be considered a contract of sale. There was no transfer
6
of actual ownership interests by the Pachecos to a third party. The Pacheco family HELD: No. The Constitution expressly declares as State policy the development of an
merely changed their ownership from one form to another. The ownership remained economy "effectively controlled" by Filipinos. Consistent with such State policy, the
in the same hands. Hence, the private respondent has no basis for its claim of a Constitution explicitly reserves the ownership and operation of public utilities to Philippine
light of first refusal under the lease contract. nationals, who are defined in the Foreign Investments Act of 1991 as Filipino citizens, or
corporations or associations at least 60 percent of whose capital with voting rights
- issued price belongs to Filipinos. The FIA's implementing rules explain that "[f]or stocks to be deemed
- “deemed fully paid and non-assessable” owned and held by Philippine citizens or Philippine nationals, mere legal title is not
enough to meet the required Filipino equity. Full beneficial ownership of the stocks,

coupled with appropriate voting rights is essential." In effect, the FIA clarifies, reiterates
c) Common shares and confirms the interpretation that the term "capital" in Section 11, Article XII of the 1987
Constitution refers to shares with voting rights, as well as with full beneficial ownership.
d) Preferred shares – may be voting or non-voting;; other types e) Redeemable This is precisely because the right to vote in the election of directors, coupled with full
shares beneficial ownership of stocks, translates to effective control of a corporation. Thus, "the
60-40 ownership requirement in favor of

f) Founders’ shares Filipino citizens must apply separately to each class of shares, whether common,
preferred non-voting, preferred voting or any other class of shares." This guarantees that
the “controlling interest” in public utilities always lies in the hands of Filipino citizens.
g) Treasury shares
Any other construction of the term "capital" in Section 11, Article XII of the Constitution
contravenes the letter and intent of the Constitution. Any other meaning of the term
e) Voting shares "capital" openly invites alien domination of economic activities reserved exclusively to
Philippine nationals. Therefore, respondents' interpretation will ultimately result in
f) Non-voting shares handing over effective control of our national economy to foreigners in patent violation of
the Constitution, making Filipinos second-class citizens in their own country.

E. OTHER CASES --- Relate to SEC Memo Circ. 8, s2013 (Guidelines in Fil-Foreign ownership)
Gamboa v. Teves, et al (GR 176579;; 6/28/ 2011 and 10/ 9/ 2012)
HEIRS OF WILSON P. GAMBOA VS. FINANCE SECRETARY MARGARITO B. TEVES Republic Planters Bank v. Agana ( GR 51765;; Mar. 3, 1997)
G.R. No. 176579 (Resolution), October 9, 2012
FACTS: The issue started when petitioner Wilson P. Gamboa, a stockholder of Philippine Doctrine:
Long Distance Telephone Company (PLDT) questioned the indirect sale of shares
involving almost 12 million shares of the Philippine Long Distance Telephone Company On 18 September 1961, the Robes-Francisco Realty & Development Corporation
(PLDT) owned by Philippine Telecommunications Investment Corporation (PTIC) by the (RFRDC) secured a loan from the Republic Planters Bank in the amount of P120,000.00.
government of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc. As part of the proceeds of the loan, preferred shares of stocks were issued to RFRDC
(MPAH), an affiliate of First Pacific Company Limited (First Pacific). through its officers then, Adalia F. Robes and one Carlos F. Robes. In other words,
instead of giving the legal tender totaling to the full amount of the loan, which is
With the sale, First Pacific's common shareholdings in PLDT increased from 30.7 percent
P120,000.00, the Bank lent such amount partially in the form of money and partially in
to 37 percent, thereby increasing the common shareholdings of foreigners in PLDT to the form of stock certificates numbered 3204 and 3205, each for 400 shares with a par
about 81.47 percent. Petitioner contends that this violates Section 11, Article XII of the value of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said stock
1987 Philippine Constitution which limits foreign ownership of the capital of a public utility certificates were in the name of Adalia F. Robes and Carlos F. Robes, who subsequently,
to not more than 40%. Then, in 2011, the court ruled the case in favor of the petitioner, however, endorsed his shares in favor of Adalia F. Robes.
hence this new case, resolving the motion for reconsideration for the 2011 decision filed

by the respondents.
Said certificates of stock bear the following terms and conditions: "The Preferred Stock
ISSUE: Whether or not the Court made an erroneous interpretation of the term ‘capital’ in shall have the following rights, preferences, qualifications and limitations, to wit: 1. Of the
its 2011 decision. right to receive a quarterly dividend of 1%, cumulative and participating. xxx 2. That such
preferred shares may be redeemed, by the system of drawing lots, at any time after 2
7
years from the date of issue at the option of the Corporation." On 31 January 1979, issued on 31 January 1973 by then Gov. G. S. Licaros of the Central Bank, to
RFRDC and Robes proceeded against the Bank and filed a complaint anchored on their the President and Acting Chairman of the Board of the bank prohibiting the latter
alleged rights to collect dividends under the preferred shares in question and to have the from redeeming any preferred share, on the ground that said redemption would
bank redeem the same under the terms and conditions of the stock certificates. The bank reduce the assets of the Bank to the prejudice of its depositors and creditors.
filed a Motion to Dismiss 3 private respondents' Complaint on the following grounds: (1) Redemption of preferred shares was prohibited for a just and valid reason. The
that the trial court had no jurisdiction over the subject-matter of the action;; (2) that the directive issued by the Central Bank Governor was obviously meant to preserve
action was unenforceable under substantive law;; and (3) that the action was barred by the the status quo, and to prevent the financial ruin of a banking institution that
statute of limitations and/or laches. The bank's Motion to Dismiss was denied by the trial would have resulted in adverse repercussions, not only to its depositors and
court in an order dated 16 March 1979. The bank then filed its Answer on 2 May 1979. creditors, but also to the banking industry as a whole. The directive, in limiting
Thereafter, the trial court gave the parties 10 days from 30 July 1979 to submit their the exercise of a right granted by law to a corporate entity, may thus be
respective memoranda after the submission of which the case would be deemed considered as an exercise of police power.
submitted for resolution. On 7 September 1979, the trial court rendered the decision in 2) Both Section 16 of the Corporation Law and Section 43 of the present
favor of RFRDC and Robes;; ordering the bank to pay RFRDC and Robes the face value Corporation Code prohibit the issuance of any stock dividend without the
of the stock certificates as redemption price, plus 1% quarterly interest thereon until full approval of stockholders, representing not less than two-thirds (2/3) of the
payment. The bank filed the petition for certiorari with the Supreme Court, essentially on outstanding capital stock at a regular or special meeting duly called for
pure questions of law. the purpose. These provisions underscore the fact that payment of
dividends to a stockholder is not a matter of right but a matter of
The trial court ordered the petitioner to pay private respondents the face value of the stock consensus. Furthermore, "interest bearing stocks", on which the
certificates as redemption price, plus 1% quarterly interest. Hence this petition. corporation agrees absolutely to pay interest before dividends are paid to
common stockholders, is legal only when construed as requiring payment
of interest as dividends from net earnings or surplus only. In compelling
the bank to redeem the shares and to pay the corresponding dividends,
Issue: the Trial committed grave abuse of discretion amounting to lack or excess
of jurisdiction in ignoring both the terms and conditions specified in the
stock certificate, as well as the clear mandate of the law.
COCOFED v. RP (GR Nos. 177857-58;; 178193;; 180705 promulgated Sept. 17, 2009)
1) Whether the bank can be compelled to redeem the preferred shares issued to re conversion of shares
RFRDC and Robes?;; and
2) Whether RFRDC and Robes are entitled to the payment of certain rate of interest F. STOCKS & STOCKHOLDERS
on the stocks as a matter of right without necessity of a prior declaration of
dividend?
Sec. 60 -73, 137, 90

1) Consideration for shares -----
Held: Garcia v. Lim Chu Sing 59 Phil. 562 (1934)
FACTS: Lim Cuan Sy had an account with the Mercantile Bank o f C h i n a ( p l a i n t i f f
1) While the stock certificate does allow redemption, the option to do so was clearly b a n k ) i n t h e f o r m o f " t r u s t r e c e i p t s ” guaranteed by Lim Chu Sing
vested in the bank. The redemption therefore is clearly the type known as (respondent) as surety & with chattel mortgage securities. Lim Cuan Sy
"optional". Thus, except as otherwise provided in the stock certificate, the failed to comply with his obligations. The plaintiff bank required Lim Chu
redemption rests entirely with the corporation and the stockholder is without right Sing, as surety, to deliver a promissory note. The plaintiff bank, without the
to either compel or refuse the redemption of its stock. Furthermore, the terms knowledge & consent of the d
and conditions set forth therein use the word "may". It is a settled doctrine in efendant, f o r e c l o s e d t h e c h a t t e l m o r t g a g e a n d p r i v a t e l y s o l d
statutory construction that the word "may" denotes discretion, and cannot be t h e property covered thereby. The defendant is an owner of shares of stock
construed as having a mandatory effect. The redemption of said shares cannot in the plaintiff bank. Meanwhile, plaintiff bank was subsequently
be allowed. The Central Bank made a finding that the Bank has been suffering placed u n d e r l i q u i d a t i o n . T h e d e f e n d a n t f i l e d a m o t i o n f o r t h e
from chronic reserve deficiency, and that such finding resulted in a directive, i n c l u s i o n o f t h e p r i n c i p a l d e b t o r L i m C u a n S y a s p a r t y defendant
with the CFI-Manila so that he could avail himself of the benefit of the exhaustion
8
of the property of said Lim Cuan Sy. The motion was denied. The proceeds (1) Does NLRC have jurisdiction to resolve a claim for non-payment of stock
of the sale of the mortgaged chattels together with other payments made subscriptions to a corporation? (2) Can an obligation arising therefrom be offset against a
were applied to the amount of the promissory note in question, leaving the balance which money claim of an employee against the employer?
the plaintiff now seeks to collect.
HELD: Petition granted. (1) No, NLRC has no jurisdiction to determine such intra-
ISSUE: Whether or not it is proper to COMPENSATE the respondent’s corporate dispute between the stockholder and the corporation as in the matter of unpaid
indebtedness to the value of his shares of stock with the Mercantile Bank of subscriptions. This controversy is within the exclusive jurisdiction of the Securities and
China. Exchange Commission.
(2) No, the unpaid subscriptions are not due and payable until a call is made by the
HELD: NO. A share of stock or the certificate thereof is not corporation for payment. Private respondents have not presented a resolution of the
indebtedness to the owner nor evidence of indebtedness and therefore, it board of directors of respondent corporation calling for the payment of the unpaid
is not a credit. Stockholders as such are not creditors of the corporation. The subscriptions. It does not even appear that a notice of such call has been sent to
capital stock of a corporation is a trust fund to be used more particularly for the petitioner by the respondent corporation. What the records show is that the respondent
security of the creditors of the corporation who presumably deal with it on the corporation deducted the amount due to petitioner from the amount receivable from him
credit of its capital. for the unpaid subscriptions. Set-off was without lawful basis, if not premature. But,
assuming that there was a call for payment, the answer is still in the negative. The NLRC
Apodaca v. NLRC 172 SCRA 442 cannot set it off against the wages and other benefits due petitioner. Article 113 of the
APODACA v. NLRC DOCTRINE: Labor Code allows such a deduction only in instances, to wit:
Consideration for shares – unpaid subscriptions are not due and payable until a call is ART. 113. Wage Deduction. — No employer, in his own behalf or in behalf of any person,
made by the corporation for payment, subject to Art. 113 of the Labor Code. shall make any deduction from the wages of his employees, except: (a) In cases where
FACTS: the worker is insured with his consent by the employer, and the deduction is to
recompense the employer for the amount paid by him as premium on the insurance;;
Petitioner Apocada was employed in respondent corporation. On August 28, 1985,
respondent Jose M. Mirasol persuaded petitioner to subscribe to 1,500 shares of (b) For union dues, in cases where the right of the worker or his union to checkoff has
respondent corporation at P100.00 per share or a total of P150,000.00. He made an initial been recognized by the employer or authorized in writing by the individual worker
payment of P37,500.00. On September 1, 1975, petitioner was appointed President and concerned;; and (c) In cases where the employer is authorized by law or regulations
General Manager of the respondent corporation. However, on January 2, 1986, he issued by the Secretary of Labor.
resigned. On December 19, 1986, petitioner instituted with the NLRC a complaint against National Exchange vs Dexter 51 Phil. 601 (1928)
private respondents (Apocada and Intrans Phils., Inc.) for the payment of his unpaid
wages, his cost of living allowance, the balance of his gasoline and representation This action was instituted in the Court of First Instance of Manila by the National
expenses and his bonus compensation for 1986. Petitioner and private respondents Exchange Co., Inc., as assignee (through the Philippine National Bank) of C. S. Salmon
submitted their position papers to the labor arbiter. Private respondents admitted that & Co., for the purpose of recovering from I. B. Dexter a balance of P15,000, the par value
there is due to petitioner the amount of P17,060.07 but this was applied to the unpaid of one hundred fifty shares of the capital stock of C. S. Salmon & co., with interest and
balance of Apocada’s subscription in the amount of P95,439.93. Petitioner questioned the costs. Upon hearing the cause the trial judge gave judgment for the plaintiff to recover
set-off alleging that there was no call or notice for the payment of the unpaid subscription the amount claimed, with lawful interest from January 1, 1920, and with costs. From this
and that, accordingly, the alleged obligation is not enforceable. judgment the defendant appealed.
Labor arbiter sustained the claim of petitioner for P17,060.07 on the ground that the
employer has no right to withhold payment of wages already earned under Article 103 of FACTS:
the Labor Code. NLRC reversed the decision of the labor arbiter and held that a
stockholder who fails to pay his unpaid subscription on call becomes a debtor of the 1. It appears that on August 10, 1919, the defendant, I. B. Dexter, signed a written
corporation and that the set-off of said obligation against the wages and others due to subscription to the corporate stock of C. S. Salmon & Co. in the following form:
petitioner is not contrary to law, morals and public policy.
I hereby subscribe for three hundred (300) shares of the capital stock of C.
Hence, the instant petition, which was treated as a special civil action for certiorari. S. Salmon and Company, payable from the first dividends declared on any
and all shares of said company owned by me at the time dividends are
ISSUES:
9
declared, until the full amount of this subscription has been paid.
as a general rule, an agreement between the corporation and a particular subscriber that
2. Upon this subscription the sum of P15,000 was paid in January, 1920, from a the subscription is not to be payable, or is to be payable in part only is illegal and void as
dividend declared at about that time by the company, supplemented by money supplied it constitutes fraud to other stockholders or creditors, whether it is for the purpose of
personally by the subscriber. making the stock seem greater than it is, or for the purpose of preventing the
predominance of certain stockholders, or for any other purpose thus, the agreement
3. Beyond this nothing has been paid on the shares and no further dividend has cannot be enforced by the subscriber or interpose it as a defense in an action on the
been declared by the corporation. subscription.

4. There is therefore a balance of P15,000 still paid upon the subscription. "Conditions attached to subscriptions, which, lessen the capital of the company, are a
fraud upon the grantor of the franchise, and upon those who may become creditors of the
5. The trial court held, in effect, that the stipulation mentioned is invalid. corporation, and upon unconditional stockholders."

2) Unpaid subscriptions -----
ISSUE: Velasco vs Poizat 37 Phil. 802 (1918)
whether the stipulation contained in the subscription to the effect that the
subscription is payable from the first dividends declared on the shares has the effect of VELASCO, petitioner
relieving the subscriber from personal liability in an action to recover the value of the vs.
shares. POIZAT, respondent
G.R. No. L-11528 March 15, 1918
RULING:
FACTS:
In the absence of restrictions in its character, a corporation, under its general
power to contract, has the power to accept subscriptions upon any special terms not From the amended complaint filed in this cause upon February 5, 1915, it
prohibited by positive law or contrary to public policy, provided they are not such as to appears that the plaintiff, as assignee in insolvency of "The Philippine Chemical Product
require the performance of acts which are beyond the powers conferred upon the Company" (Ltd.) is seeking to recover of the defendant, Jean M. Poizat, the sum of
corporation by its character, and provided they do not constitute a fraud upon other P1,500, upon a subscription made by him to the corporate stock of said company. It
subscribers or stockholders, or upon persons who are or may become creditors of the appears that the corporation in question was originally organized by several residents of
corporation. the city of Manila, where the company had its principal place of business, with a capital of
P50,000, divided into 500 shares. The defendant subscribed for 20 shares of the stock of
A provision in the Corporation states: ". . . no corporation shall issue stock or bonds the company, an paid in upon his subscription the sum of P500, the par value of 5 shares
except in exchange for actual cash paid to the corporation or for property actually received . The action was brought to recover the amount subscribed upon the remaining shares.
by it at a fair valuation equal to the par value of the stock or bonds so issued." It appears that the defendant was a stock holder in the company from the
inception of the enterprise, and for sometime acted as its treasurer and manager. While
Now, if it is unlawful to issue stock otherwise than as stated it is self-evident that a serving in this capacity he called in and collected all subscriptions to the capital stock of
stipulation such as that now under consideration, in a stock subcription, is illegal, for this the company, except the aforesaid 15 shares subscribed by himself and another 15
stipulation obligates the subscriber to pay nothing for the shares except as dividends may shares owned by Jose R. Infante.
accrue upon the stock. In the contingency that dividends are not paid, there is no liability Upon July 13, 1914, a meeting of the board of directors of the company was
at all. This is a discrimination in favor of the particular subscriber, and hence the held at which a majority of the stock was presented. Upon this occasion two resolutions,
stipulation is unlawful. important to be here noted, were adopted. The first was a proposal that the directors, or
shareholders, of the company should make good by new subscriptions, in proportion to
Corpus Juris: their respective holdings, 15 shares which had been surrendered by Infante.
Nor has a corporation the power to receive a subscription upon such terms as will operate
as a fraud upon the other subscribers or stockholders by subjecting the particular ISSUE:
subcriber to lighter burdens, or by giving him greater rights and privileges, or as a fraud
upon creditors of the corporation by withdrawing or decreasing the capital. Whether or not Poizat is liable for his unpaid subscription.
10
Upon a written reminder by the corporation, the defendant answered on September 25,
RULING: 1946, asking the corporation that he be allowed to pay his unpaid subscription by
February 1, 1947. In his answer, the defendant also agreed that if he could not pay the
YES. balance, his unpaid subscription would be reverted to the corporation.

A stock subscription is a contract between the corporation on one side, and the The defendant wrote another letter to the members of the Board of Directors of the
subscriber on the other, and courts will enforce it for or against either. It is a rule, accepted plaintiff corporation, offering to withdraw completely from the corporation by selling out to
by the Supreme Court of the United States that a subscription for shares of stock does not the corporation all his shares of stock in the total amount of P23,000. Which was left
require an express promise to pay the amount subscribed, as the law implies a promise to unacted upon by the plaintiff.
pay on the part of the subscriber. Section 36 of the Corporation Law clearly recognizes On April 17, 1948, the Board of Directors held a meeting, and adopted Resolution No. 17.
that a stock subscription is subsisting liability from the time the subscription is made, since This resolution in effect set aside the stockholders resolution approved on June 23, 1946,
it requires the subscriber to pay interest quarterly from that date unless he is relieved from on the ground that it was null and void, and because the plaintiff corporation was not in a
such liability by the by-laws of the corporation. The subscriber is as much bound to pay financial position to absorb the unpaid balance of the subscribed capital stock.
the amount of the share subscribed by him as he would be to pay any other debt, and the
right of the company to demand payment is no less incontestable. On June 10, 1949, the stockholders held another meeting adopting resolution No. 4,
The provisions of the Corporation Law (Act No. 1459) give recognition of two whereby it was agreed to revalue the stocks and assets of the company so as to attract
remedies for the enforcement of stock subscriptions. The first and most special remedy outside investors to put in money for the rehabilitation of the company.
given by the statute consists in permitting the corporation to put up the unpaid stock for It was admitted by the defendant that he received notice from the Secretary-, demanding.
sale and dispose of it for the account of the delinquent subscriber. In this case the It was agreed by the parties that the call of the Board of Directors was not published in a
provisions of section 38 to 48, inclusive, of the Corporation Law are applicable and must newspaper of general circulation as required by section 40 of the Corporation Law.
be followed.
It is generally accepted doctrine that the statutory right to sell the subscriber's On September 28, 1949, the legal counsel wrote a letter to the defendant, demanding the
stock is merely a remedy in addition to that which proceeds by action in court;; and it has payment of the unpaid balance of his subscription amounting to P18,500. The defendant
been held that the ordinary legal remedy by action exists even though no express mention ignored the said demand. Hence this action.
thereof is made in the statute.
The defendant disclaims liability to the plaintiff corporation on the following grounds:

ISSUES:
Lingayen Gulf Electric vs Baltazar93 Phil. 404 (1953) G.R. No. L-4824 G.R. No. L-
6244 June 30, 1953 1. That the plaintiffs' action is premature because there was no valid call;; and
LINGAYEN GULF ELECTRIC POWER COMPANY, INC vs. IRINEO BALTAZAR, 2. That granting that there was a valid call, he was released from the obligation of the
FACTS: Defendant, Irineo Baltazar appears to have subscribed for 600 shares on balance of his subscription by stockholders' resolution No. 17 and No. 4.
account of which he had paid upon the organization of the corporation Lingayen Gulf the By way of counterclaim, the defendant also claims from the plaintiff a reasonable
sum of P15,000. After incorporation, the defendant made further payments on account of compensation at the rate of P700 per month as president of the company.
his subscription, leaving a balance of P18,500 unpaid for, which amount, the plaintiff now
claims in this action. HELD: We agree with the lower court that the law requires that notice of any call
for the payment of unpaid subscription should be made not only personally but
On July 23, 1946, a majority of the stockholdersamong them the herein defendant, held a also by publication. This is clear from the provisions of section 40 of the
meeting and adopted stockholders' resolution No. 17. It was agreed upon by the Corporation Law, Act No. 1459, as amended
stockholders present to call the balance of all unpaid subscribed capital stock as of July
23, 1946, the first 50 per cent payable within 60 days beginnning August 1, 1946, and the It will be noted that section 40 is mandatory as regards publication, using the word
remaining 50 per cent payable within 60 days beginning October 1, 1946. The resolution "must". As correctly stated by the trial court, the reason for the mandatory provision is not
also provided, that all unpaid subscription after the due dates of both calls would be only to assure notice to all subscribers, but also to assure equality and uniformity in the
subject to 12 per cent interest per annum. Lastly, the resolution provided, that after the assessment on stockholders. (14 C.J. 639).
expiration of 60 days' grace which would be on December 1, 1946, for the first call, and on We find the citation of authorities made by the plaintiff and appellant inapplicable. In the
February 1, 1947, for the second call, all subscribed stocks remaining unpaid would revert case of Velasco vs. Poizat (37 Phil. 805), the corporation involved was insolvent, in which
to the corporation. (See Exhibit F and Exhibit I). case all unpaid stock subscriptions become payable on demand and are immediately
11
recoverable in an action instituted by the assignee. Lingayen Gulf Electric v. Baltazar

But when the corporation is a solvent concern, the rule is: It is again insisted that plaintiffs Facts:
cannot recover because the suit was not proceeded by a call or assessment against the Herein defendant subscribed to 600 shares in plaintiff corporation worth about
defendant as a subscriber, and that until this is done no right of action accrues. PhP60,000 at PhP100 par value. After incorporation, the defendant made further
Going to the claim of defendant and appellant that Resolution No. 17 of 1946 released him payments on account of his subscription, of which PhP18,500 was left unpaid, and which
from the obligation to pay for his unpaid subscription, the authorities are generally agreed the plaintiff corporation claims in this action. Later on, the plaintiff corporation decided to
that in order to effect the release, there must be unanimous consent of the stockholders of call on the 50% of the unpaid subscriptions. This call on the unpaid subscriptions was
the corporation. received by the defendant through the Secretary-Treasurer. It was not published in a
newspaper of general circulation as required by the prevailing law at that time;; defendant
Exceptions. In particular circumstances, as where it is given pursuant to a bona fide refused this demand of the plaintiff corporation, thus this case. Defendant contends that
compromise, or to set off a debt due from the corporation, a release, supported by this case is premature, as the call on the unpaid subscriptions was invalidly made.
consideration, will be effectual as against dissenting stockholders and subsequent and Plaintiff corporation, on the other hand, avers that authorities on the matter are to the
existing creditors. A release which might originally have been held invalid may be effect that once demand is made on these unpaid subscriptions, it is immediately due
sustained after a considerable lapse of time. and demandable.
In the present case, the release claimed by defendant and appellant does not fall under
the exception above referred to, because it was not given pursuant to a bona Issue:
fide compromise, or to set off a debt due from the corporation, and there was no Whether or not the call on the unpaid subscriptions were validly made.
consideration for it.
HELD:
Another authority: No. The cited case on which the plaintiff corporation heavily relies on to justify its
contention, finds incorrect application in this case. In the case of Velasco v. Poizat, the
SEC. 850. Unanimous consent of stockholders necessary to release subscriber. — …
corporation therein was insolvent, thus the unpaid subscriptions are payable on demand
after a valid subscription to the capital stock of a corporation has been made and
and are immediately recoverable in an action instituted by the assignee. Plaintiff
accepted, there can be no cancellation or release from the obligation without the
corporation in this case is not insolvent, and the prevailing Corporation Code at the time
consent of the corporation and all the stockholders;; . . . . (2 Thompson on
mandatorily requires that publication, and not mere personal demand, before it can be
Corporation, p. 186).
said that any call on the payment of unpaid subscriptions could be validly made. The
He states the reason for the rule as follows: reason for the mandatory provision is not only to assure notice to all subscribers, but also
to assure equality and uniformity in the assessment on stockholders.
SEC. 855. Right to withdraw as against subscribers. — A contract of subscription is, at
least in the sense which creates as estoppel, a contract among the several ADDENDUM: Release from payment of unpaid subscribed stock must be made by all the
subscribers. For this reason no one of the subscribers can withdraw from the contract stockholders.
without the consent of all the others, and thereby diminish, without the universal consent, In this case, one of the defences interposed by the defendant is that there was a
the common fund in which all have acquired an interest. . . . (2 Thompson on resolution adopted by the stockholders releasing holders of unpaid subscribers of
Corporations, p. 194.). stock from payment thereof;; making the demand of the plaintiff corporation for the
As already found by the trial court, the release attempted in Resolution No. 17 of 1946 remaining unpaid subscribed shares of stock to be without authority. This defence
was not valid for lack of a unanimous vote. If found that at least seven stockholders were is largely ineffectual. The court held that before such a release may be made, the
absent from the meeting when said resolution was approved. stockholders must agree to do so unanimously. This was not the case, as the trial
court had found that there were at least 7 stockholders missing from the meeting
As regards the compensation of President claimed by defendant and appellant, it is where the aforementioned resolution was adopted. The only instances where a
clear that he is not entitled to the same. The by-laws of the company are silent as to release from such obligation to pay are 1) a bona fide compromise, 2) a set off of
the salary of the President. On the other hand, other resolutions provide for per debt due from the corporation, and 3) a consideration from the corporation. The
diems to be paid to the President and the directors of each meeting attended. This defendant possesses none of these exceptions;; thus he cannot be said to have
leads to the conclusions that the President and the board of directors were been released from the payment of his unpaid subscribed shares of stock.
expected to serve without salary, and that the per diems paid to them were
sufficient compensation for their services. Affirmed. Da Silva vs Aboitiz 44 Phil. 755 (1923)
G.R. No. L-19893;; March 31, 1923
12
the compromise agreement.

FACTS:
FACTS: The appellant, Dizon & co., Inc., assigns twenty-three errors as having been
De Silva subscribed to 650 shares and paid for 200. The company notified him
committed by the trial court.
that his shares will be declared delinquent and sold in a public auction if he does not pay
the balance. De Silva did not pay. The company advertised a notice of delinquency sale. 4. The appellant is a corporation duly organized under the laws of the Philippine
De Silva sought an injunction because the by-laws allegedly provide that unpaid Islands with its central office in the City of Manila.
subscriptions will be paid from the dividends allotted to stockholders.
5. The plaintiff-appellee Bonifacio Lumanlan, on July 31, 1922, subscribed for 300
ISSUE: shares of stock of said corporation at a par value of P50 or a total of P15,000.
WON De Silva is liable despite the provision in the by-laws regarding dividends
as payment for unpaid subscriptions. 6. Julio Valenzuela, Pedro Santos and Francisco Escoto, creditors of this
corporation, filed suit against it in the Court of First Instance of Manila, case No.
HELD: 37007, praying that a receiver be appointed, as it appeared that the corporation
YES. Although, the by-laws provide that unpaid subscriptions may be paid from at that time had no assets except credits against those who had subscribed for
such dividends The defendant corporation, through its board of directors, made use of its shares of stock.
discretionary power, taking advantage of the first of the two remedies: delinquency sale or
specific performance. 7. The court named Tayag as receiver for the purpose of collecting, said
subscriptions.
Settled is the rule that nothing in this act shall prevent the directors from
collecting, by action in any court of proper jurisdiction, the amount due on any unpaid 8. As Bonifacio Lumanlan had only paid P1,500 of the P15,000, par value of the
subscription, together with accrued interest and costs and expenses incurred. stock for which he subscribed, the receiver on August 30, 1930, filed a suit
against him in the Court of First Instance of Manila, civil case No. 37492, for the
Lumanlan vs Cura 59 Phil. 746 (1934) collection of P15,109 --- P13,500 of which was the amount he owed for unpaid
GR No. L-39861 stock and P1,609 for loans and advances by the corporation to Lumanlan.
March 21, 1934
9. In that case Lumanlan was sentenced to pay the corporation the above-
GODDARD, J.
mentioned sum of P15,109 with legal interest thereon from August 30, 1930,
and costs.
Summary: Lumanlan had unpaid subscriptions.
• Company’s receiver sued him for the balance and won. 10. Lumanlan appealed from this decision.
• While the casewas on appeal, the company and petitioner entered into
acompromise whereby he would directly pay a creditor of the company. 11. Pending this appeal, with the permission of the court, the creditors, some of the
• In exchange, the company would forego whatever balance remained on the directors and the majority of the stockholders held several meetings in which it
unpaid subscription. was agreed in substance that subscribers for the capital stock who were in
• He agreed since he would be paying less than his unpaid subscription. default should pay the creditors.
• Afterwards, the corporation still sued him for the balance because the company
still has unpaid creditors. 12. Lumanlan was designated to pay the debt of the corporation to Julio
Valenzuela, one of the petitioners in case No. 37007.
• His defense was the compromise agreement.
Is Lumanlan still liable despite the compromise agreement?
13. At that time the corporation owed Valenzuela the sum of P8,000 plus interest
YES!
thereon at the rate of 12 per cent per annum from March 17, 1928.
• The Court held that the agreement cannot prejudice creditors.
• The subscriptions constitute a fund to which they have a right to look to for 14. Lumanlan agreed to assume this obligation.
satisfaction of their claims.
• Therefore, the corporation has a right to collect all unpaid stock 15. And in turn the corporation agreed that if Lumanlan would dismiss his appeal in
subscriptions and any other amounts which may be due it, notwithstanding case No. 37492 the corporation would collect only 50 per cent of the amount
13
subscribed by him for stock, provided that in case the 50 percent was insufficient 25. It is therefore evident that there are still other creditors of Dizon & Co., Inc.
to pay Valenzuela he should pay an additional amount which should not exceed
the amount of the judgment against him in that case. 26. This being the case that corporation has a right to collect all unpaid stock
subscriptions and any other amounts which may be due it.
16. In view of this agreement Lumanlan withdrew his appeal and paid Valenzuela the
sum of P11,840 including interest and thereby was subrogated in place of It is established doctrine that subscriptions to the capital of a corporation
Valenzuela. constitute a fund to which the creditors have a right to look for satisfaction of
their claims and that the assignee in insolvency can maintain an action upon
17. The petitioning creditors having been paid the amounts owed to them by the any unpaid stock subscription in order to realize assets for the payment of its
corporation asked that the receiver be dismissed and the court granted this. debts. (Philippine Trust Co. vs. Rivera, 44 Phil., 469, 470.)
18. Disregarding this agreement and notwithstanding the payment made by . . . the Corporation Law clearly recognizes that a stock subscription is a
Lumanlan to Valenzuela, the corporation on May 5, 1932, asked for the subsisting liability from the time the subscription is made, since it requires the
execution of the sentence in case No. 37492 and by virtue of an order of subscriber to pay interest quarterly from that date unless he is relieved from
execution the provincial sheriff levied upon two parcels of land belonging to such liability by the by-laws of the corporation. The subscriber is as much bound
Lumanlan described in certificate of title No. 901 of the Province of Tarlac. to pay the amount of the share subscribed by him as he would be to pay any
other debt, and the right of the company to demand payment is no less
19. Lumanlan brought this case to collect from Dizon & Co., Inc., and to prevent the incontestable. (Velasco vs. Poizat, 37 Phil., 802, 805.)
sheriff from selling the two parcels of land. Pending the result of this case the
sheriff was enjoined from proceeding with the sale.1ªvvphi1.ne+ In view of the above conclusions it is not necessary to discuss the other questions raised
by the parties in this case.
20. In the promissory note given by the corporation to Valenzuela the former
obligated itself to pay Valenzuela the sum of P8,000 with interest at 12 per cent The judgment of the trial court was modified in accordance with the above and
per annum and, upon failure to pay said sum and interest when due, 25 per cent
of the principal as expenses of collection and judicial costs in case of litigation. 27. Dizon & Co., Inc., is ordered to credit Bonifacio Lumanlan with the sum of
P13,840 against the judgment for P15,109, in case No. 37492 of the Court of
21. By virtue of these facts Lumanlan is entitled to a credit against the judgment in First Instance of Manila;;
case No. 37492 for P11,840 and an additional sum of P2,000, which is 25 per
cent on the principal debt, as he had to file this suit to collect, or receive credit for 28. To issue to Bonifacio Lumanlan 300 shares of its capital stock upon payment by
the sum which he had paid Valenzuela for and in place of the corporation, or a him of the sum of P1,269 with interest thereon at 6 per cent per annum from
total of P13,840. August 30, 1930.
22. This leaves a balance due Dizon & co., Inc., of P1,269 on that judgment with 29. The preliminary injunction issued in this case is hereby dissolved for the
interest thereon at 6 per cent per annum from August 30, 1930. purpose of enabling Dizon & Co., Inc., to ask for a new order of execution in
case No. 37492, Court of First Instance of Manila, for the sum of P1,269 with
ISSUE: WON Lumanlan is still liable despite the compromise agreement.?
interest thereon as stated above.
China Banking Corp. v. CA GR 117604 (Mar. 26, 1997)
RULING: YES.
CHINA BANK VS CA and VALLEY GOLF
Facts:
23. It appears from the record that during the trial of the case now under
consideration, the Bank of the Philippine Islands appeared in this case as
In 1974 Calapatia, a stockholder Valley Golf & Country Club, Inc. pledged his Stock
assignee in the "Involuntary Insolvency of Dizon & Co., Inc.
Certificate to China Bank and was noted in its corporate books per request of China
24. That bank was appointed assignee in case No. 43065 of the Court of First Bank. Due to Calapatia’s failure to pay his obligation,the bank filed a petition for
Instance of the City of Manila on November 28, 1932. extrajudicial foreclosure and to conduct a public auction.The petitioner informed VG of
the foreclosure proceedings and requested that the pledged stock be transferred to the
14
bank’s name but was rejected due to Calapatia’s unsettled accounts with the club. Despite The Supreme Court ruled that in the absence of special agreement to the
the foregoing, public auction was held and petitioner emerged as the highest bidder. In contrary, a subscriber for a certain number of shares of stock does not, upon
1986, VG auctioned the stock wherein VG is the new owner and informed Calapatia of payment of one-half of the subscription price, become entitled to the issuance of
the termination of his membership VGCCI assails the validity of the pledge agreement certificates for one-half the number of shares subscribed for;; the subscriber's right
executed by Calapatia in petitioner’s favor. It contends that the same was null and void for consists only in an equity entitling him to a certificate for the total number of
lack of consideration because the pledge agreement was entered into on 21 August shares subscribed for by him upon payment of the remaining portion of the
1974 but the loan or promissory note which it secured was obtained by Calapatia much subscription price.
later or only on 3 August 1983.
Baltazar v. Lingayen Gulf 14 SCRA 522(1965)
Issue: FACTS:

The Lingayen Gulf Electric Power Co., Inc., hereinafter referred to as
Whether the stock is non transferrable due the unpaid claim Corporation, was doing business in the Philippines, with principal offices at Lingayen,
Pangasinan, and with an authorized capital stock of P300.000.00 divided into 3,000
Held: shares of voting stock at P100.00 par value, per share. Plaintiffs Baltazar and Rose were
among the incorporators, having subscribed to 600 and 400 shares of the capital stock,
or a total par value of P60,000.00 and P40.000.00, respectively. It is alleged that it has
No. The Supreme Court held that Sec. 63 of the Corporation Code which provides that
always been the practice and procedure of the Corporation to issue certificates of stock
"no shares of stock against which the corporation holds any unpaid claim shall be
to its individual subscribers for unpaid shares of stock. Of the 600 shares of capital stock
transferable in the books of the corporation" cannot be utilized by VGCCI. The term
subscribed by Baltazar, he had fully paid 535 shares of stock, and the Corporation issued
"unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not to any
to him several fully paid up and non-assessable certificates of stock, corresponding to the
indebtedness which a subscriber or stockholder may owe the corporation arising from any
535 shares. After having made transfers to third persons and acquired new ones,
other transaction." In the case at bar, the subscription for the share in question has been
Baltazar had to his credit, on the filing of the complaint 341 shares fully paid and non-
fully paid as evidenced by the issuance of Membership Certificate No. 1219. What assessable.
Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted The respondents Ungson, Estrada, Fernandez and Yuson were small
provision does not apply. stockholders of the Corporation, all holding a total number of fully paid-up shares of
stock, of not more than 100 shares, with a par value of P10,000.00 and the defendant
3) Rights of Unpaid Shares ---- Indivisibility of Subscription Acena, was likewise an incorporator and stockholder, holding 600 shares of stock, for
FuaCun v. Summers, et al.44 Phil. 704(1923) which certificate of stock were issued to him and as such, was the largest individual
stockholder thereof. Defendants Ungson, Estrada, Fernandez and Yuzon, constituted the
Facts: majority of the holdover seven-member Board of Directors of the Corporation, in 1955,
Chua Soco subscribed for five hundred shares of stock of the defendant Banking two (2) of said defendants having been elected as members of the Board in the annual
Corporation at a par value of P100 per share, paying the sum of P25,000, one-half of the stockholders' meeting held in May 1954, largely on the vote of their co-defendant Acena,
subscription price, in cash. Chua Soco executed a promissory note in favor of the while the other two (2) were elected mainly on the vote of the plaintiffs and their group of
plaintiff Fua Cun for the sum of P25,000 payable in ninety days and drawing interest at the stockholders. Let the first group be called theUngson group and the second,
rate of 1 per cent per month, securing the note with a chattel mortgage on the shares of the Baltazar group.
stock subscribed for by Chua Soco, who also endorsed the receipt above mentioned and
delivered it to the mortgage. In the meantime Chua Soco appears to have become ISSUE:
indebted to the China Banking Corporation in the sum of P37,731.68 for dishonored
acceptances of commercial paper and in an action brought against him to recover this Whether or not a stockholder, in a stock corporation, subscribes to a certain
amount, Chua Soco's interest in the five hundred shares subscribed for the attached and number of shares of stock, and he pays only partially, for which he is issued certificates
the receipt seized by the sheriff. The attachment was levied after the defendant bank had of stock, is he entitled to vote the latter, notwithstanding the fact that he has not paid the
received notice of the fact that the receipt had been endorsed over to the plaintiff. balance of his subscription, which has been called for payment or declared delinquent.
Issue:
Whether or not the petitioner is entitled to the two hundred fifty shares of stock RULING:
Held:
15
YES.
There’s no certificate of stock issued in favor of Po. Shares of stock may be
The cases at bar do not come under the aegis of the principle enunciated in transferred by delivery to the transferee of the certificate properly indorsed. "Title may be
the Fua Cun v. Summers case, because it was the practice and procedure, since the vested in the transferee by delivery of the certificate with a written assignment or
inception of the corporation, to issue certificates of stock to its individual subscribers for indorsement thereof" There should be compliance with the mode of transfer prescribed
unpaid shares of stock and gave voting power to shares of stock fully paid. And even by law.
though no agreement existed, the ruling in said case does not now reflect the correct view The usual practice is for the stockholder to sign the form on the back of the
on the matter, for better than an agreement or practice, there is the law, which renders the stock certificate. The certificate may thereafter be transferred from one person to
said case of Fua Cun-Summers, obsolescent. another. If the holder of the certificate desires to assume the legal rights of a shareholder
to enable him to vote at corporate elections and to receive dividends, he fills up the
In the cases at bar, the defendant-corporation had chosen to apply blanks in the form by inserting his own name as transferee. Then he delivers the
payments by its stockholders to definite shares of the capital stock of the certificate to the secretary of the corporation so that the transfer may be entered in the
corporation and had fully paid capital stock shares certificates for said payments;; corporation's books. The certificate is then surrendered and a new one issued to the
its call for payment of unpaid subscription and its declaration of delinquency for transferee.
non-payment of said call affecting only the remaining number of shares of its That procedure cannot be followed in the instant case because, as already
capital stock for which no fully paid capital stock shares certificates have been noted, the twenty shares in question are not covered by any certificate of stock in Po's
issued, "and only these have been legally shorn of their voting rights by said name. Moreover, the corporation has a claim on the said shares for the unpaid balance
declaration of delinquency" (amended decision). of Po's subscription. A stock subscription is a subsisting liability from the time the
subscription is made. The subscriber is as much bound to pay his subscription as he
would be to pay any other debt. The right of the corporation to demand payment is no
Nava v. Peers Mktg. Corp.76 SCRA 65(1976) less incontestable.
GR L-28120, 25 November 1976 In this case no stock certificate was issued to Po. Without the stock certificate,
which is the evidence of ownership of corporate stock, the assignment of corporate
FACTS: shares is effective only between the parties to the transaction.

Teofilo Po as an incorporator subscribed to eighty shares of Peers Marketing ***FuaCun doctrine prevails. Baltazar abandoned.***
Corporation at one hundred pesos a share or a total par value of eight thousand pesos.
Po paid two thousand pesos or twenty-five percent of the amount of his subscription. No 4) Nature/Function of Stock Certificates ----
certificate of stock was issued to him or, for that matter, to any incorporator, subscriber or Tan v. SEC (206 SCRA 740)
stockholder. G.R. No. 95696;; March 3, 1992
On April 2, 1966 Po sold to Ricardo A. Nava for two thousand pesos twenty of his
eighty shares. In the deed of sale Po represented that he was "the absolute and registered FACTS:
owner of twenty shares" of Peers Marketing Corporation. Petitioner is the incorporator of the respondent corporation. Stock Certificate No.
Nava requested the officers of the corporation to register the sale in the books of 2 was given to him as evidenced of his shares. He was elected president and thereafter
the corporation. The request was denied because Po has not paid fully the amount of his in order to complete the membership of the five (5) directors in the Board, he sold 50
subscription. Nava was informed that Po was delinquent in the payment of the balance shares out 400 shares of capital stock to his brother. Stock Certificate No. 2 was
due on his subscription and that the corporation had a claim on his entire subscription of cancelled and the corresponding Certificates Nos. 6 and 8 were issued. Petitioner did not
eighty shares which included the twenty shares that had been sold to Nava. endorse and instead kept the cancelled certificate. Later on, petitioner was dislodged
from the position and thereafter withdrew from the corporation.
ISSUE: Years later, petitioner filed a case against respondent corporation before the
Cebu SEC Extension Office, questioning for the first time, the cancellation of his
Whether or not Peers may be compelled by mandamus to register the stocks in aforesaid Stock Certificates Nos. 2 and 8. The bone of contention raised by the petitioner
Nava’s name. is that 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
RULING: Section 63 of the Corporation Code.

NO.
16
ISSUE: and records. Yumul’s requests were denied. Yumul filed a petition for mandamus praying
Nature and function of stock certificates. 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.
HELD:
A certificate of stock is the paper representative or tangible evidence of the stock ISSUE:
itself and of the various interests therein. The certificate is not stock in the corporation but WON Yumul is a stockholder. (Proof of Ownership of Shares)
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 HELD:
expresses the contract between the corporation and the stockholder, but is not essential YES. Indeed, it is possible for a business to be wholly owned by one individual.
to the existence of a share in stock or the nation of the relation of shareholder to the The validity of its incorporation is not affected when such individual gives nominal
corporation. ownership of only one share of stock to each of the other four incorporators. This is not
A certificate of stock is not a negotiable instrument. "Although it is sometime necessarily illegal. But, this is valid only between or among the incorporators privy to the
regarded as quasi-negotiable, in the sense that it may be transferred by endorsement, agreement. It does bind the corporation which, at the time the agreement is made, was
coupled with delivery, it is well-settled that it is non-negotiable, because the holder thereof non-existent. Thus, incorporators continue to be stockholders of a corporation unless,
takes it without prejudice to such rights or defenses as the registered owner/s or subsequent to the incorporation, they have validly transferred their subscriptions to the
transferor’s creditor may have under the law, except insofar as such rights or defenses are real parties in interest.
subject to the limitations imposed by the principles governing estoppel." A transfer of shares of stock not recorded in the stock and transfer book of the
In the case at bar, a by-law which prohibits a transfer of stock without the consent corporation is non-existent as far as the corporation is concerned. As between the
or approval of all the stockholders or of the President or Board of Directors is illegal as corporation on one hand, and its shareholders and third persons on the other, the
constituting undue limitation on the right of ownership and in restraint of trade. corporation looks only to its books for the purpose of determining who its shareholders
While Sec. 47 (9) of the Corporation Code grants to stock corporations the are. It is only when the transfer has been recorded in the stock and transfer book that a
authority to determine in the by-laws the "manner of issuing certificates" of shares corporation may rightfully regard the transferee as one of its stockholders. From this
of stock, however, the power to regulate is not the power to prohibit, or to impose time, the consequent obligation on the part of the corporation to recognize such rights as
unreasonable restrictions of the right of stockholders to transfer their shares. To it is mandated by law to recognize arises.
uphold the cancellation of a stock certification as null and void for lack of delivery
of the cancelled "mother" certificate whose endorsement was deliberately withheld Lao v. Lao GR 170585 (Oct 6, 2008)
by petitioner, is to prescribe certain restrictions on the transfer of stock in violation G.R. No. 170585;; October 6, 2008
of the Corporation Code as the only law governing transfer of stocks.
FACTS:
5) Proof of Ownership of Shares ---- Petitioners David and Jose Lao filed a petition with the SEC against respondent
Nautica Canning Corp. Yumul GR 164588 (Oct. 19, 2005) Dionisio Lao, president of Pacific Foundry Shop Corporation (PFSC). Petitioners prayed
G.R. No. 164588;; October 19, 2005 for a declaration as stockholders and directors of PFSC, issuance of certificates of
shares in their name and to be allowed to examine the corporate books of PFSC.
FACTS: Petitioners claimed that they are stockholders of PFSC based on the General
Yumul was appointed Chief Operating Officer/General Manager of Nautica. First Information Sheet filed with the SEC, in which they are named as stockholders and
Dominion Prime Holdings, Inc., Nautica’s parent company, through its Chairman Alvin Y. directors of the corporation. David Lao acquired his shares from his father and Jose Lao
Dee, granted Yumul an Option to Purchase up to 15% of the total stocks it subscribed from respondent himself. Respondent denied petitioners' claim. He also claimed that
from Nautica. A Deed of Trust and Assignment was executed between First Dominion petitioners did not acquire any shares in PFSC by any of the modes recognized by law,
Prime Holdings, Inc. and Yumul whereby the former assigned 14,999 of its subscribed namely subscription, purchase, or transfer.
shares in Nautica to the latter. Meanwhile, R.A. 8799, otherwise known as the Securities Regulation Code, was
After Yumul’s resignation from Nautica, he wrote a letter to Dee requesting the enacted, transferring jurisdiction over all intra-corporate disputes from the SEC to the
latter to formalize his offer to buy Yumul’s 15% share in Nautica and demanding the RTC. RTC denied their petition on the ground that they have no stock certificates in their
issuance of the corresponding certificate of shares in his name should Dee refuse to buy names.
the same. Dee denied the request claiming that Yumul was not a stockholder of Nautica.
Yumul requested that the Deed of Trust and Assignment be recorded in the Stock and ISSUE:
Transfer Book of Nautica, and that he, as a stockholder, be allowed to inspect its books Is the mere inclusion as shareholder in the General Information Sheet of a
17
corporation sufficient proof that one is a shareholder in such corporation? The holder of shares, as owner of personal property, is at liberty, under said
section, to dispose of them in favor of whomsoever he pleases, without any other
HELD: limitation in this respect, than the general provisions of law.
NO. The mere inclusion as shareholder of petitioners in the General Information Therefore, a stock corporation in adopting a by-law governing transfer of shares
Sheet of PFSC is insufficient proof that they are shareholders of the company. The of stock should take into consideration the specific provisions of section 35 of Act No.
information in the document will still have to be correlated with the corporate books of 1459, and said by-law should be made to harmonize with said provisions. It should not be
PFSC. inconsistent therewith.
A certificate of stock is the evidence of a holder's interest and status in a The by-law now in question was adopted under the power conferred upon the
corporation. It is a written instrument signed by the proper officer of a corporation corporation by section 13, paragraph 7, above quoted;; but in adopting said by-law the
stating or acknowledging that the person named in the document is the owner of a corporation has transcended the limits fixed by law in the same section, and has not
designated number of shares of its stock. It is prima facie evidence that the holder taken into consideration the provisions of section 35 of Act No. 1459.
is a shareholder of a corporation. As a general rule, the by-laws of a corporation are valid if they are reasonable
and calculated to carry into effect the objects of the corporation, and are not contradictory
6) Restrictions on Transfer of Shares --- to the general policy of the laws of the land
Fleischer v. BoticaNolasco (1925) 47 Phil. 583 The only restraint imposed by the Corporation Law upon transfer of shares is
G.R. No. L-23241. March 14, 1925 found in section 35 of Act No. 1459, quoted above, as follows: "No transfer, however,
shall be valid, except as between the parties, until the transfer is entered and noted upon
FACTS: the books of the corporation so as to show the names of the parties to the transaction,
the date of the transfer, the number of the certificate, and the number of shares
On November 15, 1923, the plaintiff filed an amended complaint against the transferred." This restriction is necessary in order that the officers of the corporation may
Botica Nolasco, Inc., alleging that he became the owner of five shares of stock of said know who are the stockholders, which is essential in conducting elections of officers, in
corporation, by purchase from their original owner, one Manuel Gonzalez;; that the said calling meeting of stockholders, and for other purposes. but any restriction of the nature
shares were fully paid;; and that the defendant refused to register said shares in his name of that imposed in the by-law now in question, is ultra vires, violative of the property rights
in the books of the corporation in spite of repeated demands to that effect made by him of shareholders, and in restraint of trade.
upon said corporation, which refusal caused him damages amounting to P500. The
defendant filed a demurrer on the ground that the amended complaint did not state facts Thomson v. CA(298 SCRA 280)
sufficient to constitute a cause of action, and that said amended complaint was MARSH THOMSON vs.
ambiguous, unintelligible, uncertain, which demurrer was overruled by the court. COURT OF APPEALS and THE AMERICAN CHAMPER OF COMMERCE OF THE
The defendant answered the amended complaint denying generally and PHILIPPINES, INC.
specifically each and every one of the material allegations thereof, and, as a special G.R. No. 116631, October 28, 1998
defense, alleged that the defendant, pursuant to article 12 of its by-laws, had preferential
right to buy from the plaintiff said shares at the par value of P100 a share, plus P90 as FACTS:
dividends corresponding to the year 1922, and that said offer was refused by the plaintiff.
The defendant prayed for a judgment absolving it from all liability under the complaint and A. Lewis Burridge, retired as AmCham's President while petitioner was still
directing the plaintiff to deliver to the defendant the five shares of stock in question, and to working with private respondent, his superior,. Before Burridge decided to return to his
pay damages. home country, he wanted to transfer his proprietary share in the Manila Polo Club (MPC)
to petitioner. However, through the intercession of Burridge, private respondent paid for
ISSUE: the share but had it listed in petitioner's name. This was made clear in an employment
advice dated January 13, 1986, wherein petitioner was informed by private respondent.
Whether or not article 12 of the by-laws of the corporation is in conflict with the Burridge transferred said proprietary share to petitioner, as confirmed in a

provisions of the Corporation Law (Act No. 1459). letter of notification to the Manila Polo Club. Upon his admission as a new member of the
MPC, petitioner paid the transfer fee of P40,000.00 from his own funds;; but private
RULING: respondent subsequently reimbursed this amount.
MPC issued Proprietary Membership Certificate Number 3398 in favor of
YES. petitioner. But petitioner, however, failed to execute a document recognizing private
respondent's beneficial ownership over said share.
18
When petitioner's contract of employment was up for renewal in 1989, he notified giving and granting the latter full power and authority to sell or otherwise dispose of
private respondent that he would no longer be available as Executive Vice President after and/or mortgage 473 shares of stock of the Bank registered in his name (represented by
September 30, 1989. Still, the private respondent asked the petitioner to stay on for the Bank's stock certificates nos. 26, 49 and 65), to execute the proper documents
another six (6) months. therefor, and to receive and sign receipts for the dispositions. On February 27, 1980, and
pursuant to said Special Power of Attorney, private respondent Melania Guerrero, as
ISSUE: 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)
Whether or not private respondent the beneficial owner of the disputed share. and Francisco Guerrero, Jr. (5 shares).Almost four months later, or two (2) days before
the death of Clemente Guerrero on June 24, 1980, private respondent Melania Guerrero,
RULING: pursuant to the same Special Power of Attorney, executed a Deed of Assignmentfor the
remaining one (1) share of stock in favor of private respondent Francisco Guerrero, Sr.
YES. Subsequently, private respondent Melania Guerrero presented to petitioner
Rural Bank of Salinas the two (2) Deeds of Assignment for registration with a request for
In the present case, as the Executive Vice-President of AMCHAM, petitioner the transfer in the Bank's stock and transfer book of the 473 shares of stock so assigned,
occupied a fiduciary position in the business of AMCHAM. It released the funds to acquire the cancellation of stock certificates in the name of Clemente G. Guerrero, and the
a share in the Club for the use of petitioner but obliged him to "execute such document as issuance of new stock certificates covering the transferred shares of stocks in the name
necessary to acknowledge beneficial ownership thereof by the Chamber". A trust of the new owners thereof. However, petitioner Bank denied the request of respondent
relationship is, therefore, manifestly indicated. Melania Guerrero.
The beneficiary of a trust has beneficial interest in the trust property, while a
creditor has merely a personal claim against the debtor. In trust, there is a fiduciary ISSUE:
relation between a trustee and a beneficiary, but there is no such relation between a
debtor and creditor. While a debt implies merely an obligation to pay a certain sum of Whether or not a Mandamus lie against the Rural Bank of Salinas to register in
money, a trust refers to a duty to deal with a specific property for the benefit of another. If its stock and transfer book the transfer of 473 shares of stock to private respondents.
a creditor-debtor relationship exists, but not a fiduciary relationship between the parties,
there is no express trust. However, it is understood that when the purported trustee of RULING:
funds is entitled to use them as his or her own (and commingle them with his or her own
money), a debtor-creditor relationship exists, not a trust. YES.
Moreover, petitioner failed to present evidence to support his allegation of being
merely a debtor when the private respondent paid the purchase price of the MPC share. Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive
Applicable here is the rule that a trust arises in favor of one who pays the purchase money jurisdiction to hear and decide cases involving intracorporate controversies. An intra-
of property in the name of another, because of the presumption that he who pays for a corporate controversy has been defined as one which arises between a stockholder and
thing intends a beneficial interest therein for himself. the corporation. There is neither distinction, qualification, nor any exception whatsoever.
The case at bar involves shares of stock, their registration, cancellation and issuances
Rural Bank of Salinas, Inc. v. CA (210 SCRA 510) thereof by petitioner Rural Bank of Salinas. It is therefore within the power of respondent
RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and SEC to adjudicate.
FRANCISCO TRIAS A corporation, either by its board, its by-laws, or the act of its officers, cannot
vs. create restrictions in stock transfers, because: Restrictions in the traffic of stock must
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, MELANIA A. have their source in legislative enactment, as the corporation itself cannot create such
GUERRERO, LUZ ANDICO, WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO, impediment. By-laws are intended merely for the protection of the corporation, and
JR., and FRANCISCO GUERRERO , SR. prescribe regulation, not restriction;; they are always subject to the charter of the
G.R. No. 96674, June 26, 1992 corporation. The corporation, in the absence of such power, cannot ordinarily inquire into
or pass upon the legality of the transactions by which its stock passes from one person to
FACTS: another, nor can it question the consideration upon which a sale is based.
Whenever a corporation refuses to transfer and register stock in cases like
Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed the present, mandamuswill lie to compel the officers of the corporation to transfer
a Special Power of Attorney in favor of his wife, private respondent Melania Guerrero, said stock in the books of the corporation.
19
absence of the corporation's by-laws or rules governing effective transfer of shares of

7) Validity of Transfers / Registration of Shares stock, the provisions of the Corporation Law are made applicable to the instant case.
Razon v. IACGR 74306 (March 16, 1992) The law is clear that in order for a transfer of stock certificate to be effective, the
ENRIQUE RAZON vs. certificate must be properlyindorsed and that title to such certificate of stock is vested in
INTERMEDIATE APPELLATE COURT and VICENTE B. CHUIDIAN, in his capacity as the transferee by the delivery of the duly indorsedcertificate of stock. Since the certificate
Administrator of the Estate of the Deceased JUAN T. CHUIDIAN of stock covering the questioned 1,500 shares of stock registered in the name of the late
G .R. No. 74306 March 16, 1992 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
FACTS: not require an indorsement of the certificate of stock in view of his intimate friendship with
the late Juan Chuidian can not overcome the failure to follow the procedure required by
In his complaint filed on June 29, 1971, and amended on November 16, 1971, law or the proper conduct of business even among friends. To reiterate, indorsement of
Vicente B. Chuidian prayed that defendants Enrique B. Razon, E. Razon, Inc., Geronimo the certificate of stock is a mandatory.
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 Torres v. CA (278 SCRA 793)
order to restrain the defendants from disposing of the said shares of stock, for a writ of MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L.
preliminary attachment v. properties of defendants having possession of shares of stock JOCSON, JR., MELVIN S. JURISPRUDENCIA, AUGUSTUS CESAR AZURA and
and for receivership of the properties of defendant corporation. EDGARDO D. PABALAN
In their answer filed on June 18, 1973, defendants alleged that all the shares of vs.
stock in the name of stockholders of record of the corporation were fully paid for by COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, TORMIL
defendant, Razon;; that said shares are subject to the agreement between defendants and REALTY & DEVELOPMENT CORPORATION, ANTONIO P. TORRES, JR., MA.
incorporators;; that the shares of stock were actually owned and remained in the CRISTINA T. CARLOS, MA. LUISA T. MORALES and DANTE D. MORALES.
possession of Razon. Appellees also alleged . . . that neither the late Juan T. Chuidian nor G.R. No. 120138 September 5, 1997
the appellant had paid any amount whatsoever for the 1,500 shares of stock in question
FACTS:
ISSUE:
The late Manuel A. Torres, Jr. was the major stockholder of Tormil Realty &
Whether or not petitioner have right over the ownership of the 1,500 shares of Development Corporation while private respondents who are the children of Judge
stock in E. Razon, Inc. Torres' deceased brother Antonio A. Torres, constituted the minority stockholders. In
particular, their respective shareholdings and positions in the corporation.
RULING: In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an
"estate planning" scheme under which he assigned to Tormil Realty & Development
NO. Corporation (Tormil for brevity) various real properties he owned and his shares of stock
in other corporations in exchange for 225,972 Tormil Realty shares. Hence, on various
In the instant case, there is no dispute that the questioned 1,500 shares of stock dates in July and August of 1984, ten (10) deeds of assignment were executed by the
of E. Razon, Inc. are in the name of the late Juan Chuidian in the books of the corporation. late Judge Torres.Consequently, the aforelisted properties were duly recorded in the
Moreover, the records show that during his lifetime Chuidian was ellected member of the inventory of assets of Tormil Realty and the revenues generated by the said properties
Board of Directors of the corporation which clearly shows that he was a stockholder of the were correspondingly entered in the corporation's books of account and financial records.
corporation. From the point of view of the corporation, therefore, Chuidian was the owner Due to the insufficient number of shares of stock issued to Judge Torres and the
of the 1,500 shares of stock. In such a case, the petitioner who claims ownership over the alleged refusal of private respondents to approve the needed increase in the
questioned shares of stock must show that the same were transferred to him by proving corporation's authorized capital stock (to cover the shortage of 972 shares due to Judge
that all the requirements for the effective transfer of shares of stock in accordance with the Torres under the "estate planning" scheme), on 11 September 1986, Judge Torres
corporation's by laws, if any, were followedor in accordance with the provisions of law. revoked the two (2) deeds of assignment covering the properties in Makati and Pasay

The petitioner failed in both instances. The petitioner did not present any by-laws City.
which could show that the 1,500 shares of stock were effectively transferred to him. In the
ISSUE:
20
Treasury Stocks.
Whether or not the deed of assignment executed can be revoked. On January 15, 1994, the stockholders of the Bank met to elect the new directors and set
of officers for the year 1994. The Villanuevas were not notified of said meeting. In a letter
RULING: dated January 19, 1994, Atty. Amado Ignacio, counsel for the Villanueva spouses,
questioned the legality of the said stockholders' meeting and the validity of all the
NO. proceedings therein. In reply, the new set of officers of the Bank informed Atty. Ignacio
that the Villanuevas were no longer entitled to notice of the said meeting since they had
The shortage of 972 shares would not be valid ground for respondent Torres to relinquished their rights as stockholders in favor of the Bank.
unilaterally revoke the deeds of assignment he had executed on July 13, 1984 and July Consequently, the Villanueva spouses filed with the Securities and Exchange
24, 1984 wherein he voluntarily assigned to TORMIL real properties covered by TCT No. Commission (SEC), a petition for annulment of the stockholders' meeting and election of
374079 (Makati) and TCT No. 41527, 41528 and 41529 (Pasay) respectively. A directors and officers.
comparison of the number of shares that respondent Torres received from TORMIL by The Villanuevas' main contention: they were not given due notice and they were deprived
virtue of the "deeds of assignment" and the stock certificates issued by the latter to the of their right to vote despite their being holders of common stock with corresponding
former readily shows that TORMIL had substantially performed what was expected of it. In voting rights;;
fact, the first two issuances were in satisfaction to the properties being revoked by SEC Hearing Officer granted the Omnibus Motion by issuing a temporary restraining
respondent Torres. Hence, the shortage of 972 shares would never be a valid ground for order preventing petitioners from holding the stockholders meeting and electing the board
the revocation of the deeds covering Pasay and Quezon City properties. of directors and officers of the Bank.
Moreover, we agree with the contention of the Solicitor General that the A petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its
shortage of shares should not have affected the assignment of the Makati and directors and officers before the SEC en banc. The SEC en banc denied the petition
Pasay City properties which were executed in 13 and 24 July 1984 and the for certiorari in an Order. A subsequent motion for reconsideration was likewise denied
consideration for which have been duly paid or fulfilled but should have been by the SEC en banc.
applied logically to the last assignment of property — Judge Torres' Ayala Fund A petition for review was thus filed before the Court of Appeals. CA dismissed the petition
shares — which was executed on 29 August 1984. for review for lack of merit. Petitioners' motion for reconsideration was likewise denied.

Rural Bank of LipaGR 124535 (Sept. 28, 2001) ISSUE: WoN there was a valid transfer of stock pursuant to the Deed of Assignment
THE RURAL BANK OF LIPA CITY, INC., vs. HONORABLE COURT OF APPEALS
[G.R. No. 124535. September 28, 2001.] HELD: NO! Under Sec. 63 of Corporation Code, for a valid transfer of stocks, there must
be strict compliance with the mode of transfer prescribed by law. The requirements are:
FACTS: (a) There must be delivery of the stock certificate;; (b) The certificate must be endorsed
Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, by the owner or his attorney-in-fact or other persons legally authorized to make the
executed a Deed of Assignment, wherein he assigned his shares, as well as those of eight transfer;; and (c) To be valid against third parties, the transfer must be recorded in the
(8) other shareholders under his control with a total of 10,467 shares, in favor of the books of the corporation.
stockholders of the Bank represented by its directors Bernardo Bautista, Jaime Custodio While it may be true that there was an assignment of private respondents' shares to the
and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, petitioners, said assignment was not sufficient to effect the transfer of shares since there
Avelina, executed an Agreement wherein they acknowledged their indebtedness to the was no endorsement of the certificates of stock by the owners, their attorneys-in-fact or
Bank in the amount of Four Million Pesos (P4,000,000.00), and stipulated that said debt any other person legally authorized to make the transfer. Moreover, petitioners admit that
will be paid out of the proceeds of the sale of their real property described in the the assignment of shares was not coupled with delivery, the absence of which is a fatal
Agreement. defect. The rule is that the delivery of the stock certificate duly endorsed by the owner is
At a meeting of the Board of Directors of the Bank on November 15, 1993, the Villanueva the operative act of transfer of shares from the lawful owner to the transferee. Title may
spouses assured the Board that their debt would be paid on or before December 31 of be vested in the transferee only by delivery of the duly indorsed certificate of stock.
that same year;; otherwise, the Bank would be entitled to liquidate their shareholdings,
including those under their control. When the Villanueva spouses failed to settle their It may be argued that despite non-compliance with the requisite endorsement and
obligation to the Bank on the due date, the Board sent them a letter demanding: (1) the delivery, the assignment was valid between the parties, meaning the private respondents
surrender of all the stock certificates issued to them;; and (2) the delivery of sufficient as assignors and the petitioners as assignees. While the assignment may be valid and
collateral to secure the balance of their debt amounting to P3,346,898.54. The Villanuevas binding on the petitioners and private respondents, it does not necessarily make the
ignored the bank's demands, whereupon their shares of stock were converted into transfer effective. Consequently, the petitioners, as mere assignees, cannot enjoy the
21
status of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends, intracorporate or partnership relations between and among stockholders,
insofar as the assigned shares are concerned. Parenthetically, the private respondents members or associates;; between any or all of them and the corporation,
cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of partnership or association, of which they are stockholders, members or
ownership and transfer of the shares in question is resolved with finality. associates, respectively."

Rivera v. Florendo144 SCRA 647(1986) Lim Tay v. CA GR 126891 (Aug. 5, 1998)
AQUILINO RIVERA, ISAMU AKASAKO, FUJIYAMA HOTEL & RESTAURANT, INC. LIM TAY vs.
vs. COURT OF APPEALS, GO FAY AND CO. INC., SY GUIOK, and THE ESTATE OF
THE HON. ALFREDO C. FLORENDO, as Judge of the Court of First Instance of ALFONSO LIM
Manila (Branch XXXVI), LOURDES JUREIDINI and MILAGROS TSUCHIYA G.R. No. 126891, August 5, 1998
G.R. No. L-57586. October 8, 1986
FACTS:
FACT:
On January 8, 1980, Respondent-Appellee Sy Guiok secured a loan from the
Petitioner corporation was organized and register under Philippine laws with a petitioner in the amount of P40,000 payable within six (6) months. To secure the payment
capital stock of P1,000,000.00 divided into 10,000 shares of P100.00 par value each by of the aforesaid loan and interest thereon, Respondent Guiok executed a Contract of
the herein petitioner Rivera and four (4) other incorporators. Sometime thereafter Pledge in favor of the [p]etitioner whereby he pledged his three hundred (300) shares of
petitioner Rivera increased his subscription from the original 1,250 to a total of 4899 stock in the Go Fay & Company Inc., Respondent Corporation, for brevity's sake.
shares. Respondent Guiok obliged himself to pay interest on said loan at the rate of 10% per
Subsequently, Isamu Akasako, a Japanese national and co-petitioner who is annum from the date of said contract of pledge. On the same date, Alfonso Sy Lim
allegedly the real owner of the shares of stock in the name of petitioner Aquilino Rivera, secured a loan from the [p]etitioner in the amount of P40,000 payable in six (6) months.
sold 2550 shares of the same to private respondent Milagros Tsuchiya for a consideration To secure the payment of his loan, Sy Lim executed a "Contract of Pledge" covering his
of P440,000.00 with the assurance that Milagros Tsuchiya will be made the President and three hundred (300) shares of stock in Respondent Corporation. Under said contract, Sy
Lourdes Jureidini a director after the purchase. Aquilino Rivera who was in Japan also Lim obliged himself to pay interest on his loan at the rate of 10% per annum from the
assured private respondents by overseas call that he will sign the stock certificates date of the execution of said contract.
because Isamu Akasako is the real owner. However, after the sale was consummated and However, Respondent Guiok and Sy Lim failed to pay their respective loans and
the consideration was paid with a receipt of payment therefor shown, Aquilino Rivera the accrued interests thereon to the [p]etitioner. In October, 1990, the petitioner filed a
refused to make the indorsement unless he is also paid. "Petition for Mandamus" against Respondent Corporation, with the SEC entitled "Lim Tay
versus Go Fay & Company. Inc., SEC Case No. 03894".
ISSUE:
ISSUE:
Whether or not the respondent court of first instance have no jurisdiction over the
petition for mandamus and receivership "as well as in placing the corporate assets under Whether or not there is there dacion en pago.
provisional receivership in the guise of a writ of preliminary mandatory injunction.
RULING:

RULING: NO.

YES. At the outset, it must be underscored that petitioner did not acquire ownership of
the shares by virtue of the contracts of pledge. Article 2112 of the Civil Code states: The
It has already been settled that an intracorporate controversy would call for the creditor to whom the credit has not been satisfied in due time, may proceed before a
jurisdiction of the Securities and Exchange Commission. On the other hand, an intra- Notary Public to the sale of the thing pledged. This sale shall be made at a public auction
corporate controversy has been defined as "one which arises between a stockholder and and with notification to the debtor and the owner of the thing pledged in a proper case,
the corporate. There is no distinction, qualification, nor any exemption whatsoever." stating the amount for which the public sale is to be held. If at the first auction the thing is
This Court has also ruled that cases of private respondents who are not not sold, a second one with the same formalities shall be held;; and if at the second
shareholders of the corporation, cannot be a "controversy arising out of
22
auction there is no sale either, the creditor may appropriate the thing pledged. In this case No. Under Sec. 63 of the Corporation Code, no transfer of shares of stock shall be valid,
he shall be obliged to give an acquaintance for his entire claim. except as between the parties, until the same is recorded in the books of the corporation
There is no showing that petitioner made any attempt to foreclose or sell the so as to show the names of the parties to the transaction, the date of the transfer, the
shares through public or private auction, as stipulated in the contracts of pledge and as number of the certificate or certificates, and the number of shares transferred. A transfer
required by Article 2112 of the Civil Code. Therefore, ownership of the shares could not of shares of stock not recorded in the stock and transfer book of the corporation is non-
have passed to him. The pledgor remains the owner during the pendency of the pledge existent as far as the corporation is concerned. The stock and transfer book is the basis
and prior to foreclosure and sale, as explicitly provided by Article 2103 of the same Code: for ascertaining the persons entitled to the rights and subject to the liabilities of a
Unless the thing pledged is expropriated, the debtor continues to be the owner thereof. stockholder.
Neither did petitioner acquire the shares by virtue of a novation of the
contract of pledge. Novation is defined as "the extinguishment of an obligation by a A mere indorsement by the supposed owners of the stock, in the absence of express
subsequent one which terminates it, either by changing its object or principal instructions from them, cannot be the basis of an action for mandamus. Before a
conditions, by substituting a new debtor in place of the old one, or by subrogating a transferee may ask for the issuance of stock certificates, he must first cause the
third person to the rights of the creditor."Novation of a contract must not be registration of the transfer and thereby enjoy the status of a stockholder insofar as the
presumed. "In the absence of an express agreement, novation takes place only corporation is concerned.
when the old and the new obligations are incompatible on every point. Therefore, 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.
Ponce v. Alsons Cement GR 139802 ( Dec. 10, 2002)
Rural Bank of Salinas, Inc. v. CA (210 SCRA 510)
Facts: RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS and
Fausto Gaid was an incorporator of Victory Cement Corporation (which was later renamed FRANCISCO TRIAS
Alsons Cement Corporation), having subscribed to and fully paid 239,500 shares of said vs.
corporation. On February 8, 1968, Vicente Ponce and Gaid executed a Deed of COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, MELANIA A.
Undertaking and Indorsement whereby the latter acknowledges that the former is the GUERRERO, LUZ ANDICO, WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO,
owner of said shares and he was therefore assigning/endorsing the same to Ponce. JR., and FRANCISCO GUERRERO , SR.
Despite repeated demands, respondents refused without any justifiable reason to issue to G.R. No. 96674, June 26, 1992
Ponce the certificates of stocks corresponding to the 239,500 shares of Gaid. Hence,
Ponce filed a complaint with the SEC for mandamus and damages against Alsons Cement FACTS:
Corporation and its corporate secretary Francisco Giron, Jr.
Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed
Respondents moved to dismiss, arguing that the alleged indorsement was not recorded in a Special Power of Attorney in favor of his wife, private respondent Melania Guerrero,
the books of the corporation, and as such, was not valid against third persons like Alsons giving and granting the latter full power and authority to sell or otherwise dispose of
under Section 63 of the Corporation Code. 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
SEC Hearing officer dismissed the complaint. SEC En Banc reversed: A transfer or therefor, and to receive and sign receipts for the dispositions. On February 27, 1980, and
assignment of stocks need not be registered first before the Commission can take pursuant to said Special Power of Attorney, private respondent Melania Guerrero, as
cognizance of the case to enforce his rights as a stockholder. 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)
On appeal, CA dismissed: In the absence of any allegation that the transfer of the shares and Francisco Guerrero, Jr. (5 shares).Almost four months later, or two (2) days before
between Fausto Gaid and Vicente C. Ponce was registered in the stock and transfer book the death of Clemente Guerrero on June 24, 1980, private respondent Melania Guerrero,
of ALSONS, Ponce failed to state a cause of action. pursuant to the same Special Power of Attorney, executed a Deed of Assignmentfor the
remaining one (1) share of stock in favor of private respondent Francisco Guerrero, Sr.
Issue: Subsequently, private respondent Melania Guerrero presented to petitioner
Whether or not the certificate of stocks corresponding to Gaid’s shares shall be issued to Rural Bank of Salinas the two (2) Deeds of Assignment for registration with a request for
Ponce. 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
Held: issuance of new stock certificates covering the transferred shares of stocks in the name
23
of the new owners thereof. However, petitioner Bank denied the request of respondent secretary of the Visayan Electric Company to make the transfer which petitioner seeks to
Melania Guerrero. have made through the medium of the mandamus of this court.

ISSUE: ISSUE:
WON a writ of mandamus will lie under the circumstances of the case to allow
Whether or not a Mandamus lie against the Rural Bank of Salinas to register in the transfer of shares as being requested by the petitioner.
its stock and transfer book the transfer of 473 shares of stock to private respondents.
HELD:
RULING: The Supreme Court denied the writ. Petitioner did not have the right to demand
the transfer since he was not the stockholder of record. This was proven by the fact that
YES. the said shares were still registered under the name of Bryan-Landon Company.
Furthermore, even the latter did not demand from the company the transfer of said
Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive shares. Neither did it give by way of a special power of attorney to petitioner the
jurisdiction to hear and decide cases involving intracorporate controversies. An intra- authority to effect such a transfer. Hence, there is no clear and legal obligation upon the
corporate controversy has been defined as one which arises between a stockholder and respondent that will justify the issuance of a writ to compel the latter to perform a transfer.
the corporation. There is neither distinction, qualification, nor any exception whatsoever. As a general rule, as between the corporation on the one hand, and its
The case at bar involves shares of stock, their registration, cancellation and issuances shareholders and third persons on the other, the corporation looks only to its books for
thereof by petitioner Rural Bank of Salinas. It is therefore within the power of respondent the purpose of determining who its shareholders are, so that a mere indorsee of a stock
SEC to adjudicate. certificate, claiming to be the owner, will not necessarily be recognized as such by the
A corporation, either by its board, its by-laws, or the act of its officers, cannot corporation and its officers, in the absence of express instructions of the registered owner
create restrictions in stock transfers, because: Restrictions in the traffic of stock must have to make such transfer to the indorsee, or a power of attorney authorizing such transfer.
their source in legislative enactment, as the corporation itself cannot create such
impediment. By-laws are intended merely for the protection of the corporation, and
prescribe regulation, not restriction;; they are always subject to the charter of the Bitong v. CA 292 SCRA 503
corporation. The corporation, in the absence of such power, cannot ordinarily inquire into Ownership of Corporate Shares/ Stock Certificates: Valid Issuance
or pass upon the legality of the transactions by which its stock passes from one person to Facts: Bitong was the treasurer and member of the BoD of Mr. & Mrs. Corporation. She
another, nor can it question the consideration upon which a sale is based. filed a complaint with the SEC to hold respondent spouses Apostol liable for fraud,
Whenever a corporation refuses to transfer and register stock in cases like the misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in
present, mandamuswill lie to compel the officers of the corporation to transfer said stock in directing the affairs of the corporation to the prejudice of the stockholders. She alleges
the books of the corporation. that certain transactions entered into by the corporation were not supported by any
stockholder’s resolution.
Hager v. Bryan 19 PHIL 138 (1911) The complaint sought to enjoin Apostol from further acting as president-director of the
G.R. No. 6230;; January 18, 1911 corporation and from disbursing any money or funds. Apostol contends that Bitong was
merely a holder-in-trust of the JAKA shares of the corporation, hence, not entitled to the
FACTS: relief she prays for. SEC Hearing Panel issued a writ enjoining Apostol.
Petitioner filed an original action to secure a writ of mandamus against the After hearing the evidence, SEC Hearing Panel dissolved the writ and dismissed the
respondent, to compel him, as secretary of the Visayan Electric Company, to transfer complaint filed by Bitong. Bitong appealed to the SEC en banc. The latter reversed SEC
upon the books of the company certain shares of stock. He based the urgency of his Hearing Panel decision. Apostol filed petition for review with the CA. CA reversed SEC
action on a supposed agreement to sell the said shares to a Mr. Levering. Furthermore, en banc ruling holding that Bitong was not the owner of any share of stock in the
he also stated that the issuing company holds no unpaid claims against the shares of corporation and therefore, not a real party in interest to prosecute the complaint. Hence,
stock. However, on the books of the company, it turns out that petitioner is not the this petition with the SC.
registered owner of the stock which he seeks to have transferred. His only claim as Issue: Whether or not Bitong was the real party in interest.
owner is based on his averment that such were “indorsed” to him on February 5 by the Held: Based on the evidence presented, it could be gleaned that Bitong was not a bona
Bryan-Landon Company, in whose name it is registered on the books of the Visayan fide stockholder of the corporation. Several corporate documents disclose that the true
Electric Company. There was no allegation that the petitioner holds any power of party in interest was JAKA.
attorney from the Bryan-Landon Company authorizing him to make demand on the Although her buying of the shares were recorded in the Stock and Transfer Book of the
24
corporation, and as provided by Sec. 63 of the Corp Code that no transfer shall be valid on the question of jurisdiction over the dispute, which were to culminate in the filing of the
except as between the parties until the transfer is recorded in the books of the corporation, two cases at bar.
and upon its recording the corporation is bound by it and is estopped to deny the fact of
transfer of said shares, this provision is not conclusive even against the corporation but
are prima facie evidence only. Parol evidence may be admitted to supply the omissions in
ISSUE: WON the corporate secretary may refuse to register the transfer of shares in the
the records, explain ambiguities, or show what transpired where no records were kept, or
corporate books.
in some cases where such records were contradicted. Besides, the provision envisions a

formal certificate of stock which can be issued only upon compliance with certain
HELD:
requisites: (1) certificates must be signed by the president or vice president,
NO. As pointed out by the Abejos, Pocket Bell is not a close corporation, and no
countersigned by the secretary or assistant secretary, and sealed with the seal of the
restriction over the free transferability of the shares appears in the Articles of
corporation, (2) delivery of the certificate;; (3) the par value, as to par value shares, or the
Incorporation, as well as in the bylaws and the certificates of stock themselves, as
full subscription as to no par value shares, must be first fully paid;; (4) the original
required by law for the enforcement of such restriction. As the SEC maintains, "There is
certificate must be surrendered where the person requesting the issuance of a certificate
no requirement that a stockholder of a corporation must be a registered one in order that
is a transferee from a stockholder.
the Securities and Exchange Commission may take cognizance of a suit seeking to
These considerations are founded on the basic principle that stock issued without
enforce his rights as such stockholder." This is because the SEC by express mandate
authority and in violation of the law is void and confers no rights on the person to
has "absolute jurisdiction, supervision and control over all corporations" and is called
whom it is issued and subjects him to no liabilities. Where there is an inherent lack
upon to enforce the provisions of the Corporation Code, among which is the stock
of power in the corporation to issue the stock, neither the corporation nor the
purchaser’s right to secure the corresponding certificate in his name under the provisions
person to whom the stock is issued is estopped to question its validity since an
of Sec 65 of the code.
estoppel cannot operate to create stock which under the law cannot have existence.

Lee v. Trocino, et al. GR 164648 (June 19, 2009)
Abejo v. De la Cruz 149 SCRA 654 (1987)

GR No. L-63558
8) Unauthorized Transfers ----

Santamaria vs. Hongkong89 Phil. 780 (1951)
FACTS:
JOSEFA SANTAMARIA, assisted by her husband, FRANCISCO SANTAMARIA, Jr.
These two cases, jointly heard, are jointly herein decided. They involve the question of
vs.
who, between the RTC and the SEC, has original and exclusive jurisdiction over the
THE HONGKONG AND SHANGHAI BANKING CORPORATION and R. W. TAPLIN.
dispute between the principal stockholders of the corporation Pocket Bell Philippines,
G.R. No. L-2808 August 31, 1951
Inc. (Pocket Bell), namely, the spouses Abejos and the purchaser, Telectronic Systems,

Inc. of their 133,000 minority shareholdings (for P5 million) and of 63,000 shares
FACTS:
registered in the name of Virginia Braga and covered by 5 stock certificates endorsed in

blank by her (for P1,674,450.00), and the Bragas, erstwhile majority stockholders. With
Mrs. Josefa T. Santamaria bought 10,000 shares of the Batangas Minerals, Inc.,
the said purchases, Telectronics would become the majority stockholder, holding 56% of
through the offices of Woo, Uy-Tioco & Naftaly, a stock brokerage firm and pay therefore
the outstanding stock and voting power of the corporation Pocket Bell.
the sum of P8,041.20 as shown by receipt Exh. B. The buyer received Stock Certificate
With the said purchases in 1982, Telectronics requested the corporate secretary of the No. 517 issued in the name of Woo, Uy-Tioco & Naftaly and indorsed in bank by this firm.
corporation, Norberto Braga, to register and transfer to its name, and those of its On March 9, 1937, Mrs. Santamaria placed an order for the purchase of 10,000
nominees the total 196,000 Pocket Bell shares in the corporation's transfer book, cancel shares of the Crown Mines, Inc. with R.J. Campos & Co., a brokerage firm, and delivered
the surrendered certificates of stock and issue the corresponding new certificates of stock Certificate No. 517 to the latter as security therefor with the understanding that said
in its name and those of its nominees. certificate would be returned to her upon payment of the 10,000 Crown Mines, Inc.
shares. Exh. D. is the receipt of the certificate in question signed by one Mr. Cosculluela,
Norberto Braga, refused to register the aforesaid transfer of shares in the corporate Manager of the R.J. Campos & Co., Inc. According to certificate Exh. E, R. J. Campos &
books, asserting that the Bragas claim pre-emptive rights over the 133,000 Abejo shares Co., Inc. bought for Mrs. Josefa Santamaria 10,000 shares of the Crown Mines, Inc. at
and that Virginia Braga never transferred her 63,000 shares to Telectronics but had lost .225 a share, or the total amount of P2,250. Two days later, on March 11, Mrs.
the five stock certificates representing those shares. Santamaria went to R.J. Campos & Co., Inc. to pay for her order of 10,000 Crown Mines
shares and to get back Certificate No. 517. Cosculluela then informed her that R.J.
This triggered off the series of intertwined actions between the protagonists, all centered Campos & Co., Inc. was no longer allowed to transact business due to a prohibition order
25
from Securities and Exchange Commission. She was also inform that her Stock certificate FACTS:
was in the possession of the Hongkong and Shanghai Banking Corporation.
This action involves the title to 1,600,000 shares of stock of the Lepanto
ISSUE: Consolidated Mining Co., Inc., a corporation duly organized and existing under the laws
of the Philippines, hereinafter referred to, for the sake of brevity, as the Lepanto.
Whether or not the obligation of the defendant Bank to have inquired into the Originally, one-half of said shares of stock were claimed by plaintiff, Apolinario de los
ownership of the certificate when it received it from R.J. Campos & Co., Inc. and not Santos, and the other half, by his co-plaintiff Isabelo Astraquillo. During the pendency of
conclude that the Bank was negligent for not having done so, contrary to the claim of the this case, the latter has allegedly conveyed and assigned his interest in and to said half
plaintiff that defendant Bank acted negligently, if not in bad faith, in accepting delivery of claimed by him to the former. The shares of stock in question are covered by several
said certificate from RJ. Campos & Co., Inc. stock certificates issued in favor of Vicente Madrigal, who is registered in the books of the
Lepanto as owner of said stocks and whose indorsement in blank appears on the back of
RULING: said certificates, all of which, except certificates No. 2279 — marked Exhibit 2 —
covering 55,000 shares, are in plaintiffs' possession. So was said Exhibit 2, up to
YES. sometime in 1945 or 1946 when said possession was lost under the conditions set forth
in subsequent pages.
Certificate No. 517 came into the possession of the defendant Bank because R.J.
Campos & Co., Inc. had opened an overdraft account with said Bank and to this effect it ISSUE:
had executed on April 16, 1946, a letter of hypothecation by the terms of which R.J.
Campos & Co., Inc. pledged to the said Bank "all Stocks, Shares and Securities which Whether or not the plaintiffs had the owners of the shares of stock in question.
I/we may hereafter come into their possession on my/our account and whether originally
deposited for safe custody only or for any other purpose whatever or which may hereafter RULING:
be deposited by me/us in lieu of or in addition to the Stocks, Shares, and Securities now
deposited or for any other purpose whatsoever." NO.
It should be noted that the certificate of stock in question was issued in the
name of the brokerage firm-Woo, Uy-Tioco & Naftaly and that it was duly indorsed In the case at bar, neither madrigal nor the Mitsuis had alienated shares of stock
in blank by said firm, and that said indorsement was guaranteed by R.J. Campos & in question. It is not even claimed that either had, through negligence, given — occasion
Co., Inc., which in turn indorsed it in blank. This certificate is what it is known as for an improper or irregular disposition of the corresponding stock certificates. Plaintiffs
street certificate. Upon its face, the holder was entitled to demand its transfer into merely argue without any evidence whatsoever thereon — that Kitajimamight have,
his name from the issuing corporation. The Bank was not obligated to look beyond or must have, assigned the certificates on or before December 1942, although, as above
the certificate to ascertain the ownership of the stock at the time it received the stated, this is, not only, improbable, under the conditions, then obtaining, but, also.,
same from R.J. Campos & Co., Inc., for it was given to the Bank pursuant to their impossible, considering that, in April 1943, Kitajima delivered the instruments to Miwa,
letter of hypothecation. Even if said certificate had been in the name of the plaintiff who kept them in its possession until 1945. At any rate, such assignment by Miwa —
but indorsed in blank, the Bank would still have been justified in believing that R.J. granting for the sake of argument the accuracy of the surmise of plaintiffs herein — was
Campos & Co., Inc. had title thereto for the reason that it is a well-known practice unauthorized by the mitsuis, who, in the light of the precedents cited above, are not
that a certificate of stock, indorsed in blank, is deemed quasi negotiable, and as chargeable with negligence. In other words, assuming that Kitajima had been guilty of
such the transferee thereof is justified in believing that it belongs to the holder and embezzlement, by negotiating the stock certificates in question for his personal benefit,
transferor. as claimed by the plaintiffs, the title of his assignees and successors in interest would still
be subject to the rights of the registered owner, namely, Madrigal, and consequently, of
De los Santos vs. McGrath96 Phil. 577(1955) the party for whose benefit and account the latter held the corresponding shares of stock,
APOLINARIO G. DE LOS SANTOS and ISABELO ASTRAQUILLO that is to say, the Mitsuis.
vs. In conclusion, when the Property Custodian issued the Vesting Order
J. HOWARD MCGRATH ATTORNEY GENERAL OF THE UNITED STATES, complained of, the shares of stock in question belonged to the Mitsuis, admittedly
SUCCESSOR TO THE PHILIPPINE ALIEN PROPERTY ADMINISTRATION OF THE an enemy corporation, so that Vesting Order is in conformity with law and should
UNITED STATES, REPUBLIC OF THE PHILIPPINES be upheld. Wherefore, the decision appealed from is hereby reversed, and the
G.R. No. L-4818 February 28, 1955 complaint, accordingly, dismissed, with costs against the plaintiffs-appellees. It is
so ordered.
26
On June 18, 1931, Gonzalo H. Co Toco, the owner of 5,894 shares of the capital stock of
Guy v. Guy GR 189486 (Sept. 5, 2012) Samahang Magsasaka Inc. represented by 9 certificates having a par value of P5 per
share, mortgaged said shares to Chua Chiu to guarantee the payment of a debt of
P20,000 due on or before 19 June 1932. The said certificates of stock were delivered
9) Collateral Transfers --- with the mortgage to the mortgagee, Chua Chiu. The said mortgage was duly registered
Uson v. Diosomito (61 Phil. 535;; 1935) in the office of the register of deeds of Manila on 23 June 1931, and in the office of the
Uson vs. Diosomito said corporation on 30 September 1931. On 28 November 1931, Chua Chiu assigned all
G.R. No. L-42135;; June 17, 1935 his right and interest in said mortgage to Chua Guan.

FACTS: However, Co Toco defaulted in the payment of said debt at maturity and Chua Guan
Toribia Uson filed a civil action for debt against Vicente Diosomito. Upon foreclosed said mortgage and delivered the certificates of stock and copies of the
institution of said action, an attachment was duly issued and respondent’s property was mortgage and assignment to the sheriff of the City of Manila in order to sell the said
levied upon, including 75 shares of the North Electric Co., which stood in his name on the shares at public auction. The sheriff auctioned said shares on 22 December 1932, and
books of the company when the attachment was levied. The sheriff sold said shares at a the plaintiff having been the highest bidder for the sum of P14,390, the sheriff executed in
public auction with Uson being the highest bidder. Jollye claims to be the owner of said his favor a certificate of sale of said shares. The plaintiff tendered the certificates of stock
certificate of stock issued to him by the North Electric Co. standing in the name of Co Toco to the proper officers of the corporation for cancellation
There is no dispute that Diosomito was the original owner of said shares, which and demanded that they issue new certificates in the name of Chua Guan. The officers
he sold to Barcelon. However, Barcelon did not present these certificates to the (the individual defendants) refused and still refuse to issue said new shares in the name
corporation for registration until 19 months after the delivery thereof by Barcelon, and 9 of Chua Guan.
months after the attachment and levy on said shares. The transfer to Jollye was made 5
months after the issuance of a certificate of stock in Barcelon's name. An action for writ of mandamus was filed with the CFI Nueva Ecija, praying that the
defendants transfer the said 5,894 shares of stock to the plaintiff by cancelling the old
ISSUE: certificates and issuing new ones in their stead.
Is a bona fide transfer of the shares of corp., not registered or noted on the books
of the corp., valid as against a subsequent lawful attachment of said shares, regardless of The parties entered into a stipulation in which the defendants admitted all of the
whether the attaching creditor had actual notice of said transfer or not? allegations of the complaint while the plaintiff admitted all of the special defenses in the
answer of the defendants, and on this stipulation they submitted the case for decision. As
HELD: special defense, the defendants refused to cancel said certificates (Co Toco’s) and to
NO, it is not valid. The transfer of the 75 shares in the North Electric Co., Inc issue new ones in the name of Chua Guan because prior to the date of the latter’s
made by the defendant Diosomito as to the defendant Barcelon was not valid as to the demand (4 February 1933), 9 attachments had been issued, served and noted on the
plaintiff. Toribia Uson, on 18 Jan. 1932, the date on which she obtained her attachment books of the corporation against Co Toco’s shares. Chua Guan objected to having these
lien on said shares of stock will still stood in the name of Diosomito on the books of the attachments noted on the new certificates which he demanded.
corp. Sec. 35 provides that “No transfer, however, is valid, except as between the parties, The Supreme Court affirmed the judgment appealed from, holding that the attaching
until the transfer is entered and noted upon the books of the corporation so as to show the creditors are entitled to priority over the defectively registered mortgage of the appellant.
names of the parties to the transaction, the date of the transfer, the number of the
certificate, and the number of shares transferred.” ISSUE: Whether or not the said mortgage takes priority over the already noted writs of
All transfers of shares not so entered are invalid as to attaching or execution attachment.
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.
HELD:
Chua Guan vs. SamahangMagsasaka62 Phil. 473 (1935) The Supreme Court ruled that the attaching creditors are entitled to priority over
62 PHIL 473 the defectively registered mortgage of the appellant. The court argues that the
1935 registration in the register of deeds must be done both at the place where the
Butte, J. (ponente) owner is domiciled and at the place where the principal office of the corporation is
located. The purpose of this is to give sufficient constructive of any claim or
FACTS: encumbrance over the recorded shares to third persons. Furthermore, any share
27
still standing in the name of the debtor on the books of the corporation will be liable Among the three cases mentioned, settled is the rule that the attaching creditor
to seizure by attachment or levy on execution at the instance of other creditors. enjoys priority to the shares of stock as against a subsequent lawful buyer.
Thus, the game here is to have the highest or most preferred priority over any
pledged or mortgaged shares. lX. PRE-EMPTIVE RIGHT – Sec. 39 and 102

Chemphil Export & Import v. CA (Dec. 12, 1995)

Chemphil Export & Import vs. CA
Purpose;; when given;; waiver
G.R. Nos. 112438-39;; December 12, 1995
Distinguish from Right of FirstRefusal.

Distinguish from pre-emptive rt in a close corp
FACTS:
Makati Sports Club, Inc. v. ChengGR 178523 (June 16, 2010)
This case involved a consortium of banks which obtained a writ of preliminary
attachment in a civil case ("consortium case") over shares of stock belonging to Mr. MAKATI SPORTS CLUB, INC., petitioner, vs. CECILE H. CHENG, MC FOODS, INC.,
Antonio Garcia in the Chemical Industries of the Philippines ("Chemphil"). The attachment, and RAMON SABARRE, respondents.
which was served on the secretary to the President of Chemphil, was not registered in the [G.R. No. 178523. June 16, 2010.]
stock and transfer book of Chemphil. A few years thereafter, Mr. Garcia sold the same Pre-emptive Right
shares of stock to the Ferro Chemicals, Inc. ("FCI"). FCI subsequently assigned the FACTS:
shares to the Chemphil Export and Import Corporation ("CEIC"). The shares were On October 20, 1994, plaintiff Makati Sports Club, Inc.’s Board of Directors adopted a
registered and recorded in the corporate books of Chemphil in CEIC’s name and the resolution authorizing the sale of 19 unissued shares at a floor price of P400,000 and
corresponding stock certificates were issued to it. P450,000 per share for Class A and B, respectively.
The consortium case was appealed to the CA. While the appeal was pending, Defendant Cecile Cheng was a Treasurer and Director of Makati Sports Club in 1985.
Mr. Garcia and the bank consortium amicably settled the case. The CA rendered a
On July 7, 1995, Joseph L. Hodreal expressed his interest to buy a share, for this
judgment by compromise. Unfortunately, Mr. Garcia failed to comply with the compromise
purpose he sent the letter in which he requested that his name be included in the waiting
agreement. The consortium of banks caused to be sold on execution the shares of stock
list.
(earlier attached by them), which were the same shares subsequently sold by Mr. Garcia
to CEIC. A certificate of sale covering the shares was issued in the name of the bank Sometime in November 1995, McFoods expressed interest in acquiring a share of
consortium. Makati Sports Club, and one was acquired with the payment to the plaintiff by McFoods
of P1,800,000 through Urban Bank. On December 15, 1995, the Deed of Absolute Sale
ISSUE: was executed by the plaintiff and McFoods;; Stock Certificate No. A 2243 was issued to
Who has priority to the shares of stock – an attaching creditor or the subsequent McFoods on January 5, 1996.
buyer? On December 27, 1995, McFoods sent a letter to the plaintiff giving advice of its
offer to resell the share.
HELD: It appears that while the sale between the plaintiff and McFoods was still under
The Supreme Court ruled that the attachment lien acquired by the bank negotiations, there were negotiations between McFoods and Hodreal for the
consortium is valid and effective even as against the buyer (FCI) and its assignee (CEIC), purchase by the latter of a share of the plaintiff.
notwithstanding the fact that said attachment lien was not registered in the corporate
On November 24, 1995, Hodreal paid McFoods P1,400,000. Another payment of
books of Chemphil. "Both the Revised Rules of Court and the Corporation Code",
P1,400,000 was made by Hodreal to McFoods on December 27, 1995, to complete the
according to the Court, "do not require annotation in the corporation’s stock and transfer
purchase price of P2,800,000.
book for the attachment of shares of stock to be valid and binding on the corporation and
third party." On February 7, 1996, plaintiff was advised of the sale by McFoods to Hodreal of the
Consequently, when FCI purchased the shares of stock from Mr. Garcia, it share evidenced by Certificate No. 2243 for P2.8 Million. Upon request, a new certificate
purchased them subject to the attachment lien of the bank consortium. In this regard, the was issued.
High Court explained that a preliminary attachment is a security for the satisfaction of In 1997, an investigation was conducted and the committee held that there is prima
whatever judgment may be obtained by the attaching creditor in a court action, which facie evidence to show that defendant Cheng profited from the transaction because of
continues until the judgment debt is fully satisfied. her knowledge.
xxx xxx xxx
COMPARISON of the abovementioned three cases:
Plaintiff's evidence of fraud are — [a] letter of Hodreal dated July 7, 1995 where he
28
expressed interest in buying one (1) share from the plaintiff with the request that he be By-Laws on its pre-emptive rights.
included in the waiting list of buyers;; [b] declaration of Lolita Hodreal in her Affidavit that in Undeniably, on December 27, 1995, when Mc Foods offered for sale one Class "A"
October 1995, she talked to Cheng who assured her that there was one (1) available share of stock to MSCI for the price of P2,800,000.00 for the latter to exercise its pre-
share at the price of P2,800,000. The purchase to be validated by paying 50% emptive right as required by Section 30 (e) of MSCI's Amended By-Laws, it legally had
immediately and the balance after thirty (30) days;; [c] Marian Punzalan, Head, the right to do so since it was already an owner of a Class "A" share by virtue of its
Membership Section of the plaintiff declared that she informed Cheng of the intention of payment on November 28, 1995, and the Deed of Absolute Share dated December 15,
Hodreal to purchase one (1) share and she gave to Cheng the contact telephone number 1995, notwithstanding the fact that the stock certificate was issued only on January 5,
of Hodreal;; and [d] the authorization from Sabarre to claim the stock certificate. 1996.
MSCI asserts that Mc Foods never intended to become a legitimate holder of its A certificate of stock is the paper representative or tangible evidence of the stock itself
purchased Class "A" share but did so only for the purpose of realizing a profit in the and of the various interests therein. The certificate is not a stock in the corporation but is
amount of P1,000,000.00 at the expense of the former. MSCI further claims that Cheng merely evidence of the holder's interest and status in the corporation, his ownership of
confabulated with Mc Foods by providing it with an insider's information as to the status of the share represented thereby. It is not in law the equivalent of such ownership. It
the shares of stock of MSCI and even, allegedly with unusual interest, facilitated the expresses the contract between the corporation and the stockholder, but is not essential
transfer of ownership of the subject share of stock from Mc Foods to Hodreal, instead of to the existence of a share of stock or the nature of the relation of shareholder to the
an original, unissued share of stock. corporation.
It is also MSCI's stance that Mc Foods violated Section 30 (e) of MSCI's Amended Therefore, Mc Foods properly complied with the requirement of Section 30 (e) of
By-Laws on its pre-emptive rights, which provides — the Amended By-Laws on MSCI's pre-emptive rights. Without doubt, MSCI failed to
SEC. 30.. . . . — repurchase Mc Foods' Class "A" share within the thirty (30) day pre-emptive period
(e)Sale of Shares of Stockholder. Where the registered owner of share of stock desires as provided by the Amended By-Laws.
to sell his share of stock, he shall first offer the same in writing to the Club at fair market It was only on January 29, 1996, or 32 days after December 28, 1995, when MSCI
value and the club shall have thirty (30) days from receipt of written offer within which to received Mc Foods' letter of offer to sell the share, that Mc Foods and Hodreal executed
purchase such share, and only if the club has excess revenues over expenses the Deed of Absolute Sale over the said share of stock. While Hodreal had the right to
(unrestricted retained earning) and with the approval of two-thirds (2/3) vote of the Board demand the immediate execution of the Deed of Absolute Sale after his full payment of
of Directors. If the Club fails to purchase the share, the stockholder may dispose of the Mc Foods' Class "A" share, he did not do so. Perhaps, he wanted to wait for Mc Foods to
same to other persons who are qualified to own and hold shares in the club. If the share is first comply with the pre-emptive requirement as set forth in the Amended By-Laws.
not purchased at the price quoted by the stockholder and he reduces said price, then the Neither can MSCI argue that Mc Foods was not yet a registered owner of the share of
Club shall have the same pre-emptive right subject to the same conditions for the same stock when the latter offered it for resale, in order to void the transfer from Mc Foods to
period of thirty (30) days. Any transfer of share, except by hereditary succession, made in Hodreal. The corporation's obligation to register is ministerial upon the buyer's acquisition
violation of these conditions shall be null and void and shall not be recorded in the books of ownership of the share of stock. The corporation, either by its board, its by-laws, or the
of the Club. act of its officers, cannot create restrictions in stock transfers.
The share of stock so acquired shall be offered and sold by the Club to those in the Moreover, MSCI's ardent position that Cheng was in cahoots with Mc Foods in
Waiting List in the order that their names appear in such list, or in the absence of a depriving it of selling an original, unissued Class "A" share of stock for
Waiting List, to any applicant. P2,800,000.00 is not supported by the evidence on record. The mere fact that she
Thus, petitioner sought judgment that would order respondents to pay the sum of performed acts upon authority of Mc Foods, i.e., receiving the payments of Hodreal
P1,000,000.00, representing the amount allegedly defrauded, together with interest and in her office and claiming the stock certificate on behalf of Mc Foods, do not by
damages. themselves, individually or taken together, show badges of fraud, since Mc Foods
The RTC rendered its decision dismissing the complaint, including all counterclaims. did acts well within its rights and there is no proof that Cheng personally profited
from the assailed transaction. Even the statement of MSCI that Cheng doctored the
Aggrieved, Makati Sports Club, Inc. (MSCI) appealed to the CA. The CA promulgated
books to give a semblance of regularity to the transfers involving the share of
its assailed Decision, affirming the decision of the RTC.
stock covered by Certificate A 2243 remains merely a plain statement not
Hence, this petition. buttressed by convincing proof.
ISSUE: W/N Mc Foods violated Section 30 (e) of MSCI's Amended By-Laws on its pre-
emptive rights X. APPRAISAL RIGHT – Secs. 81- 86;; relate to Sec. 42 and 105
HELD: The court held that Mc Foods did not violate Section 30 (e) of MSCI’s Amended Marcus v. RH Macy 74 N.E. 2D 228 (1947)
29
P414,100.00), considering that its shares were listed in the Philippine Stock Exchange,
Facts: Hazel Marcus is the owner of 50 common shares of stocks in R.H, Macy Co., Inc., and that the payment could be made only if the respondent had unrestricted retained
which are stocks with voting rights. On September 28, 1945, the corporation gave a formal earnings in its books to cover the value of the shares, which was not the case.
notice to its stockholders, including Marcus, that in its upcoming annual meeting, there will
be a vote on a proposal to vest voting rights to holders of preferred stocks. A day before The disagreement on the valuation of the shares led the parties to constitute an appraisal
the annual meeting, Marcus sent by registered mail to the corporation its written notice of committee pursuant to Section 82 of the Corporation Code, each of them nominating a
objection to the proposal and demanded to exercise her appraisal right. In the meeting, representative, who together then nominated the third member who would be chairman
Marcus voted against the proposal, however, the proposal was approved. of the appraisal committee. Thus, the appraisal committee came to be made up of
Marcus, thereafter, instituted a proceeding to determine the value of her stocks and be Reynaldo Yatco, the petitioners nominee;; Atty. Antonio Acyatan, the respondents
paid therefor. However, her application for the appointment of appraisers was denied on nominee;; and Leo Anoche of the Asian Appraisal Company, Inc., the third
the ground that the vesting of voting rights to shares of stock previously without such right member/chairman.
does not divest nor limit her right as a common stockholder, citing the Kenny case, and in
considering that she only owns 50 shares out of 1.6 million shares of common stock. The On October 27, 2000, the appraisal committee reported its valuation of P2.54/share, for
Appellate Division affirmed the said decision. an aggregate value of P2,565,400.00 for the petitioners.

Issue: Whether or not Marcus may exercise her right of appraisal. Subsequently, the petitioners demanded payment based on the valuation of the appraisal
committee, plus 2%/month penalty from the date of their original demand for payment, as
Held: Marcus may exercise her right of appraisal. The Kenny case is inapplicable in this well as the reimbursement of the amounts advanced as professional fees to the
case as in that case, voting rights were given to newly issued stocks while in this case, appraisers.
voting rights were given to existing stocks and previously without voting rights. Vesting
voting rights to the preferred shares, in the case of R.H. Macy, resulted to the increase in In its letter to the petitioners dated January 2, 2001,[4] the respondent refused the
aggregate number of shares with voting rights which in effect diminished the potential petitioners demand, explaining that pursuant to the Corporation Code, the dissenting
worth of the common shares as a factor in the management of the corporation's affairs. As stockholders exercising their appraisal rights could be paid only when the corporation
to Marcus owning only 50 shares, the law does not provide for a minimum percentage or had unrestricted retained earnings to cover the fair value of the shares, but that it had no
value of stock which must be owned by a non-consenting stockholder to qualify to invoke retained earnings at the time of the petitioners demand, as borne out by its Financial
her appraisal right. Statements for Fiscal Year 1999 showing a deficit of P72,973,114.00 as of December 31,
1999.
Turner v. Lorenzo Shipping GR 157479 Nov. 24, 2010 (G.R. No. 157479
November 24, 2010) Upon the respondents refusal to pay, the petitioners sued the respondent for collection
and damages in the RTC in Makati City on January 22, 2001. The case, docketed as
PHILIP TURNER AND ELNORA TURNER VS LORENZO SHIPPING CORPORATION Civil Case No. 01-086, was initially assigned to Branch 132.
On June 26, 2002, the petitioners filed their motion for partial summary judgment.
The respondent opposed the motion for partial summary judgment, stating that the
Facts: determination of the unrestricted retained earnings should be made at the end of the
fiscal year of the respondent, and that the petitioners did not have a cause of action
The petitioners held 1,010,000 shares of stock of the respondent, a domestic corporation against the respondent.
engaged primarily in cargo shipping activities. In June 1999, the respondent decided to
amend its articles of incorporation to remove the stockholders pre-emptive rights to newly During the pendency of the motion for partial summary judgment, however, the Presiding
issued shares of stock. Feeling that the corporate move would be prejudicial to their Judge of Branch 133 transmitted the records to the Clerk of Court for re-raffling to any of
interest as stockholders, the petitioners voted against the amendment and demanded the RTCs special commercial courts in Makati City due to the case being an intra-
payment of their shares at the rate of P2.276/share based on the book value of the corporate dispute. Hence, Civil Case No. 01-086 was re-raffled to Branch 142.
shares, or a total of P2,298,760.00.
On November 12, 2002, the respondent filed a motion for reconsideration. Subsequently,
The respondent found the fair value of the shares demanded by the petitioners on November 28, 2002, the RTC issued a writ of execution. Aggrieved, the respondent
unacceptable. It insisted that the market value on the date before the action to remove the commenced a special civil action for certiorari in the CA to challenge the two aforecited
pre-emptive right was taken should be the value, or P0.41/share (or a total of orders of Judge Tipon. On the respondents petition for certiorari, however, the Court of
30
Appeals (CA) corrected the RTC and dismissed the petitioners suit on the ground that
their cause of action for collection had not yet accrued due to the lack of unrestricted
retained earnings in the books of the respondent. Thus, the petitioners are now before the
Court to challenge the CAs decision.
Issue: WON Petitioners should have given the chance to exercise their Appraisal Right.

Held:

Clearly, the right of appraisal may be exercised when there is a fundamental change
in the charter or articles of incorporation substantially prejudicing the rights of the
stockholders. It does not vest unless objectionable corporate action is taken. It
serves the purpose of enabling the dissenting stockholder to have his interests
purchased and to retire from the corporation. No payment shall be made to any
dissenting stockholder unless the corporation has unrestricted retained earnings in
its books to cover the payment. In case the corporation has no available
unrestricted retained earnings in its books, Section 83 of the Corporation Code
provides that if the dissenting stockholder is not paid the value of his shares within
30 days after the award, his voting and dividend rights shall immediately be
restored. The trust fund doctrine backstops the requirement of unrestricted
retained earnings to fund the payment of the shares of stocks of the withdrawing
stockholders. Under the doctrine, the capital stock, property, and other assets of a
corporation are regarded as equity in trust for the payment of corporate creditors,
who are preferred in the distribution of corporate assets. The creditors of a
corporation have the right to assume that the board of directors will not use the
assets of the corporation to purchase its own stock for as long as the corporation
has outstanding debts and liabilities. There can be no distribution of assets among
the stockholders without first paying corporate debts. Thus, any disposition of
31

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SHARES issued to, and subscribed by, the incorporating

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absence of the corporation's by-laws or rules governing effective transfer of shares of

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SHARES issued to, and subscribed by, the incorporating

the compromise agreement.

absence of the corporation's by-­laws or rules governing effective transfer of shares of

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absence of the corporation's by-laws or rules governing effective transfer of shares of