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LINGAYEN GULF V.

BALTAZAR (1953) Facts: Baltazar, the president, subscribed to 600 shares (P100 par value per share) of Lingayen Gulf for a total P60,000. Baltazar has an unpaid balance of P18,500. BOD issued a call to 50% of all unpaid subscriptions. The BOD call was not published, although Baltazar received a notice of said call.BOD also released Baltazar from paying his unpaid balance. Since Baltazar ignored the call, Lingayen sued him for the balance. Baltazars defense: a) Cs action was premature because there was no valid call (because no publication). b) he was released by the BOD c) claims from Lingayen a reasonable compensation as president ISSUE: WON the petitioner company is liable for unpaid subscription despite the lack of publication. HELD: NO. Notice of any call for the payment of unpaid subscription should be made not only personally but also by publication once a week, for four consecutive weeks in some newspapers. In a solvent corporation, there must be a published call for the payment of unpaid subscriptions before payment could be demanded. The ruling in Poizat does not apply since the company here is solvent. No cancellation or release from obligation can be valid without the consent of the stockholder.
TAN v. SEC certificate of stock / tangible representation / transfer through other means Alfonso Tan held 400 shares w/ Visayan Educ. Supply Corp. During his presidency, he transferred 50 shares to his brother Angel so that the latter may assume the position of Director in the Board. His Certificate No. 2 representing his 400 shares was thereafter cancelled by the Board; Cert. No. 6 was issued to Angel for his 50 shares, and Cert. No. 8 was issued to Alfonso for his remaining 350 shares. However, Alfonzo refused to endorse Cert. No. 2 and instead kept the same. When Alfonso was dislodged from the presidency, he withdrew from the Corporation. He exchanged Cert. No. 8 for a vast quantity of stocks in trade (worth some P 2 million), but now he argues that the cancellation of his original Cert. No. 2 was illegal and violative of due process due to his non-endorsement. His contention is untenable. True that shares of stock may be transferred through delivery coupled w/ endorsem ent; but that is not the only way by w/c to transfer such shares. The Certificate of Stock is only a paper representation to evidence the holders interest and status in the corporation. It merely expresses the contract but is not itself the contract. In this case, there was already a valid transfer; that is why Angel was able to assume the position of director through the transfer to him of 50 shares from Alfonsos Cert. No. 2. Certificates of Stock are not negotiable instruments, and the holder thereof takes the same subject to the rights or defenses of the transferor or creditors. DD: There was already enjoyment of the prerogatives of ownership; there was thus a valid delivery.

MAKATI SPORTS CLUB INC v. CHENG Facts: MSCIs Board of Directors adopted a resolution authorizing the sale of 19 unissued shares at a floor price of P400,000 and P450,000 per share for Class A and B, respectively. Cheng was MSCIs Treasurer and Director at the time. In a letter, Hodreal expressed interest to buy a share and requested MSCI to include him in the waiting list. A few months later, McFoods bought an MSCI share for P1.8M, paid through Union Bank. A deed of absolute sale was executed. A month later, McFoods advised MSCI of its offer to resell the share. Ramon Sabarre is the president of McFoods. While the sale with MC Foods was under negotiation, there were also negotiations between McFoods and Hodreal for the purchase of the MSCI share. Hodreal paid a total of P2.8M for it. MSCI was advised of the sale to Hodreal. A new certificate of stock was issued. It was later on found, through an investigation made by MSCI that Cheng had profited from the transaction because of her knowledge. Apparently, Cheng had contacted Hodreal and informed him that the price per share was P2.8M. The amount was paid in 2 installments. The first installment of P1.4M was used to pay for part of McFoods purchase of the MSCI share for P1.8M. The second installment was received by Cheng on behalf of McFoods. MSCI asserts that McFoods never intended to become a legitimate holder of the shares but did so only for the purpose of realizing a profit at the expense of Hodreal. MSCI further claims that Cheng connived with McFoods by providing it with insiders information as to the status of the shares of stock of MSCI and even facilitated the transfer of ownership of the subject share of stock from McFoods to Hodreal, instead of an original, unissued share of stock. Hence MSCI filed suit for recover of the P1M difference representing the amount allegedly defrauded by Cheng. ISSUE: W/N MSCI was defrauded by Cheng's collaboration with McFoods HELD: NO. petition is DENIED

no evidence on record that the Membership Committee acted on Hodreal's letter

SEC. 29. (a) The Membership Committee shall process applications for membership; ascertain that the requirements for stock ownership, including citizenship, are complied with; submit to the Board its recommended on applicants for inclusion in the Waiting List; take charge of auction sales of shares of stock; and exercise such other powers and perform such other functions as may be authorized by the Board.

Membership Committee failed to question the alleged irregularities attending Mc Foods purchase purchase price of P1,800,000.00 is P1,400,000.00 more than the floor price - NOT detrimental Upon payment and the execution of the Deed of Absolute Sale, it had the right to demand the delivery of the stock certificate in its name. The right of a transferee to have stocks transferred to its name is an inherent right flowing from its ownership of the stocks certificate of stock is a paper representative or tangible evidence of the stock itself and of the various interests therein. It is not a stock in the corporation but is merely evidence of the holders interest and status in the corporation, his ownership of the share represented thereby

MSCI failed to repurchase Mc Foods Class "A" share within the 30 day pre-emptive period no proof that Cheng personally profited

DE LOS SANTOS v. REPUBLIC wartime transfer / no record in the books / questionable circumstances De Los Santos purchased from Campos and Hess, during the Japanese Occupation, Certificates of Stock representing 1,600,000 shares w/ the Lepanto Consolidated Mining Corp. The Certificates were in the name of Madrigal, who was trustee for the Japanese Mitsui Corporation, but they purchased it nonetheless. After the liberation, the shares are now being confiscated by the Republic pursuant to the Trading with the Enemy Act. De Los Santos asserts title, claiming that he validly purchased the same. His contentions cannot stand. He presented no evidence to substantiate his claim; both Hess and Campos are dead and cannot testify as to the alleged sale. Transfers of Certificates of Stock are not valid except as between the parties, until they are entered in the books of the corporation. In this case, assuming there was a sale between De Los Santos and Hess/Campos, the sale is valid only between them and cannot prejudice the rights of Mitsui, Madrigal, or the Republic. Certificates of Stock are not negotiable. They may be transferred by delivery coupled w/ endorsement, but the holder takes them w/o prejudice to such rights or defenses as the registered owners or creditors thereof may have under the law, except to the extent that they are barred by estoppel. Further, De Los Santos cannot feign good faith. He was not an innocent purchaser, because he purchased the Certificates under circumstances that warranted him to investigate. The Certificates were in the name of Madrigal in trust for the Mitsui Corporation w/c was prohibited by the Japanese Government from transferring the same. Also, they were then worthless to Filipinos or Americans, as the Japanese were at the height of their victories at the time of their purchase. BITONG v. CA fraudulent compliance / requirements / no presumption of regularity Nora Bitong filed a derivative suit against the Board of Directors of Mr. & Ms. Publishing (MM) alleging mismanagement (among others), but the members of the Board questioned her standing to sue alleging that the true party to this case was JAKA Investments. The evidence discloses that Bitong is only a minor stockholder and holder-in-trust for JAKA. Bitong alleges that she is a bona fide stockholder, alleging that she acquired the same from JAKA through a Deed of Sale. She also presents as evidence the fact that Cert. of Stock No. 008 appears in the record books of MM in her name. The said Certificate was also in her name. However, in spite of the foregoing, her contentions cannot be sustained. The records of the corporation are not conclusive but merely prima facie evidence and can be proved otherwise though other evidence w/c, in this case, point to the fact that it is still JAKA that is the true party to the case, and she was acting as mere agent thereof hence w/o standing to file the derivative suit. The records appear to be fraudulent, and the books were placed in her custody where she made the entries. Also the Certificate in her favor appears to have been fraudulently antedated to 1983, when her right as stockholder accrued only in 1989 already after the alleged mismanagement took place. The procedure in the Corp. Code contemplates certain steps: (1) the certificate must be signed by the president/VP and countersigned by the secretary or asst. secretary and under the corporate seal (2) indorsement and delivery thereof w/c is the operative act of transferring the same, (3) payment of full subscription or par value as the case may be, (4) the original certificate must be surrendered in case of transfer, and (5) to bind third persons, the same must be registered in the books of the corporation. Presumption of regularity does not apply. Bitongs compliance w/ such requirements is doubtful. She was not a bona fide stockholder at the time she instituted the derivative suit. DD: But let us say that Bitong sold the shares to an innocent purchaser for value. Such a sale would be valid as the purchaser is entitled to rely upon the books of the corporation (extra-corporate level). RURAL BANK OF LIPA v. CA delivery / mere assignment / no stockholder rights conferred yet Reynaldo Villanueva executed a Deed of Assignment, assigning his shares in the Lipa Rural Bank, in favor of certain stockholders of the said bank represented by the Directors. The Villanuevas were also heavily indebted to the Bank. The bank demanded the surrender of their Certificates of Stock, but the latter ignored the demand. Thereafter, an annual stock holders meeting was conducted where new Directors were elected, w/o notice to the Villanuevas. The Bank alleged that they were no longer entitled to such notice and that they have already relinquished their rights as stockholders to the said Bank. The contention of the Bank is untenable. There is a procedure mandated by law for the transfer of ownership over shares of stock. There must be

(1) delivery of the stock certificate, (2) endorsement by the owner or his authorized representative, and (3) the transfer must be recorded in the books of the corporation to bind third parties. The absence of endorsement coupled w/ delivery is a fatal defect; the execution of the Deed of Assignment is insufficient. While it is true that there are no third parties involved and the agreement is binding, it doesnt follow that the transfer was automatically effective. As mere assignees, the other stockholders cannot enjoy the status of a stockholder such as the right to vote or be voted for, and to receive dividends. There was yet no transfer of ownership.

BALTAZAR VS. LINGAYEN GULF G.R. NO. L-16236; JUNE 30, 1965 FACTS: Baltazar, et al. subscribed to a certain number of shares of Lingayen Gulf Electric Power. They had made only partial payment of the subscription but the corporation issued them certificates corresponding to shares covered by the partial payments. Corporation wanted to deny voting rights to all subscribed shares until total subscription is paid. ISSUE: WON petitioner is entitled to issuance of stock certificate. HELD: YES. The Court held that shares of stock covered by fully paid capital stock shares certificates are entitled to vote. Where the corporation has issued certificate of stock of a definite number corresponding to the initial payment made on the subscription, said shares may validly be voted at all meetings and only the remaining number of shares in the unpaid subscription will be affected by the call and subsequent declaration of delinquency in case of non- payment of the subscription balance. Corporation may choose to apply payments to subscription either as: (a) full payment for corresponding number of stock the par value of which is covered by such payment; or (b) as payment pro-rata to each subscribed share. The corporation chose the first option, and, having done so, it cannot unilaterally nullify the certificates issued.
DE LOS SANTOS v. REPUBLIC wartime transfer / no record in the books / questionable circumstances De Los Santos purchased from Campos and Hess, during the Japanese Occupation, Certificates of Stock representing 1,600,000 shares w/ the Lepanto Consolidated Mining Corp. The Certificates were in the name of Madrigal, who was trustee for the Japanese Mitsui Corporation, but they purchased it nonetheless. After the liberation, the shares are now being confiscated by the Republic pursuant to the Trading with the Enemy Act. De Los Santos asserts title, claiming that he validly purchased the same. His contentions cannot stand. He presented no evidence to substantiate his claim; both Hess and Campos are dead and cannot testify as to the alleged sale. Transfers of Certificates of Stock are not valid except as between the parties, until they are entered in the books of the corporation. In this case, assuming there was a sale between De Los Santos and Hess/Campos, the sale is valid only between them and cannot prejudice the rights of Mitsui, Madrigal, or the Republic. Certificates of Stock are not negotiable. They may be transferred by delivery coupled w/ endorsement, but the holder takes them w/o prejudice to such rights or defenses as the registered owners or creditors thereof may have under the law, except to the extent that they are barred by estoppel. Further, De Los Santos cannot feign good faith. He was not an innocent purchaser, because he purchased the Certificates under circumstances that warranted him to investigate. The Certificates were in the name of Madrigal in trust for the Mitsui Corporation w/c was prohibited by the Japanese Government from transferring the same. Also, they were then worthless to Filipinos or Americans, as the Japanese were at the height of their victories at the time of their purchase. SANTAMARIA v. HSBC street certificate / purchaser in good faith Santamaria purchased through the brokerage of Woo UyTioco, 10,000 shares of Batangas Mineral Inc. She was issued Stock Cert. No. 517 but it was issued in the name of Woo UyTioco. She then dealt w/ Campos & Co. (another brokerage) for the purchase of Crown Mines shares, and she delivered Stock Cert. No. 517 to the latter; it must be noted that the Certificate was indorsed in blank. However, in violation w/ its agreement w/ Santamaria, Campos pledged the Certificate to HSBC, w/c thereafter foreclosed on the same after failure of Campos to comply w/ its obligations. HSBC then wrote Batangas Mineral for the purpose of registering the transfer of shares in its books. Now Santamaria goes after HSBC, asserting her title thereto. Santamaria can no longer claim the same from HSBC, w/c is a bona fide purchaser in good faith. It was her own negligence that gave rise to her predicament. Her Certificate was in the name of Woo Uy-Tioco, and it was indorsed in blank. It therefore was quasi-negotiable or what is otherwise known as a street certificate. It was in such form as would entitle any possessor thereof to a transfer in the books of the corporation. By clothing Campos w/ apparent authority to indorse the same and failing to take precaution, she is now barred by estoppel. NEUGENE MARKETING v. CA stolen certificates / true import of the blank indorsement Neugene Marketing was a corporation engaged in trading. Yang, Sy, and Suen (Respondents), allegedly holders of at least 2/3 of the outstanding capital stock convened a stockholders meeting for the purpose of dissolving the corporation. The SEC affirmed the dissolution. However, a few months thereafter, Tan, Martin, Moreno, and Lee (Petitioners) surfaced and assailed the validity of the dissolution alleging that at the time when the Petitioners convened and voted for the dissolution, they were no longer stockholders of Neugene. The Petitioners on the contrary contend that they are the true stockholders owning at least 80% of the outstanding capital stock. It turns out that the Respondents endorsed their stock certificates in blank to the Uy Family the beneficial owners of Neugene. The evidence would disclose that the said stock certificates were stolen from the vault of the Uy Family by Lee (member of the Uy Family) and Moreno (corporate secretary) and subsequently endorsed to the Petitioners. The said transfers were also not recorded in the books of the corporation w/c reflects that the Respondents had title to such shares. The inscriptions in the Stock Transfer Book stating that the certificates pertaining to the Respondents were cancelled are obviously fraudulent.

Lee and Moreno acted in bad faith in assigning the subject certificates to the Petitioners knowing full well the true import of the blank indorsements w/c was for the Respondents to divest themselves of ownership in favor of the Uy Family. The assignment in favor of the Petitioners is obviously not supported by any consideration making it void and inexistent. The assignments also lacked the proper approval of the transferors. All that taken together, the Respondents are obviously the true stockholders of Neugene at the time they dissolved the same. Thus the dissolution stands. ESCAO v. FILIPINA MINING un-issued shares / same rule applies Salvosa owned both active and un-issued shares held in escrow w/ the Filipinas Mining Co. The said shares stood in his name in the books of the corporation. Escao sued Salvosa and secured a garnishment over his issued and un-issued shares held in escrow. Before judgment was rendered, Salvosa sold the said shares to Bengzon, who thereafter sold the shares to Standard Investment. None of the said sales was notified to the corporation or recorded in its books until after 3 years from the attachment. Now, Standard Investment is claiming that there must be a distinction between duly issued shares and un-issued shares for the purpose of applying the recording requirement under the Corporation Law. They allege that the transfer of un-issued shares held in escrow is valid as to the whole world even w/o being recorded in the books of the corporation. Untenable. There is no reason to treat them differently. The purpose of the law in requiring registration applies to both kinds of shares, namely: (1) to enable the corporation to know at all times who its actual stockholders are due to the mutual rights between them, (2) to afford the corporation an opportunity to object or refuse to consent to the transfers for valid reasons, and (3) to avoid fictitious and fraudulent transfers. It is also illogical to hold that un-issued shares still held by the corporation in escrow pending authorization of the government for their issuance may be negotiated more freely than active or issued shares evidenced by certificates of stock. All the foregoing considered, Escao should be deemed to possess the better right. FUA CUN v. CHINA BANK mortgaged shares / valid between parties / notice to third parties Chua Soco subscribed for 500 shares of stock w/ China Bank and paid half the price therefor. He was issued a receipt stating that the certificates for the 500 shares will be issued to Chua upon payment of the full purchase price. Chua Soco then executed a chattel mortgage over the said shares in favor of Fua Cun to secure a debt. He endorsed the receipt and delivered the same to the mortgagee. Chua then became heavily indebted to the Bank w/c attached his interest in the 500 shares. It must be noted that the attachment was done already after the Bank received notice of the chattel mortgage. Who has a better right to the shares, Fua (as mortgagee) or the Bank? Fua Cun has a better right. First of all, a corporation holds no lien upon shares of stockholders for the latters indebtedness to the corporation. Chattel mortgages over shares of stock are valid as between the parties. Equity in shares of stock can be validly assigned (or mortgaged) and such transaction is valid as between the parties and as to persons who have notice thereof. It must be noted that the Bank had notice of the mortgage. It cannot therefore claim a better right. Obiter: shares of stock are intangible and it is somewhat difficult to be treated as a chattel and mortgaged in such manner. Hence the recording of the mortgage constitutes constructive notice to third parties who are not expected to look elsewhere than the books of the corporation to secure themselves of the title or right of the transferor or mortgagor. Note: Payment by the subscriber of of the price for the subscription does not entitle him to a certificate of stock for of the said shares. MONSERRAT v. CERON usufruct over shares / mortgage / need not be recorded / not transfers Monserrat was president and manager of Manila Yellow Taxicab. He owned 1,200 shares. Due to his indebtedness to Ceron, he assigned to the latter the usufruct over 600 of his shares. Ceron only enjoyed the right to collect the fruits thereof, but Monserrat reserved ownership and the right to dispose the same. For this purpose, Certificate No. 7 was issued in favor of Ceron and recorded in the books of the corporation. Ceron thereafter mortgaged the said shares to Matute and delivered to the latter possession of the certificate. Matute was also shown the books of the corporation where no notation of the usufruct was seen. Now, Monserrat seeks to declare the mortgage to Matute null and void. The mortgage is valid. Matute was a purchaser in good faith and is thus entitled to the protection of the law; he even proceeded to the corporate office to check the books and found nothing conspicuous there. Recording the mortgage in the books of the corporation is not essential to its validity or binding effect upon third persons. The Corporation Law states that only transfers need be recorded in the books to bind third persons. Transfer means passing absolute ownership over the property, not merely constituting it as a security, as in the case of a mortgage. CHUA GUAN v. SAMAHANG MAGSASAKA attaching creditors / registration in Register of Deeds Gonzalo Co Toco was owner of some 5,800 shares w/ the Samahang Magsasaka Corp. w/c has principal office in Nueva Ecija. He mortgaged the shares to Chua Chiu to secure a debt; Chua Chiu then assigned his rights to the mortgage to Chua Guan. The encumbrances were registered w/ the Manila Register of Deeds and in the office of the said corporation. However, the corporation received notice from attaching creditors of garnishment of the said shares prior to registration of the mortgage. Gonzalo failed to pay, thus Chua Guan foreclosed on the same and was declared highest bidder. He tendered the certificates of stock to the President, Secretary, and Treasurer of the corporation for the purpose of cancellation and issuance of new ones, but the latter refused. Thus he seeks a writ of mandamus to compel the said corporate officers to issue in his favor the said certificates. Who has a better right, the mortgagee or attaching creditors? Did the registration in the register of Deeds (Manila) constitute constructive notice? In this case, the SC ruled in favor of the attaching creditors. As pointed out, the garnishment was received by the corporation prior to registration therewith of the mortgage. Neither will the registration in the Registry of Deeds rescue the mortgagees claim. Considering that shares are intangible, registration of mortgages thereon seems problematic. The SC ruled in this case that the proper place for registration of such mortgage is the registry of the place where the principal place of business is located (Nueva Ecija). If the registrant and the principal office are domiciled in different places, then registration must be done in both places. What is registered is not the Certificate of Shares but the participation in the corporation. Considering that the mortgage was defectively registered, the rights of the attaching creditors must be favored.

Note: True that the Corporation Law states that shares may be transferred by endorsement coupled w/ delivery; this however does not preclude the owner from transferring his interest therein through other means. But the shares still standing in the books of the corporation may be subject to levy or attachment. USON v. DIOSOMITO recording in the books / no prejudice to third persons or attaching creditors Diosomito was owner of 75 shares w/ the North Electric Co. He sold the same to Barcelon who did not present the same to the corporation for cancellation and issuance of new certificates as well as registration is the books of the corporation. In the meantime, Uson was able to obtain a favorable ruling in a civil action and attached the shares of Diosomito when the same still stood in his name in the books of the corporation. The sale to Barcelon was not recorded until some 9 months after the attachment. So who has a better right? The attaching creditors have a better right. The court still adheres to the principle that no transfer shall be valid except as between the parties until the transfer is entered and noted upon the books of the corporation. When Uson obtained the attachment, the shares still stood in the name of Diosomito in the books of the corporation; thus her rights cannot be prejudiced. BACHRACH MOTORS v. LACSON LEDESMA pledge / quasi-negotiable / tug-of-war between creditors The facts of the case, stripped of non-essentials, are as follows. Bachrach Motors and PNB are both creditors of Lacson Ledesma, battling over his properties for the purpose of satisfying their claims. Subject to this controversy, among others, are stock certificates w/ the Talisay-Silay Milling Corporation in the name of Ledesma. Ledesma mortgaged various real properties to PNB for the purpose of securing his debts, and in the same transactions, he pledged Stock Certificate No. 772 (later cancelled and replaced by Stock Certificate No. 1155) in favor of the PNB. He delivered to the possession of the PNB the said certificates. Bachrach, on the other hand, obtained favorable rulings in civil cases against Ledesma. Bachrach was able to garnish or attach various properties of Ledesma including whatever proceeds he may derive from his interest in the Talisay-Silay Milling Corp. Bachrach claims that it has a preferred right because the Certificated pledged to the PNB are not themselves the shares, arguing that the shares being intangible cannot be delivered to the possession of PNB, hence they cannot be the subject matter of pledge. This contention is of course untenable. True that Stock Certificates are merely tangible representations of the shares they represent. However, they are quasi-negotiable instruments in the sense that they can be given in pledge or mortgaged to secure an obligation. Modern commercial practice has been towards the trend of placing them near the plane of commercial paper. They may pass form hand to hand and whenever accompanied by duly executed Deeds of Assignment and powers of attorney (w/c may be in blank), they confer good title. NAVA v. PEERS MARKETING unpaid subscription / no duty to issue certificate / transfer valid inter se Teofilo Po was subscribed to 80 shares w/ the Peers Marketing Corp. for w/c he has paid the value equivalent to 20 shares only. Thus the corporation has an unpaid claim for the 60 shares. Po sold 20 of his shares to Nava. Nava thereafter requested the officers of the corp. to register the sale in its books, but the latter refused, thus constraining him to seek the remedy of mandamus. The officers claim that no shares of stock against w/c the corporation holds an unpaid claim may be transferred in the books of the corporation. The SC ruled against Nava. The procedure for the registration of the transaction in this case cannot be complied with considering that no certificate of stock has yet to be issued. The corporation is under no obligation to register the same in its books considering the unpaid claims of the latter; hence there is no cause for mandamus. The subscriber is as much bound to pay his subscription as he would any other debt. In this case, in the absence of the certificate of stock, w/c the corporation is yet obliged to issue, then the assignment of the corporate shares is valid only as between the parties thereto (Po and Nava).

BATANGAS LAGUNA TAYABAS v. BITANGA GARCIA v. JOMOUAD