Monserrat v Ceron

Plaintiff: Enrique Monserrat

Defendants: Carlos G Ceron et al and Erma Inc
Ponencia: Villa-real, J
Doctrine: the third person pledgee who took the shares in
good faith and for value is preferred since registration of the
mortgage (a security arrangement) covering shares of stock
does not require that it be registered in the stock book for
validity and enforceability.
Facts:
1. Monserrat, president and manager of Manila Yellow
taxicab owned 1200 common shares. Because of the
financial aid in the organization of the corp by Ceron,
he assigned the usufruct of half the shares to Ceron.
2. The stock certificate was issued in the name of
Ceron, it had the condition that it gave the transferee
the right to enjoy the profits of the shares but
prohibiting him to sell, mortgage or any act implying
ownership, the transferor having reserved the right
to vote and recover ownership at the end of usufruct
(Exhibit A). Such stock was recorded in the name of
Ceron.
3. Defendants allege that Matute as president of Erma
inc appeared in Monserrats office and Ceron showed
the stock book of the corporation, Matute did not
see the annotation of Exhibit A, which was
executed 2 months after the execution of the
original certificate. Upon instructions by
Monserrat, Ceron did not make any notation in the
stock book in the same day it is to be sold at auction
to matute.
4. Ceron mortgaged the shares to Matute for
30000. Ceron endorsed the certificate to Matute
which he has been in possession ever since. However
Ceron did not inform Matute of the existence of

Exhibit A. Ceron informed Monserrat about the

mortage.

Issue: WON it is necessary to enter in the corp books the

mortgage constituted on common shares in order that the
mortgage may be valid and enforceable against third
persons
Held: NO. Only those that are considered transfers are to
be recorded in the stock books.
Transfers
Transfers under sec 35 of the corp code states that
no transfer shall be valid except as between parties until it
is entered and noted upon the corp books so as to show the
parties and the date and number of certificate. The
provision does not require any entry except transfers
of shares of stock in order for such to be valid
against third persons. Since no special meaning is given
to the word, it is construed in its ordinary practice. Transfer
means to assign the right of absolute ownership of a thing in
favor of another.
Is mortgage considered a transfer?
Chattel mortgage is considered a conditional sale of
personal property as security. The sale will be avoided upon
paying the sum of money or performance of an act.
Although it accompanies delivery and transfer of title
and ownership, such transfer is not absolute but
constitutes a mere security. As compared to transfer
which is an act in which the owner delivers it to another
with intent of passing the rights which he has,chattel
mortgage is not within its meaning.
Therefore the mortgage is not considered the
transfer referred to in sec 35. Only transfers of absolute
conveyance of ownership are needed to be entered and
noted upon the books of corporation to be valid. Since a
chattel mortgage is not an absolute alienation of

domination and ownership, it is not necessary to note

it in the books of the corporation.
Third person in good faith and for value
Evidence shows that Matute did not know of Exhibit A
when it was shown to him by Ceron. Ceron stated that he
said nothing about the lien for fear that he could not obtain
the loan applied for. Exhibit A was only placed there on the

same day of selling in public auction. Since he is a

conditional purchaser in good faith, he is entitled to
protection of the law.
Disposition: Erma Inc is absolved from the complaint.