ONG YONG VS.

TIU

FACTS:

1994: construction of the Masagana Citimall in Pasay City was threatened with stoppage, when its
owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became
heavily indebted to the Philippine National Bank (PNB) for P190M

To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong Yong, Juanita
Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in
FLADC.

Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in FLADC

Ongs: subscribe to 1,000,000 shares

Tius: subscribe to an additional 549,800 shares in addition to their already existing subscription of
450,200 shares

Tius: nominate the Vice-President and the Treasurer plus 5 directors

Ongs nominate the President, the Secretary and 6 directors (including the chairman) to the board of
directors of FLADC and right to manage and operate the mall.

Tius: contribute to FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land P30M
(for 300K shares) and P49.8M (for 49,800 shares)

Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for their
subscription to 1M shares)

February 23, 1996: Tius rescinded the Pre-Subscription Agreement

February 27, 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking confirmation
of their rescission of the Pre-Subscription Agreement

SEC: confirmed recission of Tius

Ongs filed reconsideration that their P70M was not a premium on capital stock but
an advance loan
SEC en banc: affirmed it was a premium on capital stock
CA: Ongs and the Tius were in pari delicto (which would not have legally entitled them to rescission)

but, "for practical considerations," that is, their inability to work together, it was best to separate the
two groups by rescinding the Pre-Subscription Agreement, returning the original investment of the
Ongs and awarding practically everything else to the Tius.
ISSUE: W/N Specific performance and NOT recission is the remedy

HELD: YES. Ongs granted.

did not justify the rescission of the contract

providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer,
respectively, had no bearing on their obligations under the Pre-Subscription Agreement since the
obligation pertained to FLADC itself

failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions also
pertained to the corporation and not to the Ongs

the principal objective of both parties in entering into the Pre-Subscription Agreement in 1994 was to
raise the P190 million

law requires that the breach of contract should be so "substantial or fundamental" as to defeat the
primary objective of the parties in making the agreement

since the cash and other contributions now sought to be returned already belong to FLADC, an
innocent third party, said remedy may no longer be availed of under the law.

Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be
formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other contract

allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of
Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable shares by the
corporation, regardless of the existence of unrestricted retained earnings,25 and (3) dissolution and
eventual liquidation of the corporation.

They want this Court to make a corporate decision for FLADC.

The Ongs' shortcomings were far from serious and certainly less than substantial; they were in fact
remediable and correctable under the law. It would be totally against all rules of justice, fairness and
equity to deprive the Ongs of their interests on petty and tenuous grounds.

PHILIPPINE TRUST VS. RIVERA

G.R. No. L-19761

January 29, 1923

PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperativa Naval

Filipina," plaintiff-appellee,
vs.
MARCIANO RIVERA, defendant-appellant.
Araneta and Zaragoza for appellant.
Ross and Lawrence for appellee.
STREET, J.:
This action was instituted on November 21, 1921, in the Court of First Instance of Manila, by the
Philippine Trust Company, as assignee in insolvency of La Cooperativa Naval Filipina, against
Marciano Rivera, for the purpose of recovering a balance of P22,500, alleged to be due upon
defendant's subscription to the capital stock of said insolvent corporation. The trial judge having
given judgment in favor of the plaintiff for the amount sued for, the defendant appealed.
It appears in evidence that in 1918 the Cooperativa Naval Filipina was duly incorporated under
the laws of the Philippine Islands, with a capital of P100,000, divided into one thousand shares of
a par value of P100 each. Among the incorporators of this company was numbered the
defendant Mariano Rivera, who subscribed for 450 shares representing a value of P45,000, the
remainder of the stock being taken by other persons. The articles of incorporation were duly
registered in the Bureau of Commerce and Industry on October 30 of the same year.

In the course of time the company became insolvent and went into the hands of the Philippine
Trust Company, as assignee in bankruptcy; and by it this action was instituted to recover onehalf of the stock subscription of the defendant, which admittedly has never been paid.
The reason given for the failure of the defendant to pay the entire subscription is, that not long
after theCooperativa Naval Filipina had been incorporated, a meeting of its stockholders
occurred, at which a resolution was adopted to the effect that the capital should be reduced by
50 per centum and the subscribers released from the obligation to pay any unpaid balance of
their subscription in excess of 50 per centum of the same. As a result of this resolution it seems
to have been supposed that the subscription of the various shareholders had been cancelled to
the extent stated; and fully paid certificate were issued to each shareholders for one-half of his
subscription. It does not appear that the formalities prescribed in section 17 of the Corporation
Law (Act No. 1459), as amended, relative to the reduction of capital stock in 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.
His Honor, the trial judge, therefore held that the resolution relied upon the defendant was
without effect and that the defendant was still liable for the unpaid balance of his subscription. In
this we think his Honor was clearly right.
It is established doctrine that subscription to the capital of a corporation constitute a find to which
creditors have a right to look for satisfaction of their claims and that the assignee in insolvency
can maintain an action upon any unpaid stock subscription in order to realize assets for the
payment of its debts. (Velasco vs. Poizat, 37 Phil., 802.) A corporation has no power to release
an original subscriber to its capital stock from the obligation of paying for his shares, without a
valuable consideration for such release; and as against creditors a reduction of the capital stock
can take place only in the manner an under the conditions prescribed by the statute or the
charter or the articles of incorporation. Moreover, strict compliance with the statutory regulations
is necessary (14 C. J., 498, 620).
In the case before us 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 without compliance with the statutory requirements, was wholly ineffectual.
The judgment will be affirmed with cost, and it is so ordered.

VELASCO VS. POIZAT

G.R. No. L-11528

March 15, 1918

MIGUEL VELASCO, assignee of The Philippine Chemical Product Co. (Ltd.), plaintiffappellant,
vs.
JEAN M. POIZAT, defendant-appellee.
Vicente Rodriguez for appellant.
A. J. Burke for appellee.
STREET, J.:

From the amended complaint filed in this cause upon February 5, 1915, it appears that the
plaintiff, as assignee in insolvency of "The Philippine Chemical Product Company" (Ltd.) is
seeking to recover of the defendant, Jean M. Poizat, the sum of P1,500, upon a subscription
made by him to the corporate stock of said company. It appears that the corporation in question
was originally organized by several residents of 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 the company, an paid in upon his subscription the sum of
P500, the par value of 5 shares . The action was brought to recover the amount subscribed upon
the remaining shares.
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 serving in this capacity
he called in and collected all subscriptions to the capital stock of the company, except the
aforesaid 15 shares subscribed by himself and another 15 shares owned by Jose R. Infante.
Upon July 13, 1914, a meeting of the board of directors of the company was held at which a
majority of the stock was presented. Up[on this occasion two resolutions, 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 their respective holdings, 15 shares
which had been surrendered by Infante. It seems that this shareholder had already paid 25 per
cent of his subscription upon 20 shares, leaving 15 shares unpaid for, and an understanding had
been reached by him and the management by which he was to be released from the obligation of
his subscription, it being understood that what he had already paid should not be refunded.
Accordingly the directors present at this meeting subscribed P1,200 toward taking up his shares,
leaving a deficiency of P300 to be recovered by voluntary subscriptions from stockholders not
present at the meeting.
The other proposition was o the effect that Juan [Jean] M. Poizat, who was absent, should be
required to pay the amount of his subscription upon the 15 shares for which he was still indebted
to the company. The resolution further provided that, in case he should refuse to make such
payment, the management of the corporation should be authorized to undertake judicial
proceedings against him. When notification of this resolution reached Poizat through the mail it
evoked from him a manifestation of surprise and pain, which found expression in a letter written
by him in reply, dated July 27, 1914, and addressed to Velasco, as treasurer and administrator.
In this letter Poizat states that he had been given to understand by some member of the board of
directors that he was to be relieved from his subscription upon the terms conceded to Infante;
and he added:
My desire to be relieved from the payment of the remaining 75 per cent arises from the
poor opinion which I entertain of the business and the faint hope of ever recovering any
money invested. In consequence, I prefer to lose the whole of the 25 per cent I have
already paid rather than to continue investing more money in what I consider to be
ruinous proposition.
Within a short while the unfavorable opinion entertained by Poizat as to the prospect of the
company was found to be fully justified, as the company soon went into voluntary insolvency,
Velasco being named as the assignee. He qualified at once by giving bond, and was duly
inducted into the office of assignee upon November 25, 1914, by virtue of a formal transfer
executed by the clerk in pursuance of section 32 of Act No. 1956.
The answer of the defendant consisted of a general denial and a so-called special defense,
consisting of a concatenation of statements more appropriate for a demurrer than as material for
a special defense. The principal contention is that the call made by the board of directors of the
company on July 13, 1914 , was not made pursuant to the requirements of sections 37 and 38 of
the Corporation Law (Act No. 1459), and in particular that the action was instituted before the
expiration of the 30 days specified in section 38.

At the hearing of the Court of First Instance, judgment was rendered in favor of the defendant,
and the complaint was dismissed. From this action the plaintiff has appealed.
We think that Poizat is liable upon this subscription. A stock subscription is a contract between
the corporation on one side, and the subscriber on the other, and courts will enforce it for or
against either. It is a rule, accepted by the Supreme Court of the United States, that a
subscription for shares of stock does not require an express promise to pay the amount
subscribed, as the law implies a promise to pay on the part of the subscriber. (7 Ruling Case
Law, sec. 191.) Section 36 of the Corporation Law clearly recognizes that a stock subscription is
subsisting liability from the time the subscription is made, since it requires the subscriber to pay
interest quarterly from that date unless he is relieved from such liability by the by-laws of the
corporation. The subscriber is as much bound 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 incontestable.
The provisions of the Corporation Law (Act No. 1459) given recognition of two remedies for the
enforcement of stock subscriptions. The first and most special remedy given by the statute
consists in permitting the corporation to put up the unpaid stock for sale and dispose of it for the
account of the delinquent subscriber. In this case the provisions of section 38 to 48, inclusive , of
the Corporation Law are applicable and must be followed. The other remedy is by action in court,
concerning which we find in section 49 the following provision:
Nothing in this Act shall prevent the directors from collecting, by action in any court of
proper jurisdiction, the amount due on any unpaid subscription, together with accrued
interest and costs and expenses incurred.
It is generally accepted doctrine that the statutory right to sell the subscriber's stock is merely a
remedy in addition to that which proceeds by action in court; and it has been held that the
ordinary legal remedy by action exists even though no express mention thereof is made in the
statute. (Instone vs. Frankfort Bridge Co., 2 Bibb [Ky.], 576; 5 Am. Dec., 638.)
No attempt is made in the Corporation Law to define the precise conditions under which an
action may be maintained upon a stock subscription, as such conditions should be determined
with reference to the rules governing contract liability in general; and where it appears as in this
case that a matured stock subscription is unpaid, none of the provisions contained in section 38
to 48, inclusive, of Act No. 1459 can be permitted to obstruct or impede the action to recover
thereon. By virtue of the first subsection of section 36 of the Insolvency Law (Act No. 1956) the
assignee of the insolvent corporation succeeds to all the corporate rights of action vested in the
corporation prior to its insolvency; and the assignee therefore has the same freedom with respect
to suing upon the stock subscription as the directors themselves would have had under section
49 above cited.
But there is another reason why the present plaintiff must prevail in this case, even supposing
that the failure of the directors to comply with the requirements of the provisions of sections 38 to
48, inclusive, of Act No. 1459 might have been an obstacle to a recovery by the corporation itself.
That reason is this: When insolvency supervenes upon a corporation and the court assumes
jurisdiction to wind up, all unpaid stock subscriptions become payable on demand, and are at
once recoverable in an action instituted by the assignee or receiver appointed by the court. This
rule apparently had origin in a recognition of the principle that a court of equity, having jurisdiction
of the insolvency proceedings, could, if necessary, make the call itself, in its capacity as
successor to the powers exercised by the board of directors of the defunct company. Later a
further rule gained recognition to the effect that the receiver or assignee, in an action instituted by
proper authority, could himself proceed to collect the subscription without the necessity of any
prior call whatever. This conclusion is well supported by reference to the following authorities:

. . . a court of equity may enforce payment of the stock subscriptions, although there
have been no calls for them by the company. (Hatch vs. Dana, 101 U. S., 205.)
It is again insisted that the plaintiffs cannot recover because the suit was not preceded by
a call or assessment against no right of action accrues. In a suit by a solvent going
corporation to collect a subscription, and in certain suits provided by the statute this
would be true; but it is now quite well settled that when the corporation becomes
insolvent, with proceedings instituted by creditors to wind up and distribute its assets, no
call or assessment is necessary before the institution of suits to collect unpaid balances
on subscription. (Ross-Meehan Shoe F. Co. vs. Southern Malleable Iron Co., 72 Fed.,
957, 960;see also Henry vs. Vermillion etc. R. R. Co., 17 Ohio, 187, and Thompson on
Corporations 2d ed., vol. 3, sec. 2697.)
It evidently cannot be permitted that a subscriber should escape from his lawful obligation by
reason of the failure of the officers of the corporation to perform their duty in making a call; and
when the original model of making the call becomes impracticable, the obligation must be treated
as due upon demand. If the corporation must be treated still an active entity, and this action
should be dismissed for irregularity in the making of the call, other steps could be taken by the
board to cure the defect and another action could be brought; but where the company is being
wound up, no such procedure would be practicable. The better doctrine is that when insolvency
supervenes all unpaid subscriptions become at once due and enforceable.
The printed bill of exceptions in this cause does not contain the original complaint, nor does it
state who was plaintiff therein or the date when the action was instituted. It may, however, be
gathered from the papers transmitted to this court that the action was originally instituted in the
name of the Philippine Chemical Product Co. (Ltd.), prior to its insolvency, and that later the
assignee was substituted as plaintiff and then filed the amended complaint, with the permission
of the court. Now, if we concede that no right of action existed when the original complaint was
filed, a right of action certainly existed when the assignee filed his amended complaint; and as
the bill of exceptions fails to show that any exception was taken to the action of the court in
allowing the amended complaint to be filed, no objection would be here entertained on the
ground that the action was prematurely brought.
The circumstance that the board of directors in their meeting of July 13, 1914, resolved to
release Infante from his obligation upon a subscription for 15 shares is no wise prejudicial to the
right of the corporation or its assignee to recover from Poizat upon a subscription made by him.
In releasing Infante the board transcended its powers, and he no doubt still remained liable on
such of his shares as were not taken up and paid for by other persons.
The general doctrine is that the corporation has no legal capacity to release an original
subscriber to its capital stock from the obligation of paying for his shares, in whole or in
part, . . . (10 Cyc., 450.)
The suggestion contained in Poizat's letter of July 27, 1914, to the effect that he understood that
he was to be relieved upon the same terms as Infante is, for the same reason, of no merit as
matter of defense, even if an agreement to that effect had been duly proved.
From what has been said it is manifest that the defendant is liable for P1,500, the amount of his
subscription upon the unpaid shares. Under section 36 of the Corporation Law he is also liable
for interest at the lawful rate from the date of his subscription, unless relieved from this liability by
the by-laws of the company. These by-laws have not been introduced in evidence and there is no
proof showing the exact date upon which the subscription was made, though it is alleged in the
original complaint that the company was organized upon March 23, 1914. This allegation is not
admitted in the agreed statement of facts. The defendant, however, inferentially admits in his
letter of July 27, 1914, that his subscription had been made prior to July 13, 1914. It resulted that
in our opinion he should be held liable for interest from that date.

The judgment of the lower court is therefore reversed, and judgment will be rendered in favor of
the plaintiff and against the defendant for the sum of one thousand five hundred pesos (P1,500),
with interest from July 13, 1014, and costs of both instances. So ordered.

EDWARD A. KELLER VS. COB GROUP MARKETING INC.

G.R. No. L-68097 January 16, 1986

EDWARD A. KELLER & CO., LTD., petitioner-appellant,
vs.
COB GROUP MARKETING, INC., JOSE E. BAX, FRANCISCO C. DE CASTRO, JOHNNY DE
LA FUENTE, SERGIO C. ORDOEZ, TRINIDAD C. ORDOEZ, MAGNO C. ORDOEZ,
ADORACION C. ORDOEZ, TOMAS C. LORENZO, JR., LUIZ M. AGUILA-ADAO, MOISES P.
ADAO, ASUNCION MANAHAN and INTERMEDIATE APPELLATE COURT, respondentsappellees.
Sycip, Salazar, Feliciano & Hernandez Law Office for petitioner.
Vicente G. Gregorio for private respondents.
Roberto P. Vega for respondent Asuncion Manahan.

AQUINO, C.J.:
This case is about the liability of a marketing distributor under its sales agreements with the
owner of the products. The petitioner presented its evidence before Judges Castro Bartolome
and Benipayo. Respondents presented their evidence before Judge Tamayo who decided the
case.
A review of the record shows that Judge Tamayo acted under a misapprehension of facts and his
findings are contradicted by the evidence. The Appellate Court adopted the findings of Judge
Tamayo. This is a case where this Court is not bound by the factual findings of the Appellate
Court. (See Director of Lands vs. Zartiga, L-46068-69, September 30, 1982, 117 SCRA 346,
355).
Edward A. Keller & Co., Ltd. appointed COB Group Marketing, Inc. as exclusive distributor of its
household products, Brite and Nuvan in Panay and Negros, as shown in the sales agreement
dated March 14, 1970 (32-33 RA). Under that agreement Keller sold on credit its products to
COB Group Marketing.
As security for COB Group Marketing's credit purchases up to the amount of P35,000, one
Asuncion Manahan mortgaged her land to Keller. Manahan assumed solidarily with COB Group
Marketing the faithful performance of all the terms and conditions of the sales agreement (Exh.
D).
In July, 1970 the parties executed a second sales agreement whereby COB Group Marketing's
territory was extended to Northern and Southern Luzon. As security for the credit purchases up
to P25,000 of COB Group Marketing for that area, Tomas C. Lorenzo, Jr. and his father Tomas,
Sr. (now deceased) executed a mortgage on their land in Nueva Ecija. Like Manahan, the

Lorenzos were solidarily liable with COB Group Marketing for its obligations under the sales
agreement (Exh. E).
The credit purchases of COB Group Marketing, which started on October 15, 1969, limited up to
January 22, 1971. On May 8, the board of directors of COB Group Marketing were apprised by
Jose E. Bax the firm's president and general manager, that the firm owed Keller about
P179,000. Bax was authorized to negotiate with Keller for the settlement of his firm's liability
(Exh. 1, minutes of the meeting).
On the same day, May 8, Bax and R. Oefeli of Keller signed the conditions for the settlement of
COB Group Marketing's liability, Exhibit J, reproduced as follows:
This formalizes our conditions for the settlement of C.O.B.'s account with Edward
Keller Ltd.
1. Increase of mortgaged collaterals to the full market value (estimated by Edak
at P90,000.00).
2. Turn-over of receivables (estimated outstandings P70,000.00 to P80,000.00).
3. Turn-over of 4 (four) trucks for outright sale to Edak, to be credited against
C.0.B.'s account.
4. Remaining 8 (eight) trucks to be assigned to Edak, C.O.B will continue
operation with these 8 trucks. They win be returned to COB after settlement of full
account.
5. C.O.B has to put up securities totalling P200,000.00. P100,000.00 has to be
liquidated within one year. The remaining P100,000.00 has to be settled within
the second year.
6. Edak wig agree to allow C.O.B. to buy goods to the value of the difference
between P200,000.00 and their outstandings, provided C.O.B. is in a position to
put up securities amounting to P200,000.00.
Discussion held on May 8, 1971.
Twelve days later, or on May 20, COB Group Marketing, through Bax executed two second
chattel mortgages over its 12 trucks (already mortgaged to Northern Motors, Inc.) as security for
its obligation to Keller amounting to P179,185.16 as of April 30, 1971 (Exh. PP and QQ).
However, the second mortgages did not become effective because the first mortgagee, Northern
Motors, did not give its consent. But the second mortgages served the purpose of being
admissions of the liability COB Group Marketing to Keller.
The stockholders of COB Group Marketing, Moises P. Adao and Tomas C. Lorenzo, Jr., in a
letter dated July 24, 1971 to Keller's counsel, proposed to pay Keller P5,000 on November 30,
1971 and thereafter every thirtieth day of the month for three years until COB Group Marketing's
mortgage obligation had been fully satisfied. They also proposed to substitute the Manahan
mortgage with a mortgage on Adao's lot at 72 7th Avenue, Cubao, Quezon City (Exh. L).
These pieces of documentary evidence are sufficient to prove the liability of COB Group
Marketing and to justify the foreclosure of the two mortgages executed by Manahan and Lorenzo
(Exh. D and E).

Section 22, Rule 130 of the Rules of Court provides that the act, declaration or omission of a
party as to a relevant fact may be given in evidence against him "as admissions of a party".
The admissions of Bax are supported by the documentary evidence. It is noteworthy that all the
invoices, with delivery receipts, were presented in evidence by Keller, Exhibits KK-1 to KK-277-a
and N to N-149-a, together with a tabulation thereof, Exhibit KK, covering the period from
October 15, 1969 to January 22, 1971. Victor A. Mayo, Keller's finance manager, submitted a
statement of account showing that COB Group Marketing owed Keller P184,509.60 as of July 31,
1971 (Exh. JJ). That amount is reflected in the customer's ledger, Exhibit M.
On the other hand, Bax although not an accountant, presented his own reconciliation statements
wherein he showed that COB Group Marketing overpaid Keller P100,596.72 (Exh. 7 and 8). He
claimed overpayment although in his answer he did not allege at all that there was an
overpayment to Keller.
The statement of the Appellate Court that COB Group Marketing alleged in its answer that it
overpaid Keller P100,596.72 is manifestly erroneous first, because COB Group Marketing did not
file any answer, having been declared in default, and second, because Bax and the other
stockholders, who filed an answer, did not allege any overpayment. As already stated, even
before they filed their answer, Bax admitted that COB Group Marketing owed Keller around
P179,000 (Exh. 1).
Keller sued on September 16, 1971 COB Group Marketing, its stockholders and the mortgagors,
Manahan and Lorenzo.
COB Group Marketing, Trinidad C. Ordonez and Johnny de la Fuente were declared in default
(290 Record on Appeal).
After trial, the lower court (1) dismissed the complaint; (2) ordered Keller to pay COB Group
Marketing the sum of P100,596.72 with 6% interest a year from August 1, 1971 until the amount
is fully paid: (3) ordered Keller to pay P100,000 as moral damages to be allocated among the
stockholders of COB Group Marketing in proportion to their unpaid capital subscriptions; (4)
ordered the petitioner to pay Manahan P20,000 as moral damages; (5) ordered the petitioner to
pay P20,000 as attomey's fees to be divided among the lawyers of all the answering defendants
and to pay the costs of the suit; (6) declared void the mortgages executed by Manahan and
Lorenzo and the cancellation of the annotation of said mortgages on the Torrens titles thereof,
and (7) dismissed Manahan's cross-claim for lack of merit.
The petitioner appealed. The Appellate Court affirmed said judgment except the award of
P20,000 as moral damages which it eliminated. The petitioner appealed to this Court.
Bax and the other respondents quoted the six assignments of error made by the petitioner in the
Appellate Court, not the four assignments of error in its brief herein. Manahan did not file any
appellee's brief.
We find that the lower courts erred in nullifying the admissions of liability made in 1971 by Bax as
president and general manager of COB Group Marketing and in giving credence to the alleged
overpayment computed by Bax .
The lower courts not only allowed Bax to nullify his admissions as to the liability of COB Group
Marketing but they also erroneously rendered judgment in its favor in the amount of its supposed
overpayment in the sum of P100,596.72 (Exh. 8-A), in spite of the fact that COB Group
Marketing was declared in default and did not file any counterclaim for the supposed
overpayment.

The lower courts harped on Keller's alleged failure to thresh out with representatives of COB
Group Marketing their "diverse statements of credits and payments". This contention has no
factual basis. In Exhibit J, quoted above, it is stated by Bax and Keller's Oefeli that "discussion
(was) held on May 8, 1971."
That means that there was a conference on the COB Group Marketing's liability. Bax in that
discussion did not present his reconciliation statements to show overpayment. His Exhibits 7 and
8 were an afterthought. He presented them long after the case was filed. The petitioner regards
them as "fabricated" (p. 28, Appellant's Brief).
Bax admitted that Keller sent his company monthly statements of accounts (20-21 tsn,
September 2, 1976) but he could not produce any formal protest against the supposed
inaccuracy of the said statements (22). He lamely explained that he would have to dig up his
company's records for the formal protest (23-24). He did not make any written demand for
reconciliation of accounts (27-28).
As to the liability of the stockholders, it is settled that a stockholder is personally liable for the
financial obligations of a corporation to the extent of his unpaid subscription (Vda. de Salvatierra
vs. Garlitos 103 Phil. 757, 763; 18 CJs 1311-2).
While the evidence shows that the amount due from COB Group Marketing is P184,509.60 as of
July 31, 1971 or P186,354.70 as of August 31, 1971 (Exh. JJ), the amount prayed for in Keller's
complaint is P182,994.60 as of July 31, 1971 (18-19 Record on Appeal). This latter amount
should be the one awarded to Keller because a judgment entered against a party in default
cannot exceed the amount prayed for (Sec. 5, Rule 18, Rules of Court).
WHEREFORE, the decisions of the trial court and the Appellate Court are reversed and set
aside.
COB Group marketing, Inc. is ordered to pay Edward A. Keller & Co., Ltd. the sum of
P182,994.60 with 12% interest per annum from August 1, 1971 up to the date of payment plus
P20,000 as attorney's fees.
Asuncion Manahan and Tomas C. Lorenzo, Jr. are ordered to pay solidarity with COB Group
Marketing the sums of P35,000 and P25,000, respectively.
The following respondents are solidarity liable with COB Group Marketing up to the amounts of
their unpaid subscription to be applied to the company's liability herein: Jose E. Bax P36,000;
Francisco C. de Castro, P36,000; Johnny de la Fuente, P12,000; Sergio C. Ordonez, P12,000;
Trinidad C. Ordonez, P3,000; Magno C. Ordonez, P3,000; Adoracion C. Ordonez P3,000; Tomas
C. Lorenzo, Jr., P3,000 and Luz M. Aguilar-Adao, P6,000.
If after ninety (90) days from notice of the finality of the judgment in this case the judgment
against COB Group Marketing has not been satisfied fully, then the mortgages executed by
Manahan and Lorenzo should be foreclosed and the proceeds of the sales applied to the
obligation of COB Group Marketing. Said mortgage obligations should bear six percent legal
interest per annum after the expiration of the said 90-day period. Costs against the private
respondents.
SO ORDERED

DE SILVA VS. ABOITIZ

# 103
ARNALDO F. DE SILVA, plaintiff-appellant,
vs.
ABOITIZ & COMPANY, INC., defendant-appellee.
March 31, 1923
G.R. No. L-19893
Facts: De Silva subscribed for 650 shares of stock of Aboitiz of the value of P500 each. He only
paid for the value of 200 shares, for which he became indebted to the corporation in the
amount of P255,000, representing the unpaid value of his subscription. The secretary of the
corporation notified him of the resolution passed by its Board, declaring the unpaid
subscriptions to have become due and demandable. The resolution also stated that all such
shares which remain unpaid will be declared delinquent, and will be advertised for sale at
public auction. De Silva thus filed a complaint in the CFI against the corporation, asking the
court to enjoin the corporation from holding such sale. He said that the corporation exceeded
its authority, as he said that its By-laws stated that the unpaid shares shall be paid out of the
70% of the profit obtained, which shall be distributed among the subscribers, who shall not
receive any dividend until the shares are paid in full. Further, he contends that the By-laws
provide an operative way of paying for the shares continuously until their full amortization.
The CFI dismissed the case.
Issue: Whether the corporation may declare the unpaid shares delinquent and/or collect their
value by another method different from that prescribed in the By-laws.
Held: In the By-laws, it is stated that the directors are authorized to create a special
emergency fund or extraordinary reserve fund, when, in its judgment, and in case all the
shares subscribed to have been fully paid. The directors are given the discretion to do
whatever is stated in the By-laws relative to the application of the 70% profit. They may decide
whether or not such profit shall be used to pay for the unpaid subscriptions.
If the Board of Directors does not wish to make use of such authority, it has 2 other
remedies for accomplishing the purpose, as enunciated in Velasco v Poizat: : 1) to sell the
stock for the account of the delinquent subscriber, and 2) to bring a legal action against him
for the amount due.
In this case, BoDs elected to avail themselves of the first remedy granted to it by law,
and declared that payment of De Silvas subscription to 450 shares which had not been fully
paid by him was due, and that said shares were delinquent, and performed all the other acts
subsequent to said declaration, as it deemed it disadvantageous to the corporation to apply
a part of the profit realized or to be realized to the payment of his subscription. De Silva has
no right to prevent the Board from following, any other method than that mentioned in the
law, for the very reason that the law does not give stockholders any right in connection with
the determination of the question whether or not there should be deducted from the 70% of
the profit distributable among the stockholders such amount as may be deemed fit for the
payment of subscriptions due and unpaid.

PONCE VS. ALSONS CEMENT CORP

FACTS:

February 8, 1968: Vicente C. Ponce and Fausto Gaid, incorporator of Victory Cement Corporation
(VCC), executed a Deed of Undertaking and Indorsement whereby Gaid acknowledges that Ponce
is the owner of the shares and he was therefore assigning/endorsing it to Ponce

VCC was renamed Floro Cement Corporation (FCC) and then to Alsons Cement Corporation (ACC)

Up to the present, no certificates of stock corresponding to the 239,500 subscribed and fully paid
shares of Gaid were issued in the name of Fausto G. Gaid and/or the plaintiff.

Despite repeated demands, the ACC refused to issue the certificates of stocks

SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss
Upon appeal, the Commission En Banc reversed the decision of the Hearing Officer
Ponce, filed a complaint with the SEC for mandamus
CA: mandamus should be dismissed for failure to state a cause of action
in the absence of any allegation that the transfer of the shares was registered in the stock
and transfer book

ISSUE: W/N the cert. of stocks of Gaid can be transferred to Ponce

HELD: NO. petition Denied.

SEC. 63. Certificate of stock and transfer of shares.The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president or
vice-president, countersigned by the secretary or assistant secretary, and sealed with the
seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so
issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation so
as to show the names of the parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the
books of the corporation.
the stock and transfer book is the basis for ascertaining the persons entitled to the rights
and subject to the liabilities of a stockholder
Where a transferee is not yet recognized as a stockholder, the corporation is under no
specific legal duty to issue stock certificates in the transferees name.
in a case such as that at bar, a mandamus should not issue to compel the secretary of a
corporation to make a transfer of the stock on the books of the company

unless it affirmatively appears that he has failed or refused so to do, upon the demand
either of the person in whose name the stock is registered, or of some person holding a
power of attorney for that purpose from the registered owner of the stock.
mere indorsee of a stock certificate, claiming to be the owner, will not necessarily be
recognized as such by the corporation and its officers, in the absence of express
instructions of the registered owner to make such transfer to the indorsee, or a power of
attorney authorizing such transfer

mandamus - proper remedy to make him the rightful owner and holder of a stock certificate to be
issued in his name

Labels: 2002, Case Digest, Corporate Law, Corporate Law Case Digest, December 10, G.R. NO.
139802, Juris Doctor, jurispru

RURAL BANK OF LIPA VS. COURT OF APPEALS

THE RURAL BANK OF LIPA CITY, INC vs. HON. CA

G.R. No. 124535

September 28, 2001

FACTS:
Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City,
executed a Deed of Assignment, wherein he assigned his shares, as well as those of 8 other
shareholders under his control with a total of 10,467 shares, in favor of the stockholders of
the Bank represented by its directors Bernardo Bautista, Jaime Custodio and Octavio
Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina, executed an
Agreement wherein they acknowledged their indebtedness to the Bank in the amount of
P4,000,000.00 and stipulated that said debt will be paid out of the proceeds of the sale of
their real property described in the Agreement. At a meeting of the Board of Directors of the
Bank on November 15, 1993, the Villanueva spouses assured the Board that their debt would
be paid on or before December 31 of that same year, otherwise, the Bank would be entitled
to liquidate their shareholdings, including those under their control. In such an event, should
the proceeds of the sale of said shares fail to satisfy in full the obligation, the unpaid balance
shall be secured by other collateral sufficient therefore. When the Villanueva spouses failed
to settle their obligation to the Bank on the due date, the Board sent them a demand letter
to surrender of all the stock certificates issued to them and to deliver sufficient collateral to
secure the balance of their debt. The Villanuevas ignored the bank's demands, whereupon
their shares of stock were converted into Treasury Stocks. Later, the Villanuevas, through
their counsel, questioned the legality of the conversion of their shares. 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. Consequently, the Villanueva spouses filed
with the SEC, a petition for annulment of the stockholders' meeting and election of directors
and officers on January 15, 1994, with damages and prayer for preliminary injunction. Joining
them as co-petitioners were Catalino Villanueva, Andres Gonzales, Aurora Lacerna, Celso
Laygo, Edgardo Reyes, Alejandro Tonogan, and Elena Usi. Meanwhile, the SEC issued a TRO
enjoining the respondents, petitioners herein, from acting as directors and officers of the
Bank, and from performing their duties and functions as such. The Villanuevas' application for
the issuance of a writ of preliminary injunction was denied by the SEC Hearing Officer on the
ground of lack of sufficient basis for the issuance thereof. However, a motion for
reconsideration was granted on December 16, 1994, upon finding that since the Villanuevas'
have not disposed of their shares, whether voluntarily or involuntarily, they were still
stockholders entitled to notice of the annual stockholders' meeting was sustained by the SEC.
Accordingly, a writ of preliminary injunction was issued enjoining the petitioners from acting
as directors and officers of the bank.
Thereafter, petitioners filed an urgent motion to quash the writ of preliminary injunction,
challenging the propriety of the said writ considering that they had not yet received a copy of
the order granting the application for the writ of preliminary injunction. With the impending
1995 annual stockholders' meeting only 9 days away, the Villanuevas filed an Omnibus
Motion praying that the said meeting and election of officers scheduled on January 14, 1995
be suspended or held in abeyance, and that the 1993 Board of Directors be allowed, in the
meantime, to act as such. One day before the scheduled stockholders meeting, the SEC
Hearing Officer granted the Omnibus Motion by issuing a TRO preventing petitioners from
holding the stockholders meeting and electing the board of directors and officers of the Bank.
A petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its
directors and officers before the SEC en banc.
The Bank, its directors and its officers questioned the SEC Hearing Officer's right to restrain
the stockholders' meeting and election of officers and directors considering that the
Villanueva spouses and the other petitioners in SEC Case No. 02-94-4683 were no longer
stockholders with voting rights, having already assigned all their shares to the Bank. On June
7, 1995, the SEC en banc denied the petition for certiorari. A subsequent motion for
reconsideration was likewise denied by the SEC en banc in a Resolution dated September 29,
1995. A petition for review was thus filed before the CA. However said petition was dismissed
for lack of merit. Petitioners' motion for reconsideration was likewise denied by the CA.
Hence, the instant petition for review.
ISSUE: Whether or not the Deed of Assignment made in favor of the stockholders of petitioner
entitle them the status of a stockholder insofar as the assigned shares are concerned.
RULING: Petitioners argue that by virtue of the Deed of Assignment, private respondents had
relinquished to them any and all rights they may have had as stockholders of the Bank. While
it may be true that there was an assignment of private respondents' shares to the petitioners,
said assignment was not sufficient to effect the transfer of shares since there was no
endorsement of the certificates of stock by the owners, their attorneys-in-fact or any other
person legally authorized to make the transfer. Moreover, petitioners admit that the
assignment of shares was not coupled with delivery, the absence of which is a fatal defect.

The rule is that the delivery of the stock certificate duly endorsed by the owner is the
operative act of transfer of shares from the lawful owner to the transferee. Thus, title may be
vested in the transferee only by delivery of the duly indorsed certificate of stock.
For a valid transfer of stocks, there must be strict compliance with the mode of transfer
prescribed by law. The requirements are: (a) There must be delivery of the stock certificate:
(b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and (c) To be valid against third parties, the transfer
must be recorded in the books of the corporation. As it is, compliance with any of these
requisites has not been clearly and sufficiently shown. It may be argued that despite noncompliance with the requisite endorsement and delivery, the assignment was valid between
the parties, meaning the private respondents as assignors and the petitioners as assignees.
While the assignment may be valid and binding on the petitioners and private respondents,
it does not necessarily make the transfer effective. Consequently, the petitioners, as mere
assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not
be entitled to dividends, insofar as the assigned shares are concerned. Parenthetically, the
private respondents cannot, as yet, be deprived of their rights as stockholders, until and
unless the issue of ownership and transfer of the shares in question is resolved with finality.
There being no showing that any of the requisites mandated by law was complied with, the
SEC Hearing Officer did not abuse his discretion in granting the issuance of the preliminary
injunction prayed for by petitioners in SEC Case No. 02-94-4683 (herein private respondents).
Accordingly, the order of the SEC en banc affirming the ruling of the SEC Hearing Officer, and
the Court of Appeals decision upholding the SEC en banc order, are valid and in accordance
with law and jurisprudence, thus warranting the denial of the instant petition for review.

NEUGENE MARKETING INC. VS. COURT OF APPEALS

Neugene Marketing Inc. vs. CA [303 SCRA 295 (Feb 18 1999)]

Ownership of Corporate Share/Stock Certificates
Facts: Neugene was duly registered with SEC to engage in trading business. Private Respondents Sy, Yang,
and Suen, holders of 5250 shares or 2/3 of the outstanding capital stock sent notice to the BoD for a board
meeting. In this meeting, they approved a resolution dissolving Neugene.
SEC thus issued a Certificate of Dissolution of Neugene. Petitioners Tan, Martin, Moreno and Lee brought an
action to annul said SEC Certification contending that they were the majority stockholders of the corporation, and
that prior to the board meeting, the private respondents had already divested themselves of their stockholdings
by endorsing them in blank and delivering them to the Uy family. The latter in turn awarded said stock certificates
to Johnny Uy, who in turn sold the same to petitioners. Hence, private respondents could no longer validly vote
for the dissolution of Neugene at the time of the board meeting.
Private respondents contend that the assignment of shares were simulated and fraudulently effected since the
endorsement in blank by them of the stock certificates to the Uy family was only for safekeeping when they were
stolen from a vault by Johnny Uy.

SEC nullified the Certificate of Dissolution. CA, on the other hand, upheld Neugenes dissolution. Hence, this
petition with the SC.
Issue: Whether or not private respondents divested themselves of their stockholdings when they voted for the
resolution dissolving Neugene.
Held: No. Entries in the Stock and Transfer Book show that at the time of dissolution of Neugene, the private
respondents owned at least 2/3 of the outstanding capital stock, in sufficient compliance with Sec. 118 of the
Corporation Code of the Philippines.
Petitioners submitted the same Stock and Transfer Book to show that the certificates of private respondents were
cancelled. But after a careful examination of the evidence on record, SC found that the stock certificates of
private respondents were stolen and therefore not validly transfered, and the transfers of stock relied upon by
petitioners were fraudulently recorded in the Stock and Transfer Book of Neugene.
The true relationship between stockholders of Neugene and that of the Uy family was that they had an
understanding that the beneficial ownership of Neugene would remain with the Uy family, such that the shares of
stock were endorsed in blank, upon issuance, by the shareholders and entrusted to the Uy family for
safekeeping. Such beneficial ownership has been admitted through the testimonies not only of private
respondents but also of petitioners.

BATANGAS LAGUNA TAYABAS BUS COMPANY VS. BITANGA

FACTS:
On October 28, 1997, Dolores Potenciano, Max Joseph Potenciano, Mercedelin Potenciano,
Delfin Yorro, and Maya Industries, Inc., entered into a Sale and Purchase Agreement, whereby
they sold to BMB Property Holdings, Inc., represented by its President, Benjamin Bitanga,
their 21,071,114 shares of stock in BLTB. The said shares represented 47.98% of the total
outstanding capital stock of BLTB. The purchase price for the shares of stock was
P72,076,425.00. A downpayment was made while the balance was payable on November 26,
1997.
The contracting parties stipulated that the downpayment was conditioned upon receipt by
the buyer of certain documents upon signing of the Agreement, namely, the Secretary's
Certificate stating that the Board of Directors of Maya Industries, Inc. authorized the sale of
its shares in BLTB and the execution of the Agreement, and designating Dolores A. Potenciano
as its Attorney-in-Fact; the Special Power of Attorney executed by each of the sellers in favor
of Dolores A. Potenciano for purposes of the Agreement; the undated written resignation
letters of the Directors of BLTB, except Henry John A. Potenciano, Michael A. Potericiano and
Candido A. Potenciano; a revocable proxy to vote the subject shares made by the sellers in
favor of the buyer; a Declaration of Trust made by the sellers in favor of the buyer
acknowledging that the subject shares shall be held in trust by the sellers for the buyer
pending their transfer to the latter's name; and the duly executed capital gains tax return
forms covering the sale, indicating no taxable gain on the same. Furthermore, the buyer
guaranteed that it shall take over the management and operations of BLTB but shall
immediately surrender the same to the sellers in case it fails to pay the balance of the
purchase price on November 26, 1997.

On November 21, 1997, at a meeting of the stockholders of BLTB, Benjamin Bitanga and
Monina Grace Lim were elected as directors of the corporation Subsequently, on November
28, 1997, another stockholders' meeting was held, wherein Laureano A. Siy and Renato L.
Leveriza were elected as directors. At the same meeting, the Board of Directors of BLTB
elected James Olayvar, Eduardo Azucena, Evelio Custodia, and Gemma Santos as officers.
During a meeting of the Board of Directors on April 14, 1998, the newly elected directors of
BLTB scheduled the annual stockholders' meeting on May 19, 1998, to be held at the principal
office of BLTB in San Pablo, Laguna.
Before the scheduled meeting, Michael Potenciano wrote Benjamin Bitanga, requesting for a
postponement of the stockholders' meeting due to the absence of a thirty-day advance
notice. However, no response from Bitanga on whether or not the request for postponement
was favorably acted upon. On the scheduled date of the meeting, inasmuch as there was no
notice of postponement prior to that, a total of 286 stockholders, representing 87% of the
shares of stock of BLTB, arrived and attended the meeting. The majority of the stockholders
present rejected the postponement and voted to proceed with the meeting. The Potenciano
group was re-elected to the Board of Directors, and a new set of officers was thereafter
elected. On May 21, 1998, the Bitanga group filed with the SEC a Complaint for Damages and
Injunction. Their prayer for the issuance of a temporary restraining order was, however,
denied at the ex-parte summary hearing conducted by SEC Chairman Perfecto Yasay, Jr.
Likewise, the Potenciano group filed on May 25, 1998, a Complaint for Injunction and
Damages with Preliminary Injunction and Temporary Restraining Order with the SEC. The SEC
Chairman Perfecto Yasay, Jr. issued a temporary restraining order enjoining the Bitanga group
from acting as officers and directors of BLTB.
On June 8, 1998, the Bitanga group filed another complaint with application for a writ of
preliminary injunction and prayer for temporary restraining order, seeking to annul the May
19, 1998 stockholders' meeting. A joint hearing was conducted. On June 17, 1998, the SEC
Hearing Panel granted the Bitanga group's application for a writ of preliminary injunction
upon the posting of a bond in the amount of P20,000,000.00. It declared that the May 19,
1998 stockholders' meeting was void on the grounds that, first, Michael Potenciano had
himself asked for its postponement due to improper notice; and, second, there was no
quorum, since BMB Holdings, Inc., represented by the Bitanga group, which then owned
50.26% of BLTB's shares having purchased the same from the Potenciano group, was not
present at the said meeting. The Hearing Panel further held that the Bitanga Board remains
the legitimate Board in a hold-over capacity. The Potenciano group filed a petition for
certiorari with the SEC En Banc on June 29, 1998, seeking a writ of preliminary injunction to
restrain the implementation of the Hearing Panel's assailed Order.
On July 21, 1998, the SEC En Banc set aside the June 17, 1998 Order of the Hearing Panel and
issued the writ of preliminary injunction prayed for. The Bitanga group immediately filed a
petition for certiorari with the Court of Appeals on July 22, 1998, followed by a Supplemental
Petition on August 10, 1998. Meanwhile, on July 29, 1998, the SEC En Banc issued a writ of
preliminary injunction against the Bitanga group, after the Potencianos posted the required
bond of P20,000,000.00. On November 23, 1998, the CA rendered the now assailed Decision,
reversing the assailed Orders of the SEC En Banc and reinstating the Order of the Hearing

Panel ordered dated June 17, 1998. The CA denied the Motions for Reconsideration in a
Resolution dated March 25, 1999. Hence, this petition for review.
ISSUE: Whether or not the stockholders' meeting on May 19, 1998 was void since BMB
Holdings, Inc., represented by the Bitanga group was not present at the said meeting.
RULING: Until registration is accomplished, the transfer, though valid between the parties,
cannot be effective as against the corporation. Thus, the unrecorded transferee, the Bitanga
group in this case, cannot vote nor be voted for. The purpose of registration, therefore, is
two-fold: to enable the transferee to exercise all the rights of a stockholder, including the
right to vote and to be voted for, and to inform the corporation of any change in share
ownership so that it can ascertain the persons entitled to the rights and subject to the
liabilities of a stockholder. Until challenged in a proper proceeding, a stockholder of record
has a right to participate in any meeting; his vote can be properly counted to determine
whether a stockholders' resolution was approved, despite the claim of the alleged transferee.
On the other hand, a person who has purchased stock, and who desires to be recognized as
a stockholder for the purpose of voting, must secure such a standing by having the transfer
recorded on the corporate books. Until the transfer is registered, the transferee is not a
stockholder but an outsider.
WHEREFORE, in view of all the foregoing, the instant petitions for review are GRANTED. The
Decision of the Court of Appeals dated November 23, 1998 in CA-G.R. SP No. 48374 and its
resolution dated March 25, 1999 are SET ASIDE. The Orders of the SEC En Banc dated July 21,
1998 and July 27, 1998 in SEC Case No. EB 611 are ordered REINSTATED.

PONCE VS. ALSONS CEMENT CORP (REPEAT CASE)

TORRES JR. VS. COURT OF APPEALS
Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty &
Development Corporation (TRDC). TRDC is a small family owned corporation and other
stockholders thereof include Judge Torres nieces and nephews. However, even though
Judge Torres owns the majority of TRDC and was also the president thereof, he is only
entitled to one vote among the 9-seat Board of Directors, hence, his vote can be easily
overridden by minority stockholders. So in 1987, before the regular election of TRDC
officers, Judge Torres assigned one share (qualifying share) each to 5 outsiders for the
purpose of qualifying them to be elected as directors in the board and thereby strengthen
Judge Torres power over other family members.
However, the said assignment of shares were not recorded by the corporate secretary,
Ma. Christina Carlos (niece) in the stock and transfer book of TRDC. When the validity of
said assignments were questioned, Judge Torres ratiocinated that it is impractical for him
to order Carlos to make the entries because Carlos is one of his opposition. So what Judge
Torres did was to make the entries himself because he was keeping thestock and transfer

book. He further ratiocinated that he can do what a mere secretary can do because in the
first place, he is the president.
Since the other family members were against the inclusion of the five outsiders, they
refused to take part in the election. Judge Torres and his five assignees then decided to
conduct the election among themselves considering that the 6 of them constitute a
quorum.
ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not the
subsequent election is valid.
HELD: No. The assignment of the shares of stocks did not comply with procedural
requirements. It did not comply with the by laws of TRDC nor did it comply with Section
74 of the Corporation Code. Section 74 provides that the stock and transfer book should
be kept at the principal office of the corporation. Here, it was Judge Torres who was
keeping it and was bringing it with him. Further, his excuse of not ordering the secretary
to make the entries is flimsy. The proper procedure is to order the secretary to make the
entry of said assignment in the book, and if she refuses, Judge Torres can come to court
and compel her to make the entry. There are judicial remedies for this. Needless to say,
the subsequent election is invalid because the assignment of shares is invalid by reason
of procedural infirmity. The Supreme Court also emphasized: all corporations, big or small,
must abide by the provisions of the Corporation Code. Being a simple family corporation
is not an exemption. Such corporations cannot have rules and practices other than those
established by law.

LANUZA VS. COURT OF APPEALS

Lanuza vs. CA
GR No. 131394 | March 28, 2005
Facts:

Petitioners seek to nullify the Court of Appeals Decision in CAG.R. SP No. 414731 promulgated on 18 August 1997, affirming
the SEC Order dated 20 June 1996, and the Resolution2 of the Court of Appeals dated 31 October 1997 which denied
petitioners motion for reconsideration.

In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred (700) founders shares
and seventy-six (76) common shares as its initial capital stock subscription reflected in the articles of incorporation

Onrubia et. al, who were in control of PMMSI registered the companys stock and transfer book for the first time in 1978,
recording thirty-three (33) common shares as the only issued and outstanding shares of PMMSI.

In 1979, a special stockholders meeting was called and held on the basis of what was considered as a quorum of twentyseven (27) common shares, representing more than two-thirds (2/3) of the common shares issued and outstanding.

In 1982, Juan Acayan, one of the heirs of the incorporators filed a petition for the registration of their property rights was
filed before the SEC over 120 founders shares and 12 common shares owned by their father

SEC Hearing Officer: heirs of Acayan were entitled to the claimed shares and called for a special stockholders meeting to
elect a new set of officers.

SEC en banc: affirmed the decision

As a result, the shares of Acayan were recorded in the stock and transfer book.

On May 6, 1992, a special stockholders meeting was held to elect a new set of directors

Onrubia et al filed a petition with SEC questioning the validity of said meeting alleging that the quorum for the said meeting
should not be based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial subscribed
capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation

Petition was dismissed

SC en banc: shares of the deceased incorporators should be duly represented by their respective administrators or heirs
concerned. Called for a stockholders meeting on the basis of the stockholdings reflected in the articles of incorporation for
the purpose of electing a new set of officers for the corporation

1.

Lanuza, Acayan et al, who are PMMSI stockholders, filed a petition for review with the CA, raising the following issues:
whether the basis the outstanding capital stock and accordingly also for determining the quorum at stockholders meetings
it should be the 1978 stock and transfer book or if it should be the 1952 articles of incorporation
(They contended that the basis is the stock and transfer book, not articles of incorporation in computing the quorum)

2.

whether the Espejo decision (decision of SEC en banc ordering the recording of the shares of Jose Acayan in the stock and
transfer book) is applicable to the benefit of Onrubia et al

CA decision:

1.

For purposes of transacting business, the quorum should be based on the outstanding capital stock as found in the articles
of incorporation

2.

To require a separate judicial declaration to recognize the shares of the original incorporators would entail unnecessary
delay and expense. Besides. the incorporators have already proved their stockholdings through the provisions of the articles
of incorporation.

Appeal was made by Lanuza et al before the SC

Lanuza et al contention:

a.

1992 stockholders meeting was valid and legal

b.

Reliance on the 1952 articles of incorporation for determining the quorum negates the existence and

validity of the stock and transfer book Onrubia et al prepared

c.

Onrubia et al must show and prove entitlement to the founders and common shares in a separate and

independent action/proceeding in order to avail of the benefits secured by the heirs of Acayan

Onrubia et als contention, based on the Memorandum: petition should be dismissed on the ground of res judicata

Another appeal was made

Lanuza et als contention: instant petition is separate and distinct from G.R. No. 131315, there being no identity of parties,
and more importantly, the parties in the two petitions have their own distinct rights and interests in relation to the subject
matter in litigation

Onrubia et als manifestation and motion: moved for the dismissal of the case
Issue: What should be the basis of quorum for a stockholders meetingthe outstanding capital stock as indicated in the
articles of incorporation or that contained in the companys stock and transfer book?
Ruling:

Articles of Incorporation

Defines the charter of the corporation and the contractual relationships between the State and the corporation, the

Contents are binding, not only on the corporation, but also on its shareholders.

stockholders and the State, and between the corporation and its stockholders.

Stock and transfer book

Book which records the names and addresses of all stockholders arranged alphabetically, the installments paid and unpaid
on all stock for which subscription has been made, and the date of payment thereof; a statement of every alienation, sale or
transfer of stock made, the date thereof and by and to whom made; and such other entries as may be prescribed by law

necessary as a measure of precaution, expediency and convenience since it provides the only certain and accurate method

Not public record, and thus is not exclusive evidence of the matters and things which ordinarily are or should be written

of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters
therein

In this case, the articles of incorporation indicate that at the time of incorporation, the incorporators
were bona fide stockholders of 700 founders shares and 76 common shares. Hence, at that time, the corporation had 776
issued and outstanding shares.

According to Sec. 52 of the Corp Code, a quorum shall consist of the stockholders representing a majority of the outstanding
capital stock. As such, quorum is based on the totality of the shares which have been subscribed and issued, whether it be
founders shares or common shares

To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer book, and
completely disregarding the issued and outstanding shares as indicated in the articles of incorporation would work injustice
to the owners and/or successors in interest of the said shares.

The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflect
the totality of shares which have been subscribed, more so when the articles of incorporation show a significantly larger
amount of shares issued and outstanding as compared to that listed in the stock and transfer book.

One who is actually a stockholder cannot be denied his right to vote by the corporation merely because the corporate
officers failed to keep its records accurately. A corporations records are not the only evidence of the ownership of stock in
a corporation.

It is no less than the articles of incorporation that declare the incorporators to have in their name the founders and several
common shares. Thus, to disregard the contents of the articles of incorporation would be to pretend that the basic document
which legally triggered the creation of the corporation does not exist and accordingly to allow great injustice to be caused to
the incorporators and their heirs

WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioner

BITONG VS. COURT OF APPEALS

BITONG vs. CA
G.R. No. 123553 July 13, 1998

FACTS:
Alleging before the SEC that she had been the Treasurer and a Member of the Board of
Directors of Mr. & Ms. from the time it was incorporated on 29 October 1976 to 11 April 1989,
and was the registered owner of 1,000 shares of stock out of the 4,088 total outstanding
shares, petitioner Nora Bitong complained of irregularities committed from 1983 to 1987 by
Eugenia Apostol, President and Chairperson of the Board of Directors. Petitioner claimed that
except for the sale of the name Philippine Inquirer to Philippine Daily Inquirer all other
transactions and agreements entered into by Mr. & Ms. with PDI were not supported by any
bond and/or stockholders' resolution. And, upon instructions of Eugenia Apostol, Mr. & Ms.
made several cash advances to PDI on various occasions amounting to P3.276 million. On
some of these borrowings PDI paid no interest whatsoever. Despite the fact that the advances
made by Mr. & Ms. to PDI were booked as advances to an affiliate, there existed no board or

stockholders' resolution, contract nor any other document which could legally authorize the
creation of and support to an affiliate. She further alleged that on 2 May 1986 respondents
Eugenia Apostol, Leticia Magsanoc and Adoracion Nuyda subscribed to PDI shares of stock at
P50,000.00 each or a total of P150,000.00. The stock subscriptions were paid for by Mr. & Ms.
and initially treated, as receivables from officers and employees. But, no payments were ever
received from respondents, Magsanoc and Nuyda. Petitioner then filed a derivative suit
before the SEC allegedly for the benefit of private respondent Mr. & Ms. Publishing Co., Inc.,
against respondent spouses Eugenia Apostol and Jose Apostol.
However, private respondents contended that petitioner, being merely a holder-in-trust of
JAKA shares, only represented and continued to represent JAKA in the board. Private
respondents argued that petitioner was not the true party to this case, the real party being
JAKA which continued to be the true stockholder of Mr. & Ms. Hence, petitioner did not have
the personality to initiate and prosecute the derivative suit which, consequently, must be
dismissed. At the trial, petitioner contends that she became the registered and beneficial
owner of 997 shares of stock of Mr. & Ms. out of the 4,088 total outstanding shares after she
acquired them from JAKA through a deed of sale executed on 25 July 1983 and recorded in
the Stock and Transfer Book of Mr. & Ms. under Certificate of Shares of Stock No. 008. She
pointed out that Senator Enrile decided that JAKA should completely divest itself of its
holdings in Mr. & Ms. and this resulted in the sale to her of JAKA's interest and holdings in
that publishing firm.
Private respondents refuted the statement of petitioner that she was a stockholder of Mr. &
Ms. since 25 July 1983 as respondent Eugenia D. Apostol signed Certificate of Stock No. 008
only on 17 March 1989, and not on 25 July 1983. And, since the Stock and Transfer Book which
petitioner presented in evidence was not registered with the SEC, the entries therein
including Certificate of Stock No. 008 were fraudulent. On 3 August 1993, after trial on the
merits, the SEC Hearing Panel dismissed the derivative suit filed by petitioner. On 25 August
1993 petitioner Bitong appealed to the SEC En Banc. The SEC En Banc reversed the decision
of the Hearing Panel. Consequently, respondent Apostol spouses, Magsanoc, Nuyda, and Mr.
& Ms. filed a petition for review before respondent CA, while respondent Edgardo Espiritu
filed a petition for certiorari and prohibition also before respondent Court of Appeals. Said
two petitions were consolidated. On 31 August 1995 CA rendered a decision reversing the
SEC En Banc and held that petitioner was not the owner of any share of stock in Mr. & Ms.
and therefore not the real party-in-interest to prosecute the complaint she had instituted
against private respondents. For not being the real party-in-interest, petitioner's complaint
did not state a cause of action, a defense which was never waived. Motion for reconsideration
was likewise denied. Hence, this petition.
ISSUE: Whether or not petitioner is a bona fide stockholder of Mr. & Ms. at the time of the
transaction complained of which invests him with standing to institute a derivative action for
the benefit of the corporation.
RULING: Sec. 63 of the Corporation Code envisions a formal certificate of stock which can be
issued only upon compliance with certain requisites. First, the certificates must be signed by
the president or vice-president, countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation. A mere typewritten statement advising a stockholder

of the extent of his ownership in a corporation without qualification and/or authentication

cannot be considered as a formal certificate of stock. Second, delivery of the certificate is an
essential element of its issuance. Hence, there is no issuance of a stock certificate where it is
never detached from the stock books although blanks therein are properly filled up if the
person whose name is inserted therein has no control over the books of the company. Third,
the par value, as to par value shares, or the full subscription as to no par value shares, must
first be fully paid. Fourth, the original certificate must be surrendered where the person
requesting the issuance of a certificate is a transferee from a stockholder.
The certificate of stock itself once issued is a continuing affirmation or representation that
the stock described therein is valid and genuine and is at least prima facie evidence that it
was legally issued in the absence of evidence to the contrary. However, this presumption may
be rebutted. Similarly, books and records of a corporation which include even the stock and
transfer book are generally admissible in evidence in favor of or against the corporation and
its members to prove the corporate acts, its financial status and other matters including one's
status as a stockholder. They are ordinarily the best evidence of corporate acts and
proceedings. However, the books and records of a corporation are not conclusive even
against the corporation but are prima facie evidence only. Parol evidence may be admitted
to supply omissions in the records, explain ambiguities, or show what transpired where no
records were kept, or in some cases where such records were contradicted. The effect of
entries in the books of the corporation which purport to be regular records of the proceedings
of its board of directors or stockholders can be destroyed by testimony of a more conclusive
character than mere suspicion that there was an irregularity in the manner in which the books
were kept. These considerations are founded on the basic principle that stock issued without
authority and in violation of law is void and confers no rights on the person to whom it is
issued and subjects him to no liabilities. Where there is an inherent lack of power in the
corporation to issue the stock, neither the corporation nor the person to whom the stock is
issued is estopped to question its validity since an estopped cannot operate to create stock
which under the law cannot have existence.
Petitioner in her reply admitted that while respondent Eugenia D. Apostol signed the
Certificate of Stock No. 008 in petitioner's name only in 1989, it was issued by the corporate
secretary in 1983 and that the other certificates covering shares in Mr. & Ms. had not yet
been signed by respondent Eugenia D. Apostol at the time of the filing of the complaint with
the SEC although they were issued years before. Based on this admission of petitioner, there
is no truth to the statement written in Certificate of Stock No. 008 that the same was issued
and signed on 25 July 1983 by its duly authorized officers specifically the President and
Corporate Secretary because the actual date of signing thereof was 17 March 1989. Verily, a
formal certificate of stock could not be considered issued in contemplation of law unless
signed by the president or vice-president and countersigned by the secretary or assistant
secretary. In this case, contrary to petitioner's submission, the Certificate of Stock No. 008
was only legally issued on 17 March 1989 when it was actually signed by the President of the
corporation, and not before that date. While a certificate of stock is not necessary to make
one a stockholder, e.g., where he is an incorporator and listed as stockholder in the articles
of incorporation although no certificate of stock has yet been issued, it is supposed to serve
as paper representative of the stock itself and of the owner's interest therein. Hence, when
Certificate of Stock No. 008 was admittedly signed and issued only on 17 March 1989 and not

on 25 July 1983, even as it indicates that petitioner owns 997 shares of stock of Mr. & Ms.,
the certificate has no evidentiary value for the purpose of proving that petitioner was a
stockholder since 1983 up to 1989.
The basis of a stockholder's suit is always one in equity. However, it cannot prosper without
first complying with the legal requisites for its institution. The most important of these is
the bona fide ownership by a stockholder of a stock in his own right at the time of the
transaction complained of which invests him with standing to institute a derivative action for
the benefit of the corporation. WHEREFORE, the petition is DENIED.

LAO VS. LAO

ESCANO VS. FILIPINAS MINING CORP

G.R. No. L-49003

July 28, 1944

ANTONIO ESCAO, plaintiff-appellee,

vs.
FILIPINAS MINING CORPORATION, ET Al., defendants.
STANDARD INVESTMENT OF THE PHILIPPINES, appellant.
Jose P. Bengzon for appellant.
Matias E. Vergara and Jose Ma. Reyes for appellee.
OZAETA, J.:
This case was submitted to and decided by the Court of First Instance of Manila upon an agreed
statement of facts which may be restated as follows:
On March 8, 1937, the plaintiff-appellee obtained judgment in the Court of First Instance of
Manila against Silverio Salvosa whereby the latter was ordered to transfer and deliver to the
former 116 active shares and an undetermined number of shares in escrow of the Filipinas
Mining Corporation and to pay the sum of P500 as damages, with the proviso that the escrow
shares shall be transferred and delivered to the plaintiff only after they shall have been released
by the company. On June 25, 1937, a writ of garnishment was served by the sheriff of Manila
upon the Filipinas Mining Corporation to satisfy the said judgment; and on July 29, 1937, the
Filipinas Mining Corporation advised the sheriff of Manila that according to its books the
judgment debtor Silverio Salvosa was the registered owner of 1,000 active shares and about
21,339 unissued shares held in escrow by the said corporation. The sheriff sold the 1,000 active
shares at public auction, realizing therefrom only the sum of P10, which was applied in partial
satisfaction of the judgment for damages in the sum of P500.
The present case, which was instituted by Antonio Escao against the Filipinas Mining
Corporational and the Standard Investment of the Philippines, relates to the escrow shares
involved in the garnishment proceeding above mentioned. It appears that after the complaint in
the original case of Escao vs. Salvosa was filed but before judgment we as rendered therein,

that lis to say, on November 21, 1936, Silverio Salvosa sold to Jose P. Bengzon all his right, title,
and interest in and to 18,580 shares of stock of the Filipinas Mining Corporation held in escrow
which the said Salvosa was entitled to receive, and which Bengzon in turn subsequently sold and
transferred to the present defendant-appellant, Standard Investment of the Philippines. Neither
Salvosa's sale to Bengzon nor Bengzon's sale to the Standard Investment of the Philippines was
notified to and recorded in the books of the Filipinas Mining Corporation until December 7, 1940,
that is to say, more than three years after the escrow shares in question were attached by
garnishment served on the Filipinas Mining Corporation as hereinbefore set forth. On January
24, 1941, the defendant Filipinas Mining Corporation issued in favor of the defendant Standard
Investment of the Philippines certificate of stock for the 18,580 shares formerly held in escrow by
Silverio Salvosa and which had been adversely by the present plaintiff-appellee on the one hand
and the Standard Investment of the Philippines on the other, the first by virtue of garnishment
proceedings and the second by virtue of the sale made to it by Jose P. Bengzon as aforesaid.
The question to determine is whether the issuance by the Filipinas Mining Corporation of the said
18,580 shares of its stock to the Standard Investment of the Philippines was valid as against the
attaching judgment creditor of the original owner, Silverio Salvosa, namely, the present plaintiffappellee Antonio Escao.
In addition to the above stipulated facts, the trial court found from the supplementary oral
evidence adduced by the plaintiff "that several promises were made by the secretary of the
defendant Filipinas Mining Corporation that as soon as the escrow shares pertaining to Silverio
Salvosa were released he (the secretary) would notify the plaintiff so that the latter might take the
proper action for the execution of the judgment rendered in the said case entitled "Antonio
Escao vs. Silverio Salvosa," civil case No. 50575 of the Court of First Instance of Manila. But
the secretary, instead of complying with his promises, issued the escrow shares to the defendant
Standard Investment of the Philippines . . ."
The trial court held that the transfer of the escrow shares in question from Salvosa to Bengzon
and from Bengzon to the Standard Investment of the Philippines, not having been recorded in the
books of the corporation as required by section 35 of the Corporation Law, could not prevail over
the garnishment previously made by the plaintiff of the said shares, and rendered judgment
"ordering the defendants Filipinas Mining Corporation and the Standard Investment of the
Philippines to issue to the plaintiff out of the escrow shares which formerly belonged to Silverio
Salvosa, 4,152 shares of the Filipinas Mining Corporation and to pay to him the dividends which
have been and may be declared on said shares until the delivery thereof to the plaintiff; and
ordering the sheriff to levy execution on the remaining shares which formerly belonged to Silverio
Salvosa in order to satisfy the balance of the judgment rendered in the civil case entitled "Antonio
Escao vs. Silverio Salvosa," civil case No. 50575 of the Court of First Instance of Manila, with
costs against the defendants." From that judgment the Standard Investment of the Philippines
has appealed to this Court and makes the following assignment of errors:
1. The trial court erred in holding that section 35 of Act 14599 and the doctrine laid down
in the case ofUson vs. Diosomito, 61 Phil., 535, are applicable to the case at bar.
2. The trial court erred in "ordering the sheriff to levy execution on the remaining shares
of the 18,580 shares to satisfy the balance of the judgment rendered in civil case No.
50575 of the Court of First Instance of Manila"; and in not holding that because of the
delay or neglect for an unreasonable length of time by the plaintiff to enforce his
execution, the 18,580 shares affected in this litigation has been discharged thru his
waiver or abandonment.
1. Sections 431 and 432 of the Code of Civil Procedure (now sections 7 and 8 of Rule 59), which
were in force at the time the garnishment in question was served on the defendant Filipinas
Mining Corporation, provide as follows:

Sec. 431. Executing Order of Attachment as to debts and Credits. Debts and credits,
and other personal property not capable of manual delivery, shall be attached by leaving
with the person owing such debts or having in his possession or under his control, such
credits and other personal property, a copy of the order of attachment and a notice that
the debts owing by him to the defendant, or the credits and other personal property in his
possession or under his control, belonging to the defendant, are attached in pursuance of
such order.
Sec. 432. Effect of Attachment of Debts and Credits. All persons having in their
possession or under their control any credits or other personal property belonging to the
defendant, or owing any debts to the defendant at the time of service upon them of a
copy of the order of attachment and notice as provided in the last section, shall be,
unless such property be delivered up or transferred, or such debts be paid to the clerk of
the court in which the action is pending, liable to the plaintiff for the amount of such
credits, property, or debts, until the attachment be discharged, or any judgment
recovered by him be satisfied."
Under the section last above quoted, the Filipinas Mining Corporation became liable to the
plaintiff for the shares of stock mentioned in its return to the sheriff of July 29, 1937, wherein it
informed the latter in response to the notice of garnishment "that according to its books said
Silverio Salvosa was the registered owner of 1,000 active shares evidence by certificate of stock
No. 235 and about 21,338 unissued shares held in escrow by the defendant Filipinas Mining
Corporation."
Counsel for the appellant Standard Investment of the Philippines contends that a distinction
should be drawn between issued shares evidenced by certificates of stock and unissued shares
held in escrow, in that while the transfer of the former is subject to the restriction contained in
section 35 of the Corporation Law, that of the latter is not. The said section, insofar as pertinent
here, reads as follows:
. . . Shares of stock so issued are personal property and may be transferred by delivery
of the certificate indorsed by the owner or his attorney in fact or other person legally
authorized to make the transfer. No transfer, however, shall be valid, except as between
the parties, until the transfer is entered and noted upon 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 transferred.
It is admitted that under this legal provision and the decision of this Court in Uson vs. Diosomito,
61 Phil. 535, the transfer of duly issued shares of stock is not valid as against third parties and
the corporation until it is noted upon the books of the corporation; but it is contended that the
transfer of unissued shares of stock held in escrow is valid against the whole world although not
notified to the corporation and not noted upon its books. Since the sale, transfer, or assignment
of unissued shares of stock held in escrow is not specifically provided for by law, the question
has to be resolved by resorting to analogy. What is the reason of the law for requiring the
recording upon the books of the corporation of transfers of shares of stock as a condition
precedent to their validity against the corporation, and third parties? We imagine that it is (1) to
enable the corporation to know at all times who its actual stockholders are, because mutual
rights and obligations exist between the corporation and its stockholders; (2) to afford to the
corporation an opportunity to object or refuse its consent to the transfer in case it has any claim
against the stock sought to be transferred, or for any other valid reason; and (3) to avoid fictitious
or fraudulent transfers. Do these reasons hold as to the transfer of unissued shares held in
escrow? To sustain appellant's contention is to declare that they do not. But we see no valid
reason for treating unissued shares held in escrow differently from issued shares insofar as their
sale and transfer is concerned. In both cases the corporation is entitled to know who the actual
owners of the shares are, and to object to the transfer upon any valid ground. Likewise, in both
cases the possibility of fictitious or fraudulent transfers exists. The only reason advanced by the
appellant for exempting the transfer of unissued shares from recording is that in case of unissued

shares there is no certificate number to be recorded. But that is a mere detail which does not
affect the reasons behind the rule. The lack of such detail does not make it impossible to record
the transfer upon the books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, and the number of shares transferred, which are the most
essential data. As a matter of fact, the defendant Filipinas Mining Corporation was able to take
not of the transfer of the escrow shares in question to the Standard Investment of the Philippines
on December 7, 1940, without knowing the certificate number that would correspond to said
shares.
Moreover, it seems illogical and unreasonable to hold that inactive or unissued shares still held
by the corporation in escrow pending receipt of authorization from the Government to issue them,
may be negotiated or transferred unrestrictedly and more freely than active or issued shares
evidenced by certificates of stock.
We are, therefore, of the opinion and so hold that section 35 of the Corporation Law, which
requires the registration of transfers of shares stock upon the books of the corporation as a
condition precedent to their validity against the corporation and third parties, is also applicable to
unissued shares held by the corporation in escrow.
2. Under its second assignment of error appellant contends that appellee has been guilty of
laches in neglecting for an unreasonable length of time to enforce its levy on the 18,580 shares
of stock in question by having them sold at public auction, and that, consequently, said levy
should be considered discharged through waiver or abandonment. We find no factual basis for
the alleged laches and abandonment. The trial court found that the secretary of the defendant
Filipinas Mining Corporation had repeatedly promised the plaintiff that he would notify the latter
as soon as the escrow shares pertaining to Silverio Salvosa were released so that he ((plaintiff)
might take the proper action for the execution of his judgment. The Filipinas Mining Corporation
having advised the sheriff that it was holding the escrow shares of the judgment debtor Silverio
Salvosa, the plaintiff as execution creditor had the right to wait for the release or issuance of said
shares before having the same sold at public auction, so long as the period of five years within
which to execution his judgment had not yet lapsed. Moreover, the judgment itself provided "that
the escrow shares shall be transferred and delivered to the plaintiff only after they have been
released by the company." It is stated in the stipulation of facts that it was only after shares in
favor of the Standard Investment of the Philippines that the plaintiff Antonio Escao came to
know that Jose P. Bengzon and the Standard Investment of the Philippines had acquired Silverio
Salvosa's rights to the shares in question. Upon these facts, together with the consideration that
the delay had not in any way misled the appellant to its prejudice, we find appellant's second
assignment of error untenable.
The judgment appealed from is affirmed, with costs.

TAN VS. SECURITIES AND EXCHANGE COMMISSION

FACTS:

October 1, 1979: Visayan Educational Supply Corp.

As incorporator, Alfonso S. Tan had 400 shares of the capital stock at the par value of P100/share,
evidenced by Certificate of Stock No. 2

elected as President until 1982

Board of Directors as director until April 19, 1983

January 31, 1981: incorporators Antonia Y. Young and Teresita Y. Ong, withdrew by assigning to the
corp. their shares, represented by certificate of stock No. 4 and 5, they were paid 40% corporate stockin-trade

Certificate of stock No. 2 was cancelled by the corporate secretary and Patricia Aguilar by virtue of
Resolution No. 1981 which was passed and approved while he was still a member of the BOD

Due to the withdrawal of the 2 incorporators and in order to complete the membership of the 5
directors of the board, he sold 50 shares out of his 400 shares of capital stock to his brother Angel S.
Tan

Another incorporator, Alfredo B. Uy, also sold 50 of his 400 shares of capital stock to Teodora S. Tan

March 27, 1981: Angel Tan was elected director and on March 27, 1981

Certificate of Stock No. 2 was cancelled and the Certificates Nos. 6 in the name of Angel S. Tan and
8 in the name of Alfonso S. Tan, Mr. Buzon were issued and delivered (stock split), signed by the
newly elected fifth member of the Board, Angel S. Tan as VP, upon instruction of Alfonso S. Tan who
was then the president

Alfonso S. Tan was given back Stock Certificate No. 2 for him to endorse and he
deliberately withheld it for reasons of his own - so as if no delivery

Certificate of Stock No. 8 was delivered to Tan Su Ching

January 29, 1983: Tan Su Ching was elected as President, Tan as VP but did not sign the minutes

February 27, 1983: dislodged from his position as president, he withdrew from the corporation paid
with stock-in-trade corresponding to 33.3% par value of P35,000.00

April 19, 1983: Board meeting cancelled Stock Certificate Nos. 2 and 8 and minutes submitted to SEC

December 3, 1983: Alfonso S. Tan filed the SEC case questioning for the first time, the cancellation
of Stock Certificates Nos. 2 and 8

No transfer, however, shall be valid, except as between the parties, until the transfer is recorded to the
books of the corporation so as to show the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of shares transferred.

SEC. 63. Certificate of stock and transfer of shares. The capital stock and stock and corporations
shall be divided into shares for which certificates signed by the president and vice president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall
be issued in accordance with the by-laws. Shares of stocks so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or
other person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation so as to show the
names of the parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.
No shares of stocks against which the corporation holds any unpaid claim shall be transferable in

the
books of the corporations.

SEC: held cancellation of the shares of stock - void

SEC en banc: overturned - nullity of the sale of 350 shares represented under stock certification No. 8,

pursuant to the "in pari delicto" doctrine.

ISSUE: W/N transfer is valid w/o delivery

HELD: YES. Affirmed.

Alfonso S. Tan devised the scheme of not returning the cancelled Stock Certificate No. 2 which was
returned to him for his endorsement, to skim off the largesse of the corporation as shown by the
trading of his Stock Certificate No. 8 for goods of the corporation valued at P2M when the par value
of the same was only worth P35K

He also used this scheme to renege on his indebtedness to respondent Tan Su Ching in the amount of
P1 million

valid transfer even if no delivery

certificate of stock is not a negotiable instrument

Although it is sometimes regarded as quasi-negotiable, in the sense that it may be transferred by

endorsement, coupled with delivery, it is well-settled that it is non-negotiable, because the holder
thereof takes it without prejudice to such rights or defenses as the registered owner/s or transferror's
creditor may have under the law, except insofar as such rights or defenses are subject to the limitations
imposed by the principles governing estoppel.

negotiable instrument

either indorsement + delivery or delivery = holder in due course = better right than real owner

certificate of stock = owner better right

transfer

valid between parties

recorded in the books - to bind others including the corporation

NOTE: Although there are 4 types of transactions, only transfer is recorded in the stocks and transfer
books.

paper representative or tangible evidence of the stock itself and of the various interests therein

not necessary to render one a stockholder in corporation

since stocks were already cancelled and reported to the respondent Commission, there was no
necessity to endorse

All the acts required for the transferee to exercise its rights over the acquired stocks were attendant
and even the corporation was protected from other parties, considering that said transfer was earlier
recorded or registered in the corporate stock and transfer book

VILLAMOR VS. UMALE