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1) Plaintiff Enrique Monserrat owned shares in Manila Yellow Taxicab that he assigned usufruct of half the shares to Defendant Carlos Ceron for financial aid.
2) Ceron later mortgaged the shares to Defendant Erma Inc. through its president Matute to secure a loan, but did not inform Matute of the usufruct conditions.
3) The Court held that registering a share mortgage in the corporation's stock book is not required for the mortgage to be valid and enforceable against third parties. Only transfers of absolute ownership, not conditional transfers like mortgages, must be recorded.
4) As Erma/Matute were third party pledgees acting in good faith
1) Plaintiff Enrique Monserrat owned shares in Manila Yellow Taxicab that he assigned usufruct of half the shares to Defendant Carlos Ceron for financial aid.
2) Ceron later mortgaged the shares to Defendant Erma Inc. through its president Matute to secure a loan, but did not inform Matute of the usufruct conditions.
3) The Court held that registering a share mortgage in the corporation's stock book is not required for the mortgage to be valid and enforceable against third parties. Only transfers of absolute ownership, not conditional transfers like mortgages, must be recorded.
4) As Erma/Matute were third party pledgees acting in good faith
1) Plaintiff Enrique Monserrat owned shares in Manila Yellow Taxicab that he assigned usufruct of half the shares to Defendant Carlos Ceron for financial aid.
2) Ceron later mortgaged the shares to Defendant Erma Inc. through its president Matute to secure a loan, but did not inform Matute of the usufruct conditions.
3) The Court held that registering a share mortgage in the corporation's stock book is not required for the mortgage to be valid and enforceable against third parties. Only transfers of absolute ownership, not conditional transfers like mortgages, must be recorded.
4) As Erma/Matute were third party pledgees acting in good faith
Defendants: Carlos G Ceron et al and Erma Inc Ponencia: Villa-real, J Doctrine: the third person pledgee who took the shares in good faith and for value is preferred since registration of the mortgage (a security arrangement) covering shares of stock does not require that it be registered in the stock book for validity and enforceability. Facts: 1. Monserrat, president and manager of Manila Yellow taxicab owned 1200 common shares. Because of the financial aid in the organization of the corp by Ceron, he assigned the usufruct of half the shares to Ceron. 2. The stock certificate was issued in the name of Ceron, it had the condition that it gave the transferee the right to enjoy the profits of the shares but prohibiting him to sell, mortgage or any act implying ownership, the transferor having reserved the right to vote and recover ownership at the end of usufruct (Exhibit A). Such stock was recorded in the name of Ceron. 3. Defendants allege that Matute as president of Erma inc appeared in Monserrats office and Ceron showed the stock book of the corporation, Matute did not see the annotation of Exhibit A, which was executed 2 months after the execution of the original certificate. Upon instructions by Monserrat, Ceron did not make any notation in the stock book in the same day it is to be sold at auction to matute. 4. Ceron mortgaged the shares to Matute for 30000. Ceron endorsed the certificate to Matute which he has been in possession ever since. However Ceron did not inform Matute of the existence of
Exhibit A. Ceron informed Monserrat about the
mortage.
Issue: WON it is necessary to enter in the corp books the
mortgage constituted on common shares in order that the mortgage may be valid and enforceable against third persons Held: NO. Only those that are considered transfers are to be recorded in the stock books. Transfers Transfers under sec 35 of the corp code states that no transfer shall be valid except as between parties until it is entered and noted upon the corp books so as to show the parties and the date and number of certificate. The provision does not require any entry except transfers of shares of stock in order for such to be valid against third persons. Since no special meaning is given to the word, it is construed in its ordinary practice. Transfer means to assign the right of absolute ownership of a thing in favor of another. Is mortgage considered a transfer? Chattel mortgage is considered a conditional sale of personal property as security. The sale will be avoided upon paying the sum of money or performance of an act. Although it accompanies delivery and transfer of title and ownership, such transfer is not absolute but constitutes a mere security. As compared to transfer which is an act in which the owner delivers it to another with intent of passing the rights which he has,chattel mortgage is not within its meaning. Therefore the mortgage is not considered the transfer referred to in sec 35. Only transfers of absolute conveyance of ownership are needed to be entered and noted upon the books of corporation to be valid. Since a chattel mortgage is not an absolute alienation of
domination and ownership, it is not necessary to note
it in the books of the corporation. Third person in good faith and for value Evidence shows that Matute did not know of Exhibit A when it was shown to him by Ceron. Ceron stated that he said nothing about the lien for fear that he could not obtain the loan applied for. Exhibit A was only placed there on the
same day of selling in public auction. Since he is a
conditional purchaser in good faith, he is entitled to protection of the law. Disposition: Erma Inc is absolved from the complaint.