3.

Sale, lease, exchange, mortgage, pledge or other

disposition of all or substantially all of the corporate
property;
4.
Incurring,
creating
or
increasing
bonded
indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with
another corporation or other corporations;
7. Investment of corporate funds in another
corporation or business in accordance with this Code;
and
8. Dissolution of the corporation.

2. Classes of Shares
Classification of Shares
Sec. 6. Classification of shares. - The shares of
stock of stock corporations may be divided into classes
or series of shares, or both, any of which classes or
series of shares may have such rights, privileges or
restrictions as may be stated in the articles of
incorporation: Provided, That no share may be
deprived of voting rights except those classified and
issued as "preferred" or "redeemable" shares, unless
otherwise provided in this Code: Provided, further, That
there shall always be a class or series of shares which
have complete voting rights. Any or all of the shares or
series of shares may have a par value or have no par
value as may be provided for in the articles of
incorporation: Provided, however, That banks, trust
companies, insurance companies, public utilities, and
building and loan associations shall not be permitted to
issue no-par value shares of stock.

Republic Planters Bank vs. Agana

[GR 51765, 3 March 1997]
Facts: On 18 September 1961, the Robes-Francisco
Realty & Development Corporation (RFRDC) secured a
loan from the Republic Planters Bank in the amount of
P120,000.00. As part of the proceeds of the loan,
preferred shares of stocks were issued to RFRDC
through its officers then, Adalia F. Robes and one Carlos
F. Robes. In other words, instead of giving the legal
tender totaling to the full amount of the loan, which is
P120,000.00, the Bank lent such amount partially in
the form of money and partially in the form of stock
certificates numbered 3204 and 3205, each for 400
shares with a par value of P10.00 per share, or for
P4,000.00 each, for a total of P8,000.00. Said stock
certificates were in the name of Adalia F. Robes and
Carlos F. Robes, who subsequently, however, endorsed
his shares in favor of Adalia F. Robes.

Preferred shares of stock issued by any corporation

may be given preference in the distribution of the
assets of the corporation in case of liquidation and in
the distribution of dividends, or such other preferences
as may be stated in the articles of incorporation which
are not violative of the provisions of this Code:
Provided, That preferred shares of stock may be issued
only with a stated par value. The board of directors,
where authorized in the articles of incorporation, may
fix the terms and conditions of preferred shares of
stock or any series thereof: Provided, That such terms
and conditions shall be effective upon the filing of a
certificate thereof with the Securities and Exchange
Commission.

Said certificates of stock bear the following terms and

conditions: "The Preferred Stock shall have the
following rights, preferences, qualifications and
limitations, to wit: 1. Of the right to receive a quarterly
dividend of 1%, cumulative and participating. xxx 2.
That such preferred shares may be redeemed, by the
system of drawing lots, at any time after 2 years from
the date of issue at the option of the Corporation." On
31 January 1979, RFRDC and Robes proceeded against
the Bank and filed a complaint anchored on their
alleged rights to collect dividends under the preferred
shares in question and to have the bank redeem the
same under the terms and conditions of the stock
certificates. The bank filed a Motion to Dismiss 3
private respondents' Complaint on the following
grounds: (1) that the trial court had no jurisdiction over
the subject-matter of the action; (2) that the action
was unenforceable under substantive law; and (3) that
the action was barred by the statute of limitations
and/or laches. The bank's Motion to Dismiss was
denied by the trial court in an order dated 16 March
1979. The bank then filed its Answer on 2 May 1979.
Thereafter, the trial court gave the parties 10 days
from 30 July 1979 to submit their respective
memoranda after the submission of which the case
would be deemed submitted for resolution. On 7
September 1979, the trial court rendered the decision
in favor of RFRDC and Robes; ordering the bank to pay
RFRDC and Robes the face value of the stock
certificates as redemption price, plus 1% quarterly
interest thereon until full payment. The bank filed the

Shares of capital stock issued without par value shall

be deemed fully paid and non-assessable and the
holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto:
Provided; That shares without par value may not be
issued for a consideration less than the value of five
(P5.00) pesos per share: Provided, further, That the
entire consideration received by the corporation for its
no-par value shares shall be treated as capital and
shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for
the purpose of insuring compliance with constitutional
or legal requirements.
Except as otherwise provided in the articles of
incorporation and stated in the certificate of stock,
each share shall be equal in all respects to every other
share.
Where the articles of incorporation provide for nonvoting shares in the cases allowed by this Code, the
holders of such shares shall nevertheless be entitled to
vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;

petition for certiorari with the

essentially on pure questions of law.

Supreme

Court,
NIELSON V. LEPANTO CONSOLIDATED

Issue:

FACTS: Appellant Nielson & Co. Inc. and Appellee

Lepanto Consolidated Mining Co. entered a contract
whereby appellant Nielson agreed for a period of five
years, with the right to renew for a like period, to
explore, develop and operate the mining claims of
Lepanto and to mine, or mine or mill, such pay ore as
may be found therein and to market the metallic
products recovered therefrom which may prove to be
marketable, as well as to render for Lepanto other
services specified in the contact. It thus appear that
the principal and paramount undertaking of Nielson
under the management contract was the operation and
development of the mine and operation of the mill.
Nielson would receive 10% of any dividends declared
and paid, when and as paid, Nielson should be paid
10% of the stock dividends declared by Lepanto during
the period of the extension of contract.

1.
Whether the bank can be compelled to
redeem the preferred shares issued to RFRDC
and Robes.
2.
Whether RFRDC and Robes are entitled
to the payment of certain rate of interest on
the stocks as a matter of right without
necessity of a prior declaration of dividend.
Held:
1. While the stock certificate does allow redemption,
the option to do so was clearly vested in the bank. The
redemption therefore is clearly the type known as
"optional". Thus, except as otherwise provided in the
stock certificate, the redemption rests entirely with the
corporation and the stockholder is without right to
either compel or refuse the redemption of its stock.
Furthermore, the terms and conditions set forth therein
use the word "may". It is a settled doctrine in statutory
construction that the word "may" denotes discretion,
and cannot be construed as having a mandatory effect.
The redemption of said shares cannot be allowed. The
Central Bank made a finding that the Bank has been
suffering from chronic reserve deficiency, and that
such finding resulted in a directive, issued on 31
January 1973 by then Gov. G. S. Licaros of the Central
Bank, to the President and Acting Chairman of the
Board of the bank prohibiting the latter from
redeeming any preferred share, on the ground that
said redemption would reduce the assets of the Bank
to the prejudice of its depositors and creditors.
Redemption of preferred shares was prohibited for a
just and valid reason. The directive issued by the
Central Bank Governor was obviously meant to
preserve the status quo, and to prevent the financial
ruin of a banking institution that would have resulted in
adverse repercussions, not only to its depositors and
creditors, but also to the banking industry as a whole.
The directive, in limiting the exercise of a right granted
by law to a corporate entity, may thus be considered
as an exercise of police power.

ISSUE: WON the Court erred in ordering Lepanto to

issue and deliver to Nielson shares of stock together
with fruits thereof.
RULING:
The term dividend both in the
technical sense and its ordinary acceptation, is that
part or portion of the profits, of the enterprise which he
corporation, by its governing agents, sets apart for
ratable division among the holders of the capital stock.
It means the fund actually set aside, and declared by
the directors of the corporation as a dividends, and
duly ordered by the director, or by the stockholders at
a corporate meeting, to be divided or distributed
among the stockholders according to their respective
interests.
It is Our considered view, therefore,
that under Sec. 16 of the Corporation Law stock
dividends cannot be issued to a person who is not a
stockholder in payment of services rendered. And so, in
the case at bar Nielson can not be paid in shares of
stock which form part of the stock dividends of Lepanto
for services rendered under the management contract.
We sustain the contention of Lepanto that the
understanding between Lepanto and Nielson was
simply to make the cash value of the stock dividends
declared as the basis for determining the amount of
compensation that should be paid to Nielson, in the
proportion of 10% of the cash value of the stock
dividends declared.

2. Both Section 16 of the Corporation Law and Section

43 of the present Corporation Code prohibit the
issuance of any stock dividend without the approval of
stockholders, representing not less than two-thirds
(2/3) of the outstanding capital stock at a regular or
special meeting duly called for the purpose. These
provisions underscore the fact that payment of
dividends to a stockholder is not a matter of right but a
matter of consensus. Furthermore, "interest bearing
stocks", on which the corporation agrees absolutely to
pay interest before dividends are paid to common
stockholders, is legal only when construed as requiring
payment of interest as dividends from net earnings or
surplus only. In compelling the bank to redeem the
shares and to pay the corresponding dividends, the
Trial committed grave abuse of discretion amounting to
lack or excess of jurisdiction in ignoring both the terms
and conditions specified in the stock certificate, as well
as the clear mandate of the law.

The consideration for which shares of

stock may be issued are: (1) cash; (2) property; and (3)
undistributed profits.
Commissioner of internal revenue vs. court of
appeals
Facts:
ANSCOR started out with P1,000,000.00
capitalization dived to 10,000 shares. Don Andres
subscribed to 4,963 shares of 5,000 original shares
issued. September 1945, ANSCOR increased its
Authorized capital stock to P2.5M divided to 25,000

shares, and don Andres subscribed to 10,000 shares

making his shares 14,962. A month later he gave his
two sons 1,250 shares each. When don Andres died he
left 180,000(plus) shares. Half of which was given to
his wife and half went to his estate. Feb 1968, NASCOR
increased it capital stock to 75M divided into
150,000.00 shares wherein it was divided to common
and preferred shares. The wife of Don Andres wants to
exchange her common shares to preferred shares
which was granted by ANSCOR. ANSCOR then
repurchase on two occasions Common shares of Don
Andres. Upon examination of books of ANSCOR the BIR
sought for recovery of income tax on the redeemed or
repurchase common shares.

Issue:
what is the responsibility of the directors when
they know that there is an outstanding debt existing
between the corporation and its creditors?
Held:
Creditors of a corporation have the right to
assume that so long as there are outstanding debts
and liabilities, the board of directors will not use the
assets of the corporation to purchase its own stock,
and that it will not declare dividends to stockholders
when the corporation is insolvent. Therefore Gregorio
Et al is required to pay.

Issue:

Baltazar Vs. Lingayen gulf

Whether ANSCOR's redemption of stocks from

its stockholder as well as the exchange of common
with preferred shares can be considered as "essentially
equivalent to the distribution of taxable dividend"
making the proceeds thereof taxable under the
provisions of the above-quoted law.

Facts:
Ireneo Baltazar subscribed 600 shares from Lingayen
Gulf Electric Power Corporation (now referred to as
corporation). It has been a practice of the corporation
to issue a certificate of stock even if the unpaid
balance in subscription contract is not yet fully paid.
Irineo was able to pay 300 shares out of 600. When
the new Board of directors were elected, they adopted
a resolution, as stated in the said resolution those
subscribers which has outstanding balance, will not be
able to exercise their right to vote until they fully pay
was is due. Hence this petition.

Held:
As a general rule A stock dividend
representing the transfer of surplus to capital account
shall not be subject to tax. Except in cases of
redemption or cancellation of stock dividends which is
essentially equivalent to a distribution of taxable
dividends making the proceed thereof taxable income.
If the source is the original capital subscription upon
establishment of the corporation or from initial capital
investment in an existing enterprise, its redemption to
the concurrent value of acquisition may not be
considered as income but a mere return of capital. On
the contrary, if the redeemed shares are from stock
dividend declaration other than as initial capital
investment, the proceeds of the redemption is
ADDITIONAL WEALTH, for it is not merely a return of
capital but a gain thereon. Applying the rule in the
case, the original common shares owned by the estate
were only 25,4247.5. Since there was subsequent
increased in the capital stocks, the redeemed shares to
the extent of 80T plus by ANSCOR was made out of
corporate profits such as stock dividend. Therefore it
will be subjected to income tax.

Issue:
If a stockholder who subscribed and pays only
partially, for which he was issued a certificate of stock,
is he entitled to vote?
Held:
If a stockholder, in a stock corporation
subscribes to a certain number of shares of stock, and
makes partial payments for which he is issued
certificates of stock, he is entitled to vote the latter,
notwithstanding the fact that he has not paid the
balance of his subscription which has been called for
payment or declared delinquent. If the entire
subscribed shares of stock are not paid, the paid
shares of stock may not be deprived of the right to
vote, until the entire subscribed shares of stock are
fully paid, including interest.

Steinberg vs Velasco
Chua Guan v. Samahang Magsasaka
Facts: Steinberg is the Receiver of the Sibuguey Trading
Company, Incorporated, he seeking to make
GREGORIO VELASCO, ET AL (as officers of the said
corporation i.e board of directors) for the amount they
approved to be paid for the acquisition of the
corporations own shares that came from their retired
stockholders where in fact there is an existing debt by
the corporations to its creditors. Gregorio et al. alleged
that the purchase of the shares was for the purpose of
increasing the recievables of the corporation. However,
there was a finding that, Gregorio et al, approve or
made a resolution for such acquisition when they know
that their recievables will not cover the amount of debt
and yet they still continue to use the money of the
corporation to repurchase the stocks of the corporation
released to its retired stockholders.

Facts: Gonzalo H. Co Toco, is the owner of 5,894

shares of the capital stock of Samahang Magsasaka
Inc. represented by 9 certificates having a par value of
P5 per share mortgaged said shares to Chua Chiu to
guarantee the payment of a debt. The said certificates
of stock were delivered with the mortgage to the
mortgagee, Chua Chiu. The said mortgage was duly
registered in the office of the registered of deeds of
Manila and in the office of the said corporation. Chua
Chiu assigned all his right and interest in said
mortgage to the Chua Guan and the assignment in the
office of the register of deeds in the City of Manila and
in the office of the said corporation.
Co Toco defaulted in the payment of said debt at
maturity and Chua Guan foreclosed said mortgage and

delivered the certificates of stock and copies of the

mortgage and assignment to the sheriff of the City of
Manila in order to sell the said shares at public auction.
The plaintiff having been the highest bidder, the sheriff
executed in his favor a certificate of sale of said shares.
The plaintiff tendered the certificates of stock standing
in the name of Co Toco to the proper officers of the
corporation for cancellation and demanded that they
issue new certificates in the name of Chua Guan but
the officers refused to issue.
An action for writ of mandamus was filed, praying that
the defendants transfer the said 5,894 shares of stock
to the plaintiff by canceling the old certificates and
issuing new ones in their stead. As special defense, the
defendants refused to cancel said certificates and to
issue new ones in the name of Chua Guan because
prior to the date of the latters demand, 9 attachments
had been issued and served and noted on the books of
the corporation against Co Tocos shares and Chua
Guan objected to having these attachments noted on
the new certificates which he demanded.
Issue: Whether or not the mortgage takes priority over
the writs of attachment?
The Supreme Court affirmed the judgment appealed
from, holding that the attaching creditors are entitled
to priority over the defectively registered mortgage of
the appellant.
The registration of the said chattel mortgage in the
office of the corporation was not necessary and had no
legal effect. The practical application of the Chattel
Mortgage Law to shares of stock of a corporation
presents considerable difficulty, as an equity in shares
of stock is of such an intangible character, and the
Court has obtained little aid from the decisions of other
jurisdictions because that form of mortgage is ill suited
to the hypothecation of shares of stock and has been
rarely used elsewhere. Section 4 of Act 1508 provides
two ways for executing a valid chattel mortgage which
shall be effective against third persons. First, the
possession of the property mortgaged must be
delivered to and retained by the mortgagee; and,
second, without such delivery the mortgage must be
recorded in the proper office.
5. Domicile of corporation decisive for purposes
of execution, attachment and garnishment of
shares of stock
It is a common but not accurate generalization that the
situs of shares of stock is at the domicile of the owner.
The term situs is not one of fixed or invariable meaning
or usage. Nor should one lose sight of the difference
between the situs of the shares and the situs of the
certificate of shares. The situs of shares of stock for
some purposes may be at the domicile of the owner
and for others at the domicile of the corporation; and
even elsewhere. It is a general rule that for purposes of
execution, attachment and garnishment, it is not the
domicile of the owner of a certificate but the domicile
of the corporation which is decisive.
By analogy with the foregoing and considering the
ownership of shares in a corporation as property
distinct from the certificates which are merely the
evidence of such ownership, it seems to be a
reasonable construction of section 4 of Act 1508 to
hold that the property in the shares may be deemed to
be situated in the province in which the corporation

has its principal office or place of business. If this

province is also the province of the owner's domicile, a
single registration is sufficient. If not, the chattel
mortgage should be registered both at the owner's
domicile and in the province where the corporation has
its principal office or place of business. In this sense
the property mortgaged is not the certificate but the
participation and share of the owner in the assets of
the corporation.
Apart from the cumbersome and unusual method of
hypothecating shares of stock by chattel mortgage, it
appears that in the present state of our law, the only
safe way to accomplish the hypothecation of share of
stock of a Philippine corporation is for the creditor to
insist on the assignment and delivery of the certificate
and to obtain the transfer of the legal title to him on
the books of the corporation by the cancellation of the
certificate and the issuance of a new one to him. From
the standpoint of the debtor this may be unsatisfactory
because it leaves the creditor as the ostensible owner
of the shares and the debtor is forced to rely upon the
honesty and solvency of the creditor. Of course, the
mere possession and retention of the debtor's
certificate by the creditor gives some security to the
creditor against an attempted voluntary transfer by the
debtor, provided by- laws of the corporation expressly
enact that transfers may be made only upon the
surrender of the certificate. It is to be noted, however,
that section 35 of the Corporation Law enacts that
shares of stock "may be transferred by delivery of the
certificate endorsed by the owner or his attorney in
fact or other person legally authorized to make the
transfer." The use of the verb "may" does not exclude
the possibility that a transfer may be made in a
different manner, thus leaving the creditor in an
insecure position even though he has the certificate in
his possession. Moreover, the shares still standing in
the name of the debtor on the books of the corporation
will be liable to seizure by attachment or levy on
execution at the instance of other creditors.
The transfer by endorsement and delivery of a
certificate with intention to pledge the shares covered
thereby should be sufficient to give legal effect to that
intention and to consummate the juristic act without
necessity for registration.
MONSERRAT
(plaintiff-appellee)
VS
CERON
(respondent-appellant) [Stock and transfer book]
FACTS:
Plaintiff-appellee as president and manager of Manila
Yellowcab Taxi Co. assigned to defendant-appellant the
usufruct to half of his shares of stock in the company.
Although he had the right to enjoy, during his lifetime,
the profits that may be derived from the shares that
was assigned to him, he was prohibited from selling,
mortgaging, encumbering, or otherwise alienating the
same, the transferor having reserved the right to vote
from the shares and to recover the ownership of the
shares at the termination of the usufruct. Defendantappellant later on mortgaged the shares of stock to

Eduardo Matute. Plaintiff questioned the validity of the

mortgage on the ground that to be valid, the mortgage
constituted on the shares must have been entered into
the books of the corporation to have force and effect
against third persons. Trial court ruled in favor of
plaintiff-appellee.

that on February 3, 1931, he sold said shares to

Emetrio Barcelon and delivered to the latter the
corresponding certificates Nos. 2 and 19. But Barcelon
did not present these certificates to the corporation for
registration until the 16th of September, 1932, when
they were cancelled and a new certificate, No. 29, was
issued in favor of Barcelon who transferred the same to
the defendant H.P.L. Jollye to whom a new certificate
No. 25 was issued on February 13, 1933.

ISSUE:
Is a mortgage constituted on shares of stock a transfer
that must be recorded in the books to be valid?

ISSUE:

RULING:

Whether a bona fide transfer of the shares of a

corporation, not registered or noted on the books of
the corporation, is valid as against a subsequent lawful
attachment of said shares, regardless of whether the
attaching creditor had actual notice of said transfer or
not.

A chattel mortgage is not the transfer referred to in the

law which is required to be entered and noted n the
books of a corporation in order to be valid. The transfer
contemplated is the absolute and unconditional
conveyance of the title and ownership of the shares of
stock. A chattel mortgage is not an absolute transfer
since it is a mere security for a debt. The transfer in a
mortgage becomes null and void when the mortgage
debtor complies with his obligation to pay. A transfer
being an act which the owner of the thing delivers it to
another with the intent of passing all the rights that he
has in it, a chattel mortgage is not within the meaning
of the term. Therefore, the notation upon the books of
a corporation of a chattel mortgage constituted on the
shares of stock is not necessary to its validity.

HELD:
We prefer to admit the line followed by the Supreme
Courts of Massachusetts and Wisconsin.
In the latter case, the court had under consideration a
statute identical with our own section 35, Corporation
Law, and the court said:
We think the true meaning of the language is, and the
obvious intention of the legislature in using it was, that
all transfers of shares should be entered, as here
required, on the books of the corporation. And it is
equally clear to us that all transfers of shares not so
entered are invalid as to attaching or execution
creditors of the assignors, as well as to the corporation
and the subsequent purchasers in good faith, and,
indeed, as to all persons interested, except the parties
to such transfers. All transfers not so entered on the
books of the corporation are absolutely void; not
because they are made without notice or fraudulently
in law or fact, but because they are made so void by
statute.

Uson vs. Diosomito (Transfer of Shareholding)

61 Phil. 535 June 17, 1935 Butte, J.
FACTS:
Toribia Uson had filed a civil action for collection of a
debt in the CFI of Cavite, against Vicente Diosomito
and that upon institution of said action an attachment
was duly issued and levied upon the property of
Diosomito, including seventy-five shares of the North
Electric Company, Inc., which stood in his name of the
books of the company when the attachment was levied
on January 18, 1932.

To us the language of the legislature is plain to the

effect that the right of the owner of the shares of stock
of a Philippine corporation to transfer the same by
delivery of the certificate, whether it be regarded as
statutory or common right, is limited and restricted by
the express provision that no transfer, however, shall
be valid, except as between the parties, until the
transfer is entered and noted upon the books of the
corporation.

Subsequently, on June 23, 1932, Uson obtained

judgment against the defendant Diosomito for the sum
of P2,300 with interest and costs. To satisfy said
judgment, the sheriff sold said shares at public auction
in accordance with law on March 20, 1933. Uson was
the highest bidder and said shares were adjudicated to
her.
In the present action, H.P.L. Jollye claims to the owner
of said 75 shares and presents a certificate of stock
issued to him by the company on February 13, 1933.

Therefore, the transfer of the 75 shares in the North

Electric Company, Inc., made by the defendant
Diosomito to Barcelon was not valid as to Uson, on
January 18, 1932, the date on which she obtained her
attachment lien on said shares of stock which still

There is no dispute that Diosomito was the original

owner of said shares having a par value of P7,500, and

stood in the name of Diosomito on the books of the

corporation.

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.

Judgment affirmed.
4. a) A by-law provision creating in favor of a
corporation a preferential right to buy the shares of a
retiring shareholder violates the property rights of
shareholders as provided by the Corporation Law.
ANTONIO ESCAO, plaintiff-appellee,
vs.
FILIPINAS MINING CORPORATION, ET Al.,
defendants.
STANDARD INVESTMENT OF THE PHILIPPINES,
appellant.
FACTS:

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.
ISSUE: 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.
RULING:

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.

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.

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

corporation in escrow.

shares

held

by

the

issuance of stock certificates to the alleged transferee

has no legal basis. 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.

Ponce vs alsons cement

Facts: Vicente C. Ponce filed a complaint for mandamus
and damages against Alsons Cement Corporation
(Formerly named as Victory Cement Corporation and
Floro Cement Corporation) for its failure to transfer in
his name the subscription of Fausto Gaid (an
incorporator and owner of the subscribed and fully paid
239500 shares) as evidenced by the deed of
undertaking and indorsement of Mr. Gaid.

The deed of undertaking with indorsement

presented by petitioner does not establish, on its face,
his right to demand for the registration of the transfer
and the issuance of certificates of stocks. the mere
indorsement of stock certificates does not in itself give
to the indorsee such a right to have a transfer of the
shares of stock on the books of the company as will
entitle him to the writ of mandamus to compel the
company and its officers to make such transfer at his
demand, because, under such circumstances the duty,
the legal obligation, is not so clear and indisputable as
to justify the issuance of the writ. , the corporation
looks only to its books for the purpose of determining
who its shareholders are, so that a 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. Before a transferee may ask for the issuance
of stock certificates, he must first cause the
registration of the transfer and thereby enjoy the
status of a stockholder insofar as the corporation is
concerned. A corporate secretary may not be
compelled to register transfers of shares on the basis
merely of an indorsement of stock certificates.

The Company ACC refused to transfer the

subscribed and paid shares of Mr. Gaid to Ponce
because it was not registered in its stock and transfer
book and from the time of VCC to present no certificate
of stock corresponding to the 239500 subscribed and
paid shares were issued in the name of Fausto Gaid.

Issue: Whether or not ACC should issue Ponce a

certificate of stock in his name?
Whether or not the complaint for Mandamus should
prevail?
Held:
Fausto Gaid was an original subscriber of
respondent corporations 239,500 shares. It is
undisputed that petitioner had not made a previous
request upon the corporate secretary of ALSONS,
respondent Francisco M. Giron Jr., to record the alleged
transfer of stocks.
Pursuant to Section 63 of the Corporation Code
a transfer of shares of stock not recorded in the stock
and transfer book of the corporation is non-existent as
far as the corporation is concerned. As between the
corporation on the one hand, and its shareholders and
third persons on the other, the corporation looks only
to its books for the purpose of determining who its
shareholders are. It is only when the transfer has been
recorded in the stock and transfer book that a
corporation may rightfully regard the transferee as one
of its stockholders. From this time, the consequent
obligation on the part of the corporation to recognize
such rights as it is mandated by law to recognize
arises.

G.R. No. 95696 March 3, 1992

ALFONSO S. TAN, Petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION,
VISAYAN EDUCATIONAL SUPPLY CORP., TAN SU
CHING, ALFREDO B. UY, ANGEL S. TAN and
PATRICIA AGUILAR, Respondents.
Facts:
Petitioner was elected as President of the Visayan
Educational Supply Corp and subsequently reelected to
such position but remained in the Board of Directors as
director.
While petitioner was still the president of the
respondent corporation, two other incorporators
assigned to the corporation their shares., represented
by certificate of stock No. 4 and 5 after which, they
were paid the corresponding 40% corporate stock-intrade.
Petitioner's certificate of stock No. 2 was cancelled by
virtue of Resolution No. 1981 which was passed and
approved while petitioner was still a member of the
Board of Directors of the respondent corporation.
Due to the withdrawal of the aforesaid incorporators
and in order to complete the membership of the five

The situation would be different if the

petitioner was himself the registered owner of the
stock which he sought to transfer to a third party, for
then he would be entitled to the remedy of mandamus.
the transfer is not effective until it is recorded. Unless
and until such recording is made the demand for the

(5) directors of the board, petitioner sold fifty (50)

shares out of his 400 shares of capital stock to his
brother Angel S. Tan. Another incorporator, Alfredo B.
Uy, also sold fifty (50) of his 400 shares of capital stock
to Teodora S. Tan and both new stockholders attended
the special meeting. Angel Tan was elected director.
Accordingly, as a result of the sale by petitioner of his
fifty (50) shares of stock to Angel S. Tan, Certificate of
Stock No. 2 was cancelled and the corresponding
Certificates No. 6 in the name of Angel S. Tan and for
the remaining 350 shares, Stock Certificate No. 8 was
issued in the name of petitioner Alfonso S. Tan.
Stock No. 2 and 8 were delivered for his endorsement
and cancellation but Mr. Alfonso Tan did not make
proper endorsement of the cancelled Certificate of
Stock No. 2; instead he kept the cancelled Certificate of
Stock No. 2.
When petitioner was dislodged from his position as
president, he withdrew from the corporation on
condition that he be paid with stocks-in-trade. After the
withdrawal of the stocks, the board of the respondent
corporation held a meeting effecting the cancellation of
Stock Certificate Nos. 2 and 8 in the corporate stock
and transfer book and submitted the minutes thereof
to the SEC.

this scheme to renege on his indebtedness to

respondent Tan Su Ching in the amount of P1 million. It
is not remote that if petitioner could have cashed in on
Stock Certificate No. 2 with the remainder of the goods
that he padlocked, he would have done so, until the
respondent corporation was bled entirely.
2. Petitioner further claims that "(T)he cancellation and
transfer of petitioner's shares and Certificate of Stock
No. 2 as well as the issuance and cancellation of
Certificate of Stock No. 8 was patently and palpably
unlawful, null and void, invalid and fraudulent." And,
that Section 63 of the Corporation Code of the
Philippines is "mandatory in nature", meaning that
without the actual delivery and endorsement of the
certificate in question, there can be no transfer, or that
such transfer is null and void.
The word "may"is an auxilliary verb showing among
others, opportunity or possibility. Under ordinary
circumstances, the phrase "may be" implies the
possible existence of something. In this case, the
"something" is a law governing sectoral representation.
The phrase in question should, therefore, be
understood to mean as prescribed by such law that
governs the matter at the time . . . The phrase does
not and cannot, by its very wording, restrict itself to
the uncertainly of future legislation.
The Court held in Chua v. Samahang Magsasaka, that
"the word "may" indicates that the transfer may be
effected in a manner different from that provided for in
the law."
For all intents and purposes, however, since this was
already cancelled which cancellation was also reported
to the respondent Commission, there was no necessity
for the same certificate to be endorsed by the
petitioner. 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.
Following the doctrine enunciated in the case of
Tuazon v. La Provisora Filipina, where this Court held,
that:
1. delivery is not essential where it appears that the
persons sought to be held as stockholders are officers
of the corporation, and have the custody of the stock
book . .
2. necessary to delineate the function of the stock
itself from the actual delivery or endorsement of the
certificate of stock itself as is the question in the
instant case. A certificate of stock is not necessary to
render one a stockholder in corporation.
Nevertheless, a certificate of stock is the paper
representative or tangible evidence of the stock itself
and of the various interests therein. The certificate is
not stock in the corporation but is merely evidence of
the holder's interest and status in the corporation, his
ownership of the share represented thereby, but is not
in law the equivalent of such ownership. It expresses
the contract between the corporation and the
stockholder, but is not essential to the existence of a
share in stock or the nation of the relation of
shareholder to the corporation.
Under the instant case, the fact of the matter is, the
new holder, Angel S. Tan has already exercised his

Five (5) years and nine (9) months after the transfer of
50 shares to Angel S. Tan, brother of petitioner Alfonso
S. Tan, and three (3) years and seven (7) months after
effecting the transfer of Stock Certificate Nos. 2 and 8
from the original owner (Alfonso S. Tan) in the stock
and transfer book of the corporation, the latter filed the
case before the SEC questioning for the first time, the
cancellation of his aforesaid Stock Certificates Nos. 2
and 8.
The bone of contention raised by the petitioner is that
the deprivation of his shares despite the nonendorsement or surrender of his Stock Certificate Nos.
2 and 8, was without the process contrary to the
provision of Section 63 of the Corporation Code (Batas
Pambansa Blg. 68) which requires that:
. . . 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.
Issue: Whether or not delivery of certificate of stock is
essential in order to effect the transfer thereof in the
books of the corporation
Ruling: No.
1. There is no doubt that there was delivery of Stock
Certificate No. 2 made by the petitioner to the
Corporation before its replacement with the Stock
Certificate No. 6 for fifty (50) shares to Angel S. Tan
and Stock Certificate No. 8 for 350 shares to the
petitioner. The problem arose when petitioner was
given back Stock Certificate No. 2 for him to endorse
and he deliberately witheld it for reasons of his own.
It was very obvious that petitioner 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. He also used

rights and prerogatives as stockholder and was even

elected as member of the board of directors in the
respondent corporation with the full knowledge and
acquiescence of petitioner. Due to the transfer of fifty
(50) shares, Angel S. Tan was clothed with rights and
responsibilities in the board of the respondent
corporation when he was elected as officer thereof.
In Philippine jurisprudence, a certificate of stock is not
a negotiable instrument. "Although it is sometime
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."
Considering the circumstances of the case, it appearing
that petitioner is guilty of manipulation, and highhandedness, circumventing the clear provisions of law
in shielding himself from his wrongdoing contrary to
the protective mantle that the law intended for
innocent parties, the Court finds the excuses of the
petitioner as unworthy of belief.

Section 35, Act No. 1459, provides among

other things, that:
No share of stock against which the corporation holds
any unpaid claim, shall be transferable on the books of
the corporation.
To permit the writ of mandamus to issue for the
purpose of compelling the officers of a corporation, in
cases like the present one, to transfer stock upon the
books of the corporation, might, under certain
circumstances, require such officers to transfer stock
against which the corporation holds unpaid claims.
These claims might easily arise between the time of
the issuance of the writ and the service of the same
upon such officers. If the court should issue the writ, it
might require an officer to transfer stock under
conditions where the law expressly prohibited such
transfer. The writ of mandamus will never issue to
compel a person to violate an express provision of the
law. The act required to be performed must be one
which the law specially enjoin as a duty resulting from
an office, trust, or station or unlawfully excludes the
plaintiff from the used and enjoyment of a right or
office to which he is entitled and from which he is
unlawfully precluded.

A.R. Hager vs. Bryan (1911)

Facts:
Bryan London & Co. endorsed to A.R. Hager its
25 shares of the Visayan Electric Company. A.R Hager
and a certain Levering entered into an agreement
whereby the former will sell his shares in the Visayan
Electric Company including the shares endorsed to him
by Bryan London Co. to the latter. A.R. Hager then filed
an action for mandamus compelling Bryan the
secretary of the Visayan Electric Company to register
unto his name the said 25 shares endorsed to him in
order for him to sell it to levering.

Batong Buhay
Appeals

Gold

Mines

Inc.

vs

Court

of

Facts:
Francisco Aguac and his wife Paula Aguac own
62,495 shares of batong Buhay Gold Mines Inc (BBGM).
Francisco sold the shares to Inco Mining Corporation
(INCO) without the knowledge of Paula. When INCO
sought the transfer of the shares unto its name, BBGM
refuses to do so on the fact that the share of Paula was
not given when Francisco sold the shares to INCO. INCO
filed a case in the court for the transfer of the shares
unto its name plus damages for the alleged unrealized
income covered by the said shares. BBGM on the other
hand applied for writ of injunction with TRO. the writ
was approved.

Issue:
Whether or not a writ of mandamus may be
issue in order to compel the secretary of Visayan
Electric Company to register/transfer the 25 shares in
the name of A.R. Hager.
Held:

Issue:

The Honorable Arthur L. Sanborn, judge of the

United States district court for the western district of
Wisconsin, in his article entitled "Mandamus" (26 Cy. of
Law and Procedure (Cyc), at p. 347), said:

May the court order the transfer of share to

INCO?
May the court grant the award for the alleged
unrealized income?

By the weight of authority mandamus will not lie in

ordinary cases to compel a corporation of its officers to
transfer stock on its books and issue new certificates to
the transferee, since the writ (in such a case) is a
purely private one, and there is generally an adequate
remedy by an action against the corporation for
damages.

Held:
On the first issue, the lower court was right to
order the transfer of shares in the name of INCO.
On the second issue:

The petitioner alleges that the appellate court gravely

and categorically erred in awarding damages by way of
unrealized profit (or lucro cesante) to private
respondent. Petitioner company also alleges that the
claim for unrealized profit must be duly and sufficiently
established, that is, that the claimant must submit
proof that it was in fact damaged because of
petitioner's act or omission.

moment the certificate was assigned to the plaintiff,

the latter's right to have the assignment registered
commenced to exist. This contention is correct, but it
would not follow that said right should be exercised
immediately or within a definite period. The existence
of a right is one thing, and the duration of said right is
another.
On the other hand, it is stated in the appealed order of
dismissal that the plaintiff sought to register the
assignment on April 13, 1955; whereas in plaintiff's
brief it is alleged that it was only in February, 1955,
when the defendant refused to recognize the plaintiff.

The stipulation of facts of the parties does not at all

show that private respondent intended to sell, or would
sell or would have sold the stocks in question on
specified dates. While it is true that shares of stock
may go up or down in value (as in fact the concerned
shares here really rose from fifteen (15) centavos to
twenty three or twenty four (23/24) centavos per share
and then fell to about two (2) centavos per share, still
whatever profits could have been made are purely
SPECULATIVE, for it was difficult to predict with any
decree of certainty the rise and fall in the value of the
shares. Thus this Court has ruled that speculative
damages cannot be recovered.

If, as already observed, there is no fixed period for

registering an assignment, how can the complaint be
considered as already barred by the Statute of
Limitations when it was filed on April 26, 1955, or
barely a few days (according to the lower court) and
two months (according to the plaintiff), after the
demand for registration and its denial by the
defendant. Plaintiff's right was violated only sometime
in 1955, and it could not accordingly have asserted any
cause of action against the defendant before that.
The defendant seems to believe that the plaintiff was
compelled immediately to register his assignment. Any
such compulsion is obviously for the benefit of the
plaintiff, because it is only after registration that the
transfer would be binding against the defendant.
Order reversed.

WON vs. WACK WACK

FACTS: Defendant (a non-stock corporation) issued to
Iwao Teruyama Membership Certificate No. 201 which
was assigned to M. T. Reyes. Subsequently in the same
year 1944, M. T. Reyes transferred and assigned said
certificate to the plaintiff, Won. Almost 11 years after,
the plaintiff filed an action against the defendant,
alleging that shortly after the rehabilitation of the
defendant after the war, the plaintiff asked the
defendant to register in its books the assignment in
favor of the plaintiff and to issue to the latter a new
certificate, but that the defendant had refused and still
refuses to do so unlawfully; and praying that the
plaintiff be declared the owner of one share of stock of
the defendant and that the latter be ordered to issue a
correspondent new certificate. Defendant filed a
motion to dismiss, alleging that from 1944, when the
plaintiff's right of action had accrued, 1955, when the
complaint was filed, eleven years have elapsed, and
that therefore the complaint was filed beyond the 5year period fixed in Article 1149 of the Civil Code. The
Court dismissed the complaint.
ISSUE: Whether or not the plaintiff was bound, under
condition and By-Laws of the defendant or any
statutory rule for that matter, to present and register
the certificate assigned to him in 1944 within any
definite or fixed period.
HELD: The certificate in question contains a condition
to the effect that no assignment thereof "shall be
effective with respect to the club until such assignment
is registered in the books of the club, as provided in the
By-Laws."
The defendant has not made herein any
pretense to that effect; but it contends that from the

10