CORPO Outline 4 CASE Digests Compilation

OUTLINE 4 - BUSINESS ORGANIZATION 2
1. Phil. Trust Co. v. Rivera 44 Phil. 469

FACTS:
In 1918 Cooperativa Naval Filipina was duly
incorporated under the laws of the Philippine Islands,
with a capital of P100,000, dividend into one thousand
shares of a par value of P100 each. Among the
incorporators of this company was the defendant
Marciano Rivera, who subscribed for 450 shares
representing a value of P45,000, the remainder of the
stock being taken by other persons. The article 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 this action
was instituted to recover one-half 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 the
Cooperativa 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
various shareholder had been cancelled to the extent
stated; and fully paid certificates were issued to each
shareholder for one-half of his subscription. It does not
Prof. M.I.P. Romero (2015 2016)
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.
The CFI of Manila ruled in favor of petitioner, therefore
held that the resolution relied upon by the defendant
was without effect and the defendant was still liable for
the unpaid balance of his subscription.
ISSUE:
WON the reduction of the corporate capital by
releasing the subscribers from payment of their
subscription is valid and proper? (NO)
HELD:
It is established doctrine that subscriptions to the
capital of a corporation constitute a fund 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 realized assets for the payment of its debts.
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
and under the conditions prescribed by the statute or
the charter or the articles of incorporation. Moreover,
strict compliance with the statutory regulations is
necessary.
In the case before us the resolution releasing the

shareholder 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.
2. Ong Yong v. Tiu G.R. 144476; 4/8/2003

FACTS:
In 1994, the construction of the MasaganaCitimall in
Pasay City was threatened with stoppage and
incompletion when its owner, the First Landlink Asia
Development Corporation (FLADC), which was owned
by David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu,
D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius),
encountered dire financial difficulties. It was heavily
indebted to the Philippine National Bank (PNB) for P190
million. To stave off foreclosure of the mortgage on the
two lots where the mall was being built, 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. Under the Pre-Subscription
Agreement they entered into, the Ongs and the Tius
agreed to maintain equal shareholdings in FLADC: the
Ongs were to subscribe to 1,000,000 shares at a par
value of P100.00 each while the Tius were to subscribe
to an additional 549,800 shares at P100.00 each in
addition to their already existing subscription of
450,200 shares. Furthermore, they agreed that the Tius
were entitled to nominate the Vice-President and the
Treasurer plus 5 directors while the Ongs were entitled
to nominate the President, the Secretary and 6
directors (including the chairman) to the board of
directors of FLADC. Moreover, the Ongs were given the
right to manage and operate the mall.
Accordingly, the Ongs paid P100 million in cash for
their subscription to 1,000,000 shares of stock while
the Tius committed to contribute to FLADC a fourstorey building and two parcels of land respectively
valued at P20 million (for 200,000 shares), P30 million
(for 300,000 shares) and P49.8 million (for 49,800

shares) to cover their additional 549,800 stock
subscription therein. The Ongs paid in another P70
million 3 to FLADC and P20 million to the Tius over and
above their P100 million investment, the total sum of
which (P190 million) was used to settle the P190
million mortgage indebtedness of FLADC to PNB.
The business harmony between the Ongs and the Tius
in FLADC, however, was shortlived because the Tius,
on 23 February 1996, rescinded the Pre-Subscription
Agreement. The Tius accused the Ongs of (1) refusing
to credit to them the FLADC shares covering their real
property contributions; (2) preventing David S. Tiu and
Cely Y. Tiu from assuming the positions of and
performing their duties as Vice-President and
Treasurer, respectively, and (3) refusing to give them
the office spaces agreed upon.
The controversy finally came to a head when the case
was commenced by the Tius on 27 February 1996 at
the Securities and Exchange Commission (SEC),
seeking confirmation of their rescission of the PreSubscription Agreement. After hearing, the SEC,
through then Hearing Officer Rolando G. Andaya, Jr.,
issued a decision on 19 May 1997 confirming the
rescission sought by the Tius. On motion of both
parties, the above decision was partially reconsidered
but only insofar as the Ongs' P70 million was declared
not as a premium on capital stock but an advance
(loan) by the Ongs to FLADC and that the imposition of
interest on it was correct.
Both parties appealed to the SEC en banc which
rendered a decision on 11 September 1998, affirming
the 19 May 1997 decision of the Hearing Officer. The
SEC en banc confirmed the rescission of the PreSubscription Agreement but reverted to classifying the
P70 million paid by the Ongs as premium on capital
and not as a loan or advance to FLADC, hence, not
entitled to earn interest.
On appeal, the Court of Appeals (CA) rendered a
decision on 5 October 1999, modifying the SEC order
of
11
September
1998.
Their
motions
for
reconsideration having been denied, both parties filed
separate petitions for review before the Supreme
Court.
On 1 February 2002, the Supreme Court promulgated
its Decision, affirming the assailed decision of the
Court of Appeals but with the modifications that the
P20 million loan extended by the Ongs to the Tius shall
earn interest at 12% per annum to be computed from
the time of judicial demand which is from 23 April
1996; that the P70 million advanced by the Ongs to
the FLADC shall earn interest at 10% per annum to be
computed from the date of the FLADC Board Resolution
which is 19 June 1996; and that the Tius shall be
credited with 49,800 shares in FLADC for their property
contribution, specifically, the 151 sq. m. parcel of land.
The Court affirmed the fact that both the Ongs and the
Tius violated their respective obligations under the PreSubscription Agreement. On 15 March 2002, the Tius
filed before the Court a Motion for Issuance of a Writ of
Execution. Aside from their opposition to the Tius'
Motion for Issuance of Writ of Execution, the Ongs filed
their own "Motion for Reconsideration; Alternatively,
Motion for Modification (of the February 1, 2002
Decision)" on 15 March 2002. Willie Ong filed a
separate "Motion for Partial Reconsideration" dated 8
March 2002, pointing out that there was no violation of

the Pre-Subscription Agreement on the part of the
Ongs, among others. On 29 January 2003, the Special
Second Division of this Court held oral arguments on
the respective positions of the parties. On 27 February
2003, Dr. Willie Ong and the rest of the movants Ong
filed their respective memoranda. On 28 February
2003, the Tius submitted their memorandum
ISSUE:
WON recission is the proper remedy?
HELD:
No. first of all, a subscription contract as defined under

Section 60, Title VII of the Corporation Code:
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
theparties refer to it as a purchase or some other
contract.
A subscription contract necessarily involves the

corporation as one of the contracting parties since the
subject matter of the transaction is property owned by
the corporation its shares of stock. Thus, the

subscription contract (denominated by the parties as a
Pre-Subscription Agreement) whereby the Ongs
invested P100 million for 1,000,000 shares of stock
was, from the viewpoint of the law, one between the
Ongs and FLADC, not between the Ongs and the
Tius. Otherwise stated, the Tius did not contract in
their personal capacities with the Ongs since they were
not selling any of their own shares to them. It was
FLADC that did.
Considering therefore that the real contracting parties

to the subscription agreement were FLADC and the
Ongs alone, a civil case for rescission on the ground of
breach of contract filed by the Tius in their personal
capacities will not prosper. Assuming it had valid
reasons to do so, only FLADC (and certainly not the
Tius) had the legal personality to file suit rescinding
the subscription agreement with the Ongs inasmuch as
it was the real party in interest therein. Article 1311 of
the Civil Code provides that contracts take effect only
between the parties, their assigns and heirs Therefore,
a party who has not taken part in the transaction
cannot sue or be sued for performance or for
cancellation thereof, unless he shows that he has a
real interest affected thereby.
All
this
notwithstanding,
granting
but
not
conceding that the Tius possess the legal standing to
sue for rescission based on breach of contract, said
action will nevertheless still not prosper since
rescission will violate the Trust Fund Doctrine and
the procedures for the valid distribution of assets and

property under the Corporation Code.
The Trust Fund Doctrine, first enunciated by this Court

in the 1923 case of Philippine Trust Co. vs.
Rivera, provides that subscriptions to the capital stock
of a corporation constitute a fund to which the
creditors have a right to look for the satisfaction of
their claims. This doctrine is the underlying principle in
the procedure for the distribution of capital assets,
embodied in the Corporation Code, which allows the
distribution of corporate capital only in three
instances: (1)
amendment
of
the
Articles
of
Incorporation to reduce the authorized capital
stock, (2) purchase of redeemable shares by the
corporation, regardless of the existence of unrestricted
retained earnings, and (3) dissolution and eventual
liquidation of the corporation. Furthermore, the
doctrine is articulated in Section 41 on the power of a
corporation to acquire its own sharesand in Section
122 on the prohibition against the distribution of
corporate assets and property unless the stringent
requirements therefor are complied with.
The distribution of corporate assets and property

cannot be made to depend on the whims and caprices
of the stockholders, officers or directors of the
corporation, or even, for that matter, on the earnest
desire of the court a quo to prevent further squabbles
and future litigations unless the indispensable
conditions and procedures for the protection of
corporate creditors are followed. Otherwise, the
corporate peace laudably hoped for by the court will

remain nothing but a dream because this time, it will
be the creditors turn to engage in squabbles and
litigations should the court order an unlawful
distribution in blatant disregard of the Trust Fund
Doctrine.
In the instant case, the rescission of the PreSubscription Agreement will effectively result in the
unauthorized distribution of the capital assets and
property of the corporation, thereby violating the Trust
Fund Doctrine and the Corporation Code, since
rescission of a subscription agreement is not one of the
instances when distribution of capital assets and
property of the corporation is allowed.
3. Halley v. Printwell, Inc. G.R. 157549; May

30, 2011
FACTS:
BMPI (Business Media Philippines Inc.) is a

corporation under the control of itsstockholders,
including Donnina Halley.
In the course of its business, BMPI commissioned
PRINTWELL to print Philippines, Inc. (a magazine
published and distributed by BMPI)
PRINTWELL
extended
30-day
credit
accommodation in favor of BMPI and in aperiod
of 9 mos. BMPI placed several orders amounting
to 316,000.
However, only 25,000 was paid hence a balance
of 291,000
PRINTWELL sued BMPI for collection of the
unpaid balance and later on impleaded BMPIs
original stockholders and incorporators to
recover on their unpaid subscriptions.
It appears that BMPI has an authorized capital
stock of 3M divided into 300,000shares with P10
par value.
Only 75,000 shares worth P750,000 were
originally subscribed of whichP187,500 were paid
up capital.
Halley subscribed to 35,000 shares worth
P350,000 but only paid P87,500.
Halley contends that:

1. They all had already paid their subscriptions in
full
2. BMPI had a separate and distinct personality
3. BOD and SH had resolved to dissolve BMPIRTC

and CA
Defendant merely used the corporate fiction as a

cloak/cover to create aninjustice (against
PRINTWELL)
Rejected allegations of full payment in view of
irregularity in the issuance of ORs (Payment
made on a later date was covered by an OR with
a lower serialnumber than payment made on an
earlier date.
ISSUE:
WON a stockholder who was in active management of
the business of thecorporation and still has unpaid
subscriptions should be made liable for the debtsof the
corporation by piercing the veil of corporate fiction.
HELD:
YES! Such stockholder should be made liable up to the
extent of her unpaidsubscription.
RATIO:
It was found that at the time the obligation was
incurred, BMPI was under thecontrol of its stockholders
who know fully well that the corporation was not ina
position to pay its account (thinly capitalized).
And, that the stockholders personally benefited from
the operations of thecorporation even though they
never paid their subscriptions in full.The stockholders
cannot now claim the doctrine of corporate fiction

otherwise (to denycreditors to collect from SH) it would
create an injustice because creditors would be at aloss
(limbo) against whom it would assert the right to
collect.
On piercing the veil:
Although the corporation has a personality separate
and distinct from its SH, suchpersonality is merely a
legal fiction (for the convenience and to promote the
ends of justice) which may be disregarded by the
courts if it is used as a cloak or cover for
fraud,justification of a wrong, or an alter ego for the
sole benefit of the SH.
As to the Trust Fund Doctrine:
The RTC and CA correctly applied the Trust Fund
Doctrine. Under which corporate debtors might look to
the unpaid subscriptions for thesatisfaction of unpaid
corporate debts. Subscriptions to the capital of a
corporation constitutes a trust fund for thepayment of
the creditors (by mere analogy) In reality, corporation
is a simple debtor. Moreover, the corporation has no
legal capacity to release an originalsubscriber to its
capital stock from the obligation of paying for his
shares, inwhole or in part, without valuable
consideration, or fraudulently, to the prejudice of the
creditors. The creditor is allowed to maintain an action
upon any unpaid subscriptionsand thereby steps into
the shoes of the corporation for the satisfaction of
itsdebt.
4. Castillo v. Balinghasay Oct. 18, 2004

DOCTRINE:
One of the rights of a stockholder is the right to
participate in the control and management of the
corporation that is exercised through his vote. The
right to vote is a right inherent in and incidental to the
ownership of corporate stock, and as such is a
property right. The stockholder cannot be deprived of
the right to vote his stock nor may the right be
essentially impaired, either by the legislature or by
the corporation, without his consent, through
amending the charter, or the by-laws.
Section 6 of the Corporation Code being deemed
written into Article VII of the Articles of Incorporation
of MCPI, it necessarily follows that unless Class "B"
shares of MCPI stocks are clearly categorized to be
"preferred" or "redeemable" shares, the holders of
said Class "B" shares may not be deprived of their
voting rights. Note that there is nothing in the Articles
of Incorporation nor an iota of evidence on record to
show that Class "B" shares were categorized as either
"preferred" or "redeemable" shares. The only possible
conclusion is that Class "B" shares fall under neither
category and thus, under the law, are allowed to
exercise voting rights.
FACTS:
Petitioners and the respondents are stockholders of
MCPI, with the former holding Class "B" shares and the
latter owning Class "A" shares.
MCPI is a domestic corporation with offices at Dr. A.

Santos Avenue, Sucat, Paraaque City. It was organized
sometime in September 1977. At the time of its
incorporation, Act No. 1459, the old Corporation Law
was still in force and effect. Article VII of MCPI's original
Articles of Incorporation, as approved by the Securities
and Exchange Commission (SEC) on October 26, 1977,
reads as follows:
SEVENTH. That the authorized capital
stock of the corporation is TWO
MILLION
(P2,000,000.00)
PESOS,
Philippine Currency, divided into
TWO THOUSAND (2,000) SHARES at
a par value of P100 each share,
whereby
the
ONE
THOUSAND
SHARES issued to, and subscribed
by, the incorporating stockholders
shall be classified as Class A shares
while the other ONE THOUSAND
unissued shares shall be considered
as Class B shares. Only holders of
Class A shares can have the right to
vote and the right to be elected as
directors or as corporate officers.
On July 31, 1981, Article VII of the Articles of
Incorporation of MCPI was amended, to read thus:
SEVENTH. That the authorized capital
stock of the corporation is FIVE
MILLION
(P5,000,000.00)
PESOS,
divided as follows:
CLASS NO. OF SHARES PAR VALUE
"A" 1,000 P1,000.00
"B" 4,000 P1,000.00
Only holders of Class A shares have the right to vote

and the right to be elected as directors or as corporate
officers.
The foregoing amendment was approved by the SEC
on June 7, 1983. While the amendment granted the
right to vote and to be elected as directors or
corporate officers only to holders of Class "A" shares,
holders of Class "B" stocks were granted the same
rights and privileges as holders of Class "A" stocks with
respect to the payment of dividends.
On September 9, 1992, Article VII was again amended
to provide as follows:
SEVENTH: That the authorized capital
stock of the corporation is THIRTY
TWO
MILLION
PESOS
(P32,000,000.00) divided as follows:
CLASS NO. OF SHARES PAR VALUE
"A" 1,000 P1,000.00
"B" 31,000 1,000.00
Except when otherwise provided by law, only
holders of Class "A" shares have the right to vote and
the right to be elected as directors or as corporate
officers.
The SEC approved the foregoing amendment on
September 22, 1993.
On February 9, 2001, the shareholders of MCPI held
their annual stockholders' meeting and election for
directors. During the course of the proceedings,
respondent Rustico Jimenez, citing Article VII, as
amended, and notwithstanding MCPI's history,
declared over the objections of herein petitioners, that

no Class "B" shareholder was qualified to run or be
voted upon as a director. In the past, MCPI had seen
holders of Class "B" shares voted for and serve as
members of the corporate board and some Class "B"
share owners were in fact nominated for election as
board members. Nonetheless, Jimenez went on to
announce that the candidates holding Class "A" shares
were the winners of all seats in the corporate board.
The petitioners protested, claiming that Article VII was
null and void for depriving them, as Class "B"
shareholders, of their right to vote and to be voted
upon, in violation of the Corporation Code (Batas
Pambansa Blg. 68), as amended.
RTC: On March 22, 2001, after their protest was given
short shrift, herein petitioners filed a Complaint for
Injunction, Accounting and Damages. Said complaint
was founded on two (2) principal causes of action,
namely:
a. Annulment of the declaration of
directors of the MCPI made during
the February 9, 2001 Annual
Stockholders' Meeting, and for the
conduct of an election whereat all
stockholders, irrespective of the
classification of the shares they
hold, should be afforded their
right to vote and be voted for; and
b. Stockholders'
derivative
suit
challenging the validity of a
contract entered into by the Board
of Directors of MCPI for the
operation of the ultrasound unit.
Subsequently, the complaint was amended to implead

MCPI as party-plaintiff for purposes only of the second
cause of action.
RTC rendered the Partial Judgment. In finding for the
respondents, the trial court ruled that corporations had
the power to classify their shares of stocks, such as
"voting and non-voting" shares, conformably with
Section 6 7 of the Corporation Code of the Philippines.
It pointed out that Article VII of both the original and
amended Articles of Incorporation clearly provided that
only Class "A" shareholders could vote and be voted
for to the exclusion of Class "B" shareholders, the
exception being in instances provided by law, such as
those enumerated in Section 6, paragraph 6 of the
Corporation Code.The RTC found merit in the
respondents' theory that the Articles of Incorporation,
which defines the rights and limitations of all its
shareholders, is a contract between MCPI and its
shareholders. It is thus the law between the parties
and should be strictly enforced as to them. It brushed
aside the petitioners' claim that the Class "A"
shareholders were in estoppel, as the election of Class
"B" shareholders to the corporate board may be
deemed as a mere act of benevolence on the part of
the officers. Finally, the court brushed aside the
"founder's shares" theory of the petitioners for lack of
factual basis.
ARGUMENTS:
Petitioners assert that Article VII of the Articles of
Incorporation of MCPI, which denied them voting
rights, is null and void for being contrary to Section 6
of the Corporation Code. They point out that Section 6
prohibits the deprivation of voting rights except as to
preferred and redeemable shares only. Hence, under
the present law on corporations, all shareholders,
regardless of classification, other than holders of
preferred or redeemable shares, are entitled to vote
and to be elected as corporate directors or officers.
Since the Class "B" shareholders are not classified as
holders of either preferred or redeemable shares, then
it necessarily follows that they are entitled to vote and
to be voted for as directors or officers.
The respondents, in turn, maintain that the grant of
exclusive voting rights to Class "A" shares is clearly
provided in the Articles of Incorporation and is in
accord with Section 5 9 of the Corporation Law (Act No.
1459), which was the prevailing law when MCPI was
incorporated in 1977. They likewise submit that as the
Articles of Incorporation of MCPI is in the nature of a
contract between the corporation and its shareholders
and Section 6 of the Corporation Code could not
retroactively apply to it without violating the nonimpairment clause 10 of the Constitution.
HELD:
ISSUE:
Whether or not holders of Class "B" shares of the MCPI
may be deprived of the right to vote and be voted for
as directors in MCPI. (NO)
We find merit in the petition.

When Article VII of the Articles of Incorporation
of MCPI was amended in 1992, the phrase
"except when otherwise provided by law " was
inserted in the provision governing the grant of

voting powers to Class "A" shareholders. This
particular amendment is relevant for it speaks of
a law providing for exceptions to the exclusive
grant of voting rights to Class "A" stockholders.
Which law was the amendment referring to? The
determination of which law to apply is necessary. There
are two laws being cited and relied upon by the parties
in this case. In this instance, the law in force at the
time of the 1992 amendment was the Corporation
Code (B.P. Blg. 68), not the Corporation Law (Act No.
1459), which had been repealed by then.
We find and so hold that the law referred to in the
amendment to Article VII refers to the Corporation
Code and no other law. At the time of the incorporation
of MCPI in 1977, the right of a corporation to classify
its shares of stock was sanctioned by Section 5 of Act
No. 1459. The law repealing Act No. 1459, B.P. Blg. 68,
retained the same grant of right of classification of
stock shares to corporations, but with a significant
change. Under Section 6 of B.P. Blg. 68, the
requirements and restrictions on voting rights were
explicitly provided for, such 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" and that "there shall
always be a class or series of shares which have
complete voting rights." Section 6 of the
Corporation Code being deemed written into
Article VII of the Articles of Incorporation of
MCPI, it necessarily follows that unless Class "B"
shares of MCPI stocks are clearly categorized to
be "preferred" or "redeemable" shares, the
holders of said Class "B" shares may not be
deprived of their voting rights. Note that there
is nothing in the Articles of Incorporation nor an

iota of evidence on record to show that Class "B"
shares were categorized as either "preferred" or
"redeemable"
shares.
The
only
possible
conclusion is that Class "B" shares fall under
neither category and thus, under the law, are
allowed to exercise voting rights.
One of the rights of a stockholder is the right to
participate in the control and management of the
corporation that is exercised through his vote. The
right to vote is a right inherent in and incidental to the
ownership of corporate stock, and as such is a property
right. The stockholder cannot be deprived of the right
to vote his stock nor may the right be essentially
impaired, either by the legislature or by the
corporation, without his consent, through amending
the charter, or the by-laws.
When Article VII of the Articles of Incorporation of MCPI
were amended in 1992, the board of directors and
stockholders must have been aware of Section 6 of the
Corporation Code and intended that Article VII be
construed in harmony with the Code, which was then
already in force and effect. Since Section 6 of the
Corporation Code expressly prohibits the deprivation of
voting rights, except as to "preferred" and
"redeemable" shares, then Article VII of the Articles of
Incorporation cannot be construed as granting
exclusive voting rights to Class "A" shareholders, to the
prejudice of Class "B" shareholders, without running
afoul of the letter and spirit of the Corporation Code.
5. Delpher Trades Corp. v. IAC (1988) 157

SCRA 349
Brief Facts: Delf and Pelagia Pacheco leased the lot
they co-owned to CCII to which the siblings granted a
right of first refusal. CCII assigned its rights to Hydro
Pipes. A deed of exchange was executed between the
Pachecos and Delpher Trades Corp. wherein the
Pachecos conveyed the leased lot to Delpher in
exchange for 2500 shares of stock. Hydro Pipes filed a
complaint for reconveyance for alleged violation of its
right of first refusal.
FACTS:
1. Delfin Pacheco and his sister Pelagia Pacheco were
the co-owners of a real estate in Polo (now
Valenzuela).
2. They leased the property to Construction
Components International Inc. (CCII), providing that
during the existence or after the term of this lease
the lessor, should he decide to sell the property
leased shall first offer the same to the lessee and
the latter has the priority to buy under similar
conditions.
3. CCII assigned its rights and obligations under the
contract of lease in favour of Hydro Pipes
Philippines, Inc. with the signed conformity and
consent of the Pachecos. The contract and
assignment of lease were annotated at the back of
the title.
4. A deed of exchange was executed between the
Pachecos and defendant Delpher Trades Corporation
whereby the former conveyed to the latter the
leased property together with another parcel of land
also in Valenzuela for 2500 shares of stock of
Delpher (total value of P1.5M)
5. On the ground that it was not given the first option

to buy the leased property pursuant to the proviso
in the lease agreement, Hydro Pipes filed an
amended complaint for reconveyance of the lot in
its favour under conditions similar to those whereby
Delpher acquired the property from the Pachecos.
6. The CFI ruled in favour of Hydro Pipes. This was
affirmed on appeal by the IAC.
7. Petitioners filed a petition for certiorari which was
initially denied by the SC but upon MR, the SC gave
it due course.
8. Eduardo Neria, CPA and son-in-law of
Pelagia
testified that:
a. Delpher is a family corporation, organized by
the children of Pelagia Pacheco and Benjamin
Hernandez, and Sps. Delfin and Pilar Pacheco,
who owned in common the parcel of land
leased to Hydro Pipes in order to perpetuate
their control over the property through the
corporation and to avoid taxes;
b. To accomplish this, two pieces of real estate,
including the land leased to Hydro Pipes, were
transferred to the corporation;
c. The leased property was transferred to the
corporation by virtue of a deed of exchange of
property; in exchange for these properties,
Pelagia and Delfin acquired 2500 unissued no
par value shares of stock which are equivalent
to a 55% majority in the corporation because
the other owners only owned 2000 shares
d. At the time of incorporation, he knew all
about the contract of lease to Hydro Pipes. In
the petitioners MR, they refer to this scheme
as estate planning
9. Petitioners contend that there was actually no
transfer of ownership of the subject parcel of land
since the Pachecos remained in control of the

property. The transfer of ownership, if anything, was
merely in form, but not in substance.
a. Petitioner corporation is a mere alter ego or
conduit of the Pacheco co-owners; hence the
corporation and the co-owners should be
deemed to be the same, there being identity
of interest.
b. The Pachecos did not sell the property. There
was no sale and they exchanged the land for
shares of stocks in their own corporation.
10. Respondents argue that Delpher is a corporate
entity separate and distinct from the Pachecos. It
cannot be said that Delpher is the Pachecos alter
ego or conduit.
a. That Delfin, having treated Delpher as such a
separate and distinct corporate entity, is not a
party who may allege that this separate
corporate existence should be disregarded.
b. There was actual transfer of ownership
interest over the leased property when the
same was transferred to Delpher in exchange
for the latters shares of stock.
ISSUE:
WON the Deed of Exchange executed by the Pachecos
and Delpher was meant to be a contract of sale, which
prejudiced respondents right of first refusal. (NO)
HELD:
The Delpher Trades Corporation is a business conduit
of the Pachecos. What they really did was to invest
their properties and change the nature of their
ownership from unincorporated to incorporated form

by organizing Delpher Trades Corporation to take
control of their properties and at the same time save
on inheritance taxes.
The Deed of Exchange of property cannot be a

considered a contract of sale since there was no
transfer of actual ownership interests by the
Pachecos to a third party. The Pacheco family
merely changed their ownership from one form to
another.
There is nothing wrong or objectionable about the
estate planning scheme resorted to by the
Pachecos. The legal right of a taxpayer to decrease
the amount of what otherwise could be his taxes or
altogether avoid them, by means which the law
permits, cannot be doubted.
After incorporation, one becomes a stockholder of a
corporation by subscription or by purchasing stock
directly from the corporation or from individual
owners thereof.
o In exchange of their properties, the Pachecos
acquired 2500 original unissued no par value
shares of stocks of the Delpher Trades
Corporation. Consequently, the Pachecos
became stockholders of the corporation by
subscription.
A no-par value share does not purport to represent
any stated proportionate interest in the capital
stock measured by value, but only an aliquot part of
the whole number of such share issuing corporation.
The holder of no-par shares may see from the
certificate itself that he is an aliquot sharer in the
assets of the corporation. But this character of
proportionate interest is not hidden beneath a false
appearance of a given sum in money, as in the case

of par value shares. The capital stock of a
corporation issuing only no-par value shares is not
set forth by a stated amount of money, but instead
is expressed to be divided into a stated number of
shares, such as 1000 shares. This indicates that a
shareholder of 100 such shares is an aliquot sharer
in the assets of the corporation, no matter what
value they may have to the extent of 100/1000, or
1/10. Thus, by removing the par value of shares, the
attention of persons interested in the financial
condition of a corporation is focused upon the value
of assets and the amount of its debts.
There was no attempt to state the true or current
market value of the real estate. Land valued at
P300.00 per square meter was turned over to the
familys corporation for only P14.00 a square meter.
DISPOSITIVE: Petition granted.
6. Gamboa v. Teves, et al (2011)

FACTS:
This is a petition to nullify the sale of shares of stock of
Philippine Telecommunications Investment Corporation
(PTIC) by the government of the Republic of the
Philippines,
acting
through
the
Inter-Agency
Privatization Council (IPC), to Metro Pacific Assets
Holdings, Inc. (MPAH), an affiliate of First Pacific
Company Limited (First Pacific), a Hong Kong-based
investment management and holding company and a
shareholder of the Philippine Long Distance Telephone
Company (PLDT). The petitioner questioned the sale on
the ground that it also involved an indirect sale of 12
million shares (or about 6.3 percent of the outstanding
common shares) of PLDT owned by PTIC to First
Pacific. With the this sale, First Pacifics common
shareholdings in PLDT increased from 30.7 percent to
37 percent, thereby increasing the total common
shareholdings of foreigners in PLDT to about
81.47%. This, according to the petitioner, violates
Section 11, Article XII of the 1987 Philippine
Constitution which limits foreign ownership of the
capital of a public utility to not more than 40%.
ISSUE:
Whether or not the term capital in Section 11, Article
XII of the Constitution refer to the total common shares
only, or to the total outstanding capital stock
(combined total of common and non-voting preferred
shares) of PLDT, a public utility.
HELD:
NO. The Court partly granted the petition and held

that the term capital in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to
vote in the election of directors of a public utility, i.e.,
to the total common shares in PLDT.
It must be stressed, and respondents do not dispute,
that foreigners hold a majority of the common shares
of PLDT. In fact, based on PLDTs 2010 General
Information Sheet (GIS), which is a document required
to be submitted annually to the Securities and
Exchange Commission, foreigners hold 120,046,690
common shares of PLDT whereas Filipinos hold only
66,750,622 common shares. In other words, foreigners
hold 64.27% of the total number of PLDTs common
shares, while Filipinos hold only 35.73%. Since holding
a majority of the common shares equates to control, it
is clear that foreigners exercise control over PLDT.
Such amount of control unmistakably exceeds the
allowable 40 percent limit on foreign ownership of
public utilities expressly mandated in Section 11,
Article XII of the Constitution.
As shown in PLDTs 2010 GIS, as submitted to the SEC,
the par value of PLDT common shares is P5.00 per
share, whereas the par value of preferred shares
is P10.00 per share. In other words, preferred shares
have twice the par value of common shares but cannot
elect directors and have only 1/70 of the dividends of
common shares. Moreover, 99.44% of the preferred
shares are owned by Filipinos while foreigners own only
a minuscule 0.56% of the preferred shares. Worse,
preferred shares constitute 77.85% of the authorized
capital stock of PLDT while common shares constitute
only 22.15%. This undeniably shows that beneficial
interest in PLDT is not with the non-voting preferred
shares but with the common shares, blatantly violating
the constitutional requirement of 60 percent Filipino

control and Filipino beneficial ownership in a public
utility.
Gamboa v. Teves, et al (2012)

FACTS:
The Office of the Solicitor General (OSG) initially filed a
motion
for
reconsideration
on
behalfofthe
SEC, assailing the 28 June 2011 Decision. However, it
subsequently filed a Consolidated Comment on behalf
of the State, declaring expressly that it agrees with the
Court's definition of the term "capital" in Section 11,
Article XII of the Constitution. During the Oral
Arguments on 26 June 2012, the OSG reiterated its
position consistent with the Court's 28 June 2011
Decision.
ISSUE:
Whether or not the term "capital" in Section 11, Article
XII of the Constitution has long been settled and
defined to refer to the total outstanding shares of
stock, whether voting or non-voting.
HELD:
NO. Since a specific class of shares may have rights
and privileges or restrictions different from the rest of
the shares in a corporation, the 60-40 ownership
requirement in favor of Filipino citizens in Section 11,
Article XII of the Constitution must apply not only to
shares with voting rights but also to shares without
voting rights. Preferred shares, denied the right to vote
in the election of directors, are anyway still entitled to
vote on the eight specific corporate matters mentioned
above. Thus, if a corporation, engaged in a partially
nationalized industry, issues a mixture of common and
preferred non-voting shares, at least 60 percent of the

common shares and at least 60 percent of the
preferred non-voting shares must be owned by
Filipinos. Of course, if a corporation issues only a single
class of shares, at least 60 percent of such shares must
necessarily be owned by Filipinos. In short, the 60-40
ownership requirement in favor of Filipino citizens must
apply separately to each class of shares, whether
common, preferred non-voting, preferred voting or any
other class of shares. This uniform application of the
60-40 ownership requirement in favor of Filipino
citizens clearly breathes life to the constitutional
command that the ownership and operation of public
utilities shall be reserved exclusively to corporations at
least 60 percent of whose capital is Filipino-owned.
Applying uniformly the 60-40 ownership requirement in
favor of Filipino citizens to each class of shares,
regardless of differences in voting rights, privileges
and restrictions, guarantees effective Filipino control of
public utilities, as mandated by the Constitution.
7. Republic Planters Bank v. Agana ( GR

51765; Mar. 3, 1997)
WON the bank can be compelled to redeem the

preferred shares issued to RFRDC and Robes.
FACTS:
Private respondent Robes Francisco Realty &
Development Corp. secured a loan from petitioner. As
part of the proceeds of the loan, preferred shares of
stocks were issued to private respondent corporation.
In other words, instead of giving the legal tender
totalling to the full amount of the loan, petitioner lent
such amount partially in the form of money and of
stock certificates. Said stock certificates were in the
name of private respondent Adalia Robes and Carlos
Robes, later on, subsequently endorsed his shares in
favor of Adalia Robes.
Said certificates of stock bear the following terms and
conditions: (1) the right to receive a quarterly dividend
of 1%, cumulative and participating; (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.
Private respondents proceeded against petitioner and
filed a complaint anchored on private respondents
alleged rights to collect dividends under the preferred
shares in question and to have petitioner redeem the
same under the terms and conditions of the stock
certificates. The trial court ordered the petitioner to
pay private respondents the face value of the stock
certificates as redemption price, plus 1% quarterly
interest. Hence this petition.
ISSUE:
HELD:
NO. 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 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.
NOTE: This case gave a comprehensive overview of
the nature of preferred shares and redeemable shares.
Preferred share of stock, on one hand, is one which
entitles the holder thereof to certain preferences over
the holders of common stock. The preferences are
designed to induce persons to subscribe for shares of a
corporation. Preferred shares take a multiplicity of
forms. The most common forms may be classified into
two: (1) preferred shares as to assets; and (2)
preferred shares as to dividends. The former is a share
which gives the holder thereof preference in the
distribution of the assets of the corporation in case of
liquidation; the latter is a share the holder of which is
entitled to receive dividends on said share to the
extent agreed upon before any dividends at all are
paid to the holders of common stock. There is no
guaranty, however, that the share will receive any
dividends. The declaration of dividends is dependent
upon the availability of surplus profit or unrestricted
retained earnings, as the case may be. Preferences
granted to preferred stockholders, moreover, do not
give them a lien upon the property of the corporation
nor make them creditors of the corporation, the right
of the former being always subordinate to the latter.
Dividends are thus payable only when there are profits
earned by the corporation and as a general rule, even
if there are existing profits, the board of directors has
the discretion to determine whether or not dividends
are to be declared.
Redeemable shares, on the other hand, are shares
usually preferred, which by their terms are redeemable
at a fixed date, or at the option of either issuing

corporation, or the stockholder, or both at a certain
redemption price. Redemption by the corporation of its
stock is, in a sense, a repurchase of it for cancellation.
The present Code allows redemption of shares even if
there are no unrestricted retained earnings on the
books of the corporation. This is a new provision which
in effect qualifies the general rule that the corporation
cannot purchase its own shares except out of current
retained earnings. However, while redeemable shares
may be redeemed regardless of the existence of
unrestricted retained earnings, this is subject to the
condition that the corporation has, after such
redemption, assets in its books to cover debts and
liabilities inclusive of capital stock. Redemption,
therefore, may not be made where the corporation is
insolvent or if such redemption will cause insolvency or
inability of the corporation to meet its debts as they
mature.
8. COCOFED v. RP
178193; 180705)
(GR
Nos.
177857-58;
FACTS:
COCOFED seeks the Courts approval of the conversion
of Class A and Class B common shares of San
Miguel Corporation (SMC) registered in the names of
Coconut Industry Investment Fund and the so-called
14 Holding Companies (collectively known as CIIF
companies) into SMC Series 1 Preferred Shares.
COCOFED proposes to constitute a trust fund to be
known as the Coconut Industry Trust Fund (CITF) for
the Benefit of the Coconut Farmers, with respondent
Republic, acting through the Philippine Coconut
Authority (PCA), as trustee. Respondent Republic filed
its Comment questioning COCOFEDs personality to
seek the Courts approval of the desired conversion.
Respondent Republic also disputes COCOFEDs right to
impose and prescribe terms and conditions on the
proposed conversion, maintaining that the CIIF SMC
common shares are sequestered assets and are in
custodia legis under PCGGs administration. It
postulates that, owing to the sequestrated status of
the said common shares, only PCGG has the authority
to approve the proposed conversion and seek the
necessary Court approval.
ISSUE:
Conversion of Shares.
HELD:
The court resolved to approve the conversion, taking

into account certain circumstances and hard economic
realities as discussed below:
No doubt shares of stock are not the safest of
investments, moored as they are on the ever changing
worldwide and local financial conditions. The proposed
conversion would provide better protection either to
the government or to the eventually declared real
stock owners, depending on the final ruling on the
ownership issue. In the event SMC suffers serious
financial reverses in the short or long term and seeks
insolvency protection, the owners of the preferred
shares, being considered creditors, shall have, vis--vis
common stock shareholders, preference in the
corporate assets of the insolvent or dissolved
corporation. In the case of the SMC Series 1 Preferred
Shares, these preferential features are made available
to buyers of said shares and are amply protected in the
investment.
The redemption value of the preferred shares depends
upon and is actually tied up with the issue price plus all
the cumulated and unpaid dividends. This redemption
feature is envisaged to effectively eliminate the market
volatility risks on the side of the share owners.
Undoubtedly, these are clear advantages and benefits
that inure to the share owners who, on one hand,
prefer a stable dividend yield on their investments and,
on the other hand, want security from the uncertainty
of market forces over which they do not have control.
The proposed conversion will address the concerns and
allay the fears of well meaning sectors, and insulate
and protect the sequestered CIIF SMC shares from
potential damage or loss. Moreover, the conversion
may be viewed as a sound business strategy to
preserve and conserve the value of the governments

interests in CIIF SMC shares. Preservation is attained
by fixing the value today at a significant premium over
the market price and ensuring that such value is not
going to decline despite negative market conditions.
Conservation is realized thru an improvement in the
earnings value via the 8% per annum dividends versus
the uncertain and most likely lower dividends on
common shares.
NOTE: This case discussed the classification of shares,
its voting and non-voting rights and instances of
appraisal right. Treasury stocks was emphasized The common shares after conversion and release from
sequestration become treasury stocks or shares.
Treasury shares are shares of stock which have been
issued and fully paid for, but subsequently reacquired
by the issuing corporation by purchase, redemption,
donation or through some other lawful means. Such
shares may again be disposed of for a reasonable price
fixed by the board of directors.
A treasury share or stock, which may be common or
preferred, may be used for a variety of corporate
purposes, such as for a stock bonus plan for
management and employees or for acquiring another
company. It may be held indefinitely, resold or retired.
While held in the companys treasury, the stock earns
no dividends and has no vote in company affairs.
9. Garcia v. Lim Chu Sing 59 Phil. 562 (1934)

HELD:
FACTS:
Lim Cuan Sy had an account with the Mercantile Bank
of China (plaintiff bank) in the form of "trust receipts"
guaranteed by Lim Chu Sing (respondent) as surety &
with chattel mortgage securities. Lim Cuan Sy failed to
comply with his obligations. The plaintiff bank required
Lim Chu Sing, as surety, to deliver a promissory note.
The plaintiff bank, without the knowledge & consent of
the defendant, foreclosed the chattel mortgage and
privately sold the property covered thereby. The
defendant is an owner of shares of stock in the plaintiff
bank.
Meanwhile, plaintiff bank was subsequently placed
under liquidation. The defendant filed a motion for the
inclusion of the principal debtor Lim Cuan Sy as party
defendant with the CFI-Manila so that he could avail
himself of the benefit of the exhaustion of the property
of said Lim Cuan Sy. The motion was denied. The
proceeds of the sale of the mortgaged chattels
together with other payments made were applied to
the amount of the promissory note in question, leaving
the balance which the plaintiff now seeks to collect.
ISSUE:
WON it is proper to COMPENSATE the respondents
indebtedness to the value of his shares of stock with
the Mercantile Bank of China.
NO. A share of stock or the certificate thereof is not

indebtedness to the owner nor evidence of
indebtedness and therefore, it is not a credit.
Stockholders as such are not creditors of the
corporation.
The capital stock of a corporation is a trust fund to be
used more particularly for the security of the creditors
of the corporation who presumably deal with it on the
credit of its capital.
10.
Apodaca v. NLRC 172 SCRA 442
FACTS:
Petitioner Apocada was employed in respondent
corporation. On August 28, 1985, respondent Jose M.
Mirasol persuaded petitioner to subscribe to 1,500
shares of respondent corporation at P100.00 per share
or a total of P150,000.00. He made an initial payment
of P37,500.00. On September 1, 1975, petitioner was
appointed President and General Manager of the
respondent corporation. However, on January 2, 1986,
he resigned.
On December 19, 1986, petitioner instituted with the
NLRC a complaint against private respondents
(Apocada and Intrans Phils., Inc.) for the payment of
his unpaid wages, his cost of living allowance, the
balance of his gasoline and representation expenses
and his bonus compensation for 1986. Petitioner and
private respondents submitted their position papers to
the labor arbiter. Private respondents admitted that
there is due to petitioner the amount of P17,060.07 but
this was applied to the unpaid balance of Apocadas
subscription in the amount of P95,439.93. Petitioner
questioned the set-off alleging that there was no call or
notice for the payment of the unpaid subscription and
that, accordingly, the alleged obligation is not
enforceable.
Labor arbiter sustained the claim of petitioner for
P17,060.07 on the ground that the employer has no
right to withhold payment of wages already earned

under Article 103 of the Labor Code.
NLRC reversed the decision of the labor arbiter and
held that a stockholder who fails to pay his unpaid
subscription on call becomes a debtor of the
corporation and that the set-off of said obligation
against the wages and others due to petitioner is not
contrary to law, morals and public policy.
Hence, the instant petition, which was treated as a
special civil action for certiorari.
ISSUE:
Whether or not an obligation arising from non-payment
of stock subscriptions to a corporation can be offset
against a money claim of an employee against the
employer.
HELD:
NLRC has no jurisdiction to determine such intracorporate dispute between the stockholder and the
corporation as in the matter of unpaid subscriptions.
This controversy is within the exclusive jurisdiction of
the Securities and Exchange Commission (now RTC).
No. The unpaid subscriptions are not due and payable
until a call is made by the corporation for payment.
Private respondents have not presented a resolution of
the board of directors of respondent corporation calling
for the payment of the unpaid subscriptions. It does
not even appear that a notice of such call has been
sent to petitioner by the respondent corporation. As
there was no notice or call for the payment of unpaid

subscriptions, the same is not yet due and payable.
Even if there was a call for payment, an obligation
arising from non-payment of stock subscriptions to a
corporation cannot be offset against a money claim of
an employee against the employer. Article 113 of the
Labor Code allows such a deduction from the wages of
the employees by the employer, only in three
instances, to wit:
ART. 113. Wage Deduction. No employer, in his own
behalf or in behalf of any person, shall make any
deduction from the wages of his employees, except:
(a) In cases where the worker is insured with his
consent by the employer, and the deduction is to
recompense the employer for the amount paid
by him as premium on the insurance;
(b)For union dues, in cases where the right of the
worker or his union to checkoff has been
recognized by the employer or authorized in
writing by the individual worker concerned; and
(c) In cases where the employer is authorized by law
or regulations issued by the Secretary of Labor.
11.
National Exchange v. Dexter 51 Phil.
601 (1928)
supplied personally by the subscriber. Beyond this

nothing has been paid on the shares and no further
dividend has been declared by the corporation.
FACTS:
This action was instituted in the Court of First Instance

of Manila by the National Exchange Co., Inc., as
assignee (through the Philippine National Bank) of C. S.
Salmon & Co., for the purpose of recovering from I. B.
Dexter a balance of P15,000, the par value of one
hundred fifty shares of the capital stock of C. S. Salmon
& co., with interest and costs. Upon hearing the cause
the trial judge gave judgment for the plaintiff to
recover the amount claimed, with lawful interest from
January 1, 1920, and with costs. From this judgment
the defendant appealed.
It appears that on August 10, 1919, the defendant, I. B.
Dexter, signed a written subscription to the corporate
stock of C. S. Salmon & Co. in the following form:
I hereby subscribe for three hundred (300)
shares of the capital stock of C.
S.
Salmon and Company, payable from the first
dividends declared on any and all shares of
said company owned by me at the time
dividends are
declared, until the full
amount of this subscription has been paid.
Upon this subscription the sum of P15,000 was paid in
January, 1920, from a dividend declared at about that
time by the company, supplemented by money
ISSUE:
Whether the stipulation contained in the subscription
to the effect that the subscription is payable from the
first dividends declared on the shares has the effect of
relieving the subscriber from personal liability in an
action to recover the value of the shares. (NO)
HELD:
In the absence of restrictions in its character, a
corporation, under its general power to contract, has
the power to accept subscriptions upon any special
terms not prohibited by positive law or contrary to
public policy, provided they are not such as to require
the performance of acts which are beyond the powers
conferred upon the corporation by its character, and
provided they do not constitute a fraud upon other
subscribers or stockholders, or upon persons who are
or may become creditors of the corporation.
A provision in the Corporation states: ". . . no
corporation shall issue stock or bonds except in
exchange for actual cash paid to the corporation or for
property actually received by it at a fair valuation
equal to the par value of the stock or bonds so issued."
Now, if it is unlawful to issue stock otherwise than as
stated it is self-evident that a stipulation such as that
now under consideration, in a stock subcription, is
illegal, for this stipulation obligates the subscriber to

pay nothing for the shares except as dividends may
accrue upon the stock. In the contingency that
dividends are not paid, there is no liability at all. This is
a discrimination in favor of the particular subscriber,
and hence the stipulation is unlawful.
Corpus Juris:
Nor has a corporation the power to receive a
subscription upon such terms as will operate as a fraud
upon the other subscribers or stockholders by
subjecting the particular subcriber to lighter burdens,
or by giving him greater rights and privileges, or as a
fraud upon creditors of the corporation by withdrawing
or decreasing the capital.
As a general rule, an agreement between the
corporation and a particular subscriber that the
subscription is not to be payable, or is to be payable in
part only is illegal and void as it constitutes fraud
toother stockholders or creditors,whether it is for the
purpose of making the stock seem greater than it is, or
for the purpose of preventing the predominance of
certain stockholders, or for any other purpose thus, the
agreement cannot be enforced by the subscriber or
interpose it as a defense in an action on the
subscription.
"Conditions attached to subscriptions, which, lessen
the capital of the company, are a fraud upon the
grantor of the franchise, and upon those who may
become creditors of the corporation, and upon
unconditional stockholders."
12.
Velasco v. Poizat 37 Phil. 802 (1918)

YES. A stock subscription is a contract between the
corporation and the subscriber, and the courts will
enforce it either for or against the other.
FACTS:
The Philippine Chemical Product Co. submitted a
resolution in a board meeting, in which they released
Infante, a stockholder, from his obligation of paying his
unpaid subscription in the amount of P1,500 and it is
conditioned upon his surrendering his
certificates of shares of stock. In the same resolution,
Poizat was obligated to shell out the amount of his
subscription valued at P1,500, and if he should refuse
to make payment, judicial proceedings against him
may be undertaken by the corporation through its
management.
Thereafter, the company underwent voluntary
insolvency proceedings. The assignee of the company,
Velasco, sought to recover the amount owed by Poizat.
Nevertheless, the latter
denied any accountability to pay the amount. Poizat
asserted the invalidity of making the call, and he
asserted that he was given the same rights as that
given to Infante. The CFI dismissed the complaint filed
by Velasco against Poizat. Thus, Velasco appealed to
the SC.
ISSUE:
Whether or not
subscription.
HELD:
Poizat
is
liable
for
his
unpaid
The law recognizes that a stock subscription is a

subsisting liability from the time the subscription is
made, since it requires the subscriber to pay interest
quarterly from the date of the subscription, unless he
is relieved from such liability in the by-laws of the
corporation.
The subscriber is as much bound to pay for his
subscription as he would any other debt. The law also
provides 2 remedies to enforce stock subscriptions.
The first consists in permitting the corporation to put
up the unpaid stock for sale and dispose of it for the
account of the delinquent subscriber. The other
remedy is for the directors to file an action in court. An
assignee of an insolvent corporation, by stepping into
the shoes of the same, 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 a stock
subscription as the directors themselves would have.
Also, when insolvency supervenes upon a corporation
and the court assumes jurisdiction to wind it 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. A subscriber cannot be permitted to
escape 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 mode of making
the call becomes impracticable, the obligation must be

deemed as being due upon demand.
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.
13.
Lingayen Gulf Electric v. Baltazar 93
Phil. 404 (1953)
FACTS:
The plaintiff, Lingayen Gulf Electric Power Company is
a domestic corporation with an authorized capital
stock of P300,000 divided into 3,000 shares with a par
value of P100 per
share. The defendant, Irineo Baltazar appears to have
subscribed for 600 shares on account of which he had
paid upon the organization of the corporation the sum
of P15,000. After incorporation, the defendant made
further payments on account of his subscription,
leaving a balance of P18,500 unpaid for, which
amount, the plaintiff now claims in this action.
On July 23, 1946, a majority of the stockholders of the
corporation, among them the herein defendant, held a
meeting and adopted stockholders' resolution No. 17.
By said resolution, it was agreed upon by the
stockholders present to call the balance of all unpaid
subscribed capital stock as of July 23, 1946, the first 50
per cent payable within 60 days beginning August 1,
1946, and the remaining 50 per cent payable within 60
days beginning October 1, 1946. The resolution also
provided, that all unpaid subscription after the due
dates of both calls would be subject to 12 per cent
interest per annum. Lastly, the resolution provided,
thatafter the expiration of 60 days' grace which would
be on December 1, 1946, for the first call, and on
February 1, 1947, for the second call, all subscribed
stocks remaining
corporation.
unpaid
would
revert
to
the
On September 22, 1946, the plaintiff corporation wrote

a letter to the defendant reminding him that the first
50 per cent of his unpaid subscription would be due on
October 1, 1946. The plaintiff requested the defendant
to "kindly advise the company thru the undersigned
your decision regarding this matter." The defendant
answered on September 25, 1946, asking the
corporation that he be allowed to pay his unpaid
subscription by February 1, 1947.
In his answer, the defendant also agreed that if he
could not pay the balance of his subscription by
February 1, 1947, his unpaid subscription would be
reverted to the corporation.
On December 19, 1947, the defendant wrote another
letter to the members of the Board of Directors of the
plaintiff corporation, offering to withdraw completely
from the corporation by selling out to the corporation
all his shares of stock in the total amount of P23,000.
Apparently this offer of the defendant was left unacted
upon by the plaintiff.
On April 17, 1948, the Board of Directors of the plaintiff
corporation held a meeting, and in the course of the
said meeting they adopted Resolution No. 17. This
resolution in effect set aside the stockholders
resolution approved on June 23, 1946, on the ground
that said stockholders' resolution was null and void,
and because the plaintiff corporation was not in a
financial position to absorb the unpaid balance of the
subscribed capital stock. At the said meeting the

directors also decided to call 50 per cent of the unpaid
subscription within 30 days from April 17, 1948, the
call payable within 60 days from receipt of notice from
the Secretary-Treasurer. This resolution also authorized
legal counsel of the company to take all the necessary
legal steps for the collection of the payment of the call.
On June 10, 1949, the stockholders of the corporation
held another meeting in which the stockholders were
all present, either in person or by proxy. At such
meeting, the stockholders
adopted resolution No. 4, whereby it was agreed to
revalue the stocks and assets of the company so as to
attract outside investors to put in money for the
rehabilitation of the company. The president was
authorized to make all arrangement for such appraisal
and the Secretary to call a meeting upon completion of
the reassessment.
It was admitted by the defendant that he received
notice from the Secretary-Treasurer of the company,
demanding payment of the unpaid balance of his
subscription. It was agreed by the parties that the call
of the Board of Directors was not published in a
newspaper of general circulation as required by section
40 of the Corporation Law.
On September 28, 1949, the legal counsel of the
plaintiff corporation wrote a letter to the defendant,
demanding the payment of the unpaid balance of his
subscription amounting to
P18,500. Copy of this letter was sent by registered mail
to the defendant on September 29,1949. The
defendant ignored the said demand.
ISSUES:
1. Whether or not the call was valid
2. Whether or not the defendant was released from
the obligation of the unpaid balance of his
subscription by virtue of stockholders' resolution
Nos. 17 and 4
HELD:
1. No. The law requires that notice of any call for the
payment of unpaid subscription should be made not
only personally but also by publication. This is clear
from the provisions of Section 40 of the Corporation
Law, Act No. 1459, as amended, which reads as
follows:
SEC. 40. Notice of call for unpaid subscriptions must
be either personally served upon each stockholder
or deposited in the post office, postage prepaid,
addressed to him at his place of residence, if
known, and if not known, addressed to the place
where the principal office of the corporation is
situated. The notice must also be published once a
week for four successive weeks in some newspaper
of general circulation devoted to the publication of
general news published at the place where the
principal office of the corporation is established or
located, and posted in some prominent place at the
works of the corporation if any such there be. If
there be no newspaper published at the place
where the principal office of the corporation is
established or located, then such notice may be
published in any newspaper of general news in the
Philippines.
It will be noted that section 40 is mandatory as

regards publication, using the word "must". As
correctly stated by the trial court, the reason for the
mandatory provision is not only to assure notice to
all subscribers, but also to assure equality and
uniformity in the assessment on stockholders.
2. No. The authorities are generally agreed that in
order to effect the release, there must be
unanimous consent of the stockholders of the
corporation. We quote some authorities:
Subject to certain exceptions, considered in
subdivision (3) of this section, the general rule is
that a valid and binding subscription for stock of a
corporation cannot be cancelled so as torelease the
subscriber from liability thereon without the consent
of all the stockholders or subscribers. Furthermore,
a subscription cannot be cancelled by the company,
even under a secret or collateral agreement for
cancellation made with the subscriber at the time of
the subscription,
as
against persons
who
subsequently subscribed or purchased without
notice of such agreement.
Exceptions: In particular circumstances, as where
it is given pursuant to a bona fide compromise, or to
set off a debt due from the corporation, a release,
supported by consideration, will be effectual as
against dissenting stockholders and subsequent and
existing creditors. A release which might originally
have been held invalid may be sustained after a
considerable lapse of time.
In the present case, the release claimed by
defendant and appellant does not fall under the
exception above referred to, because it was not

given pursuant to a bona fide compromise, or to set
off a debt due from the corporation, and there was
no consideration for it.
14.
Da Silva v. Aboitiz 44 Phil. 755 (1923)
subscription, together with accrued interest and costs

and expenses incurred.
FACTS:
De Silva subscribed to 650 shares and paid for 200.
The company notified him that his shares will be
declared delinquent and sold in a public auction if he
does not pay the balance. De Silva did not pay. The
company advertised a notice of delinquency sale. De
Silva sought an injunction because the by-laws
allegedly provide that unpaid subscriptions will be paid
from the dividends allotted to stockholders.
ISSUE:
WON De Silva is liable despite the provision in the bylaws regarding dividends as payment for unpaid
subscriptions.
HELD:
YES. Although, the by-laws provide that unpaid
subscriptions may be paid from such dividends The
defendant corporation, through its board of directors,
made use of its discretionary power, taking advantage
of the first of the two remedies: delinquency sale or
specific performance.
Settled is the rule that nothing in this act shall prevent
the directors from collecting, by action in any court of
proper jurisdiction, the amount due on any unpaid
15.
Lumanlan v. Cura 59 Phil. 746 (1934)
FACTS:
The appellant is a corporation duly organized under
the laws of the Philippine Islands with its central office
in the City of Manila. The plaintiff-appellee Bonifacio
Lumanlan, on July 31, 1922, subscribed for 300 shares
of stock of said corporation at a par value of P50 or a
total of P15,000. Julio Valenzuela, Pedro Santos and
Francisco Escoto, creditors of this corporation, filed suit
against it in the Court of First Instance of Manila, case
No. 37007, praying that a receiver be appointed, as it
appeared that the corporation at that time had no
assets except credits against those who had
subscribed for shares of stock. The court named Tayag
as receiver for the purpose of collecting, said
subscriptions. As Bonifacio Lumanlan had only paid
P1,500 of the P15,000, par value of the stock for which
he subscribed, the receiver on August 30, 1930, filed a
suit against him in the Court of First Instance of Manila,
civil case No. 37492, for the collection of P15,109,
P13,500 of which was the amount he owed for unpaid
stock and P1,609 for loans and advances by the
corporation to Lumanlan. In that case Lumanlan was

sentenced to pay the corporation the above-mentioned
sum of P15,109 with legal interest thereon from August
30, 1930, and costs. Lumanlan appealed from this
decision.
ISSUE:
Whether or not Bonifacio Lumanlan is entitled to a
credit against the judgment in case No. 37492 for
P11,840 and an additional sum of P2,000, which is 25
per cent on the principal debt, as he had to file this
suit to collect, or receive credit for the sum which he
had paid Valenzuela for and in place of the corporation,
or a total of P13,840.
HELD:
YES. It appears from the record that during the trial of
the case now under consideration, the Bank of the
Philippine Islands appeared in this case as assignee in
the "Involuntary Insolvency of Dizon & Co., Inc. That
bank was appointed assignee in case No. 43065 of the
Court of First Instance of the City of Manila on
November 28, 1932. It is therefore evident that there
are still other creditors of Dizon & Co., Inc. This being
the case that corporation has a right to collect all
unpaid stock subscriptions and any other amounts
which may be due it.
It is established doctrine that subscriptions to the
capital of a corporation constitute a fund to which the
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.

The Corporation Law clearly recognizes that a stock
subscription is a 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.
16.
China Banking Corp. v. CA GR 117604
(Mar. 26, 1997)
FACTS:
Galicano Calapatia, stockholder of Valley Golf and
Country Club Inc. (VGCCI), pledged his stock certificate
to petitioner as a security for the loan. Petitioner
requested VGCCI that the pledge agreement be
recorded in their books. Due to Calapatia failure to pay,
petitioner filed a petition for extrajudicial foreclosure of
pledged stock; notified and ordered VGCCI to transfer
the pledged stock in its name and in the corporate
books. VGCCI refused in view of Calapatias unsettled
accounts with the club.
Despite the refusal, the foreclosure ensued and
petitioner emerged the highest bidder and a certificate
of sale was issued. Meanwhile, VGCCI sent a notice of
demand to Calapatia for the full payment of his
overdue account. For failure to pay, the delinquent
stock was published and auctioned.
Petitioner advised VGCCI that it is the new owner of
Calapatias stock certificate and requested that a new
certificate of stock be issued in its name. VGCCI replied
that by reason of delinquency, Calapatias stock was
sold at public auction. Petitioner protested the sale and
filed a complaint for the nullification of auction made
by VGCCI in the RTC of Makati. The trial court
dismissed the complaint on the ground of intracorporate controversy.
Thereafter, petitioner filed a complaint in SEC on the

same grounds. SEC ruled in favor of VGCCI. Petitioner
appealed to SEC en banc and the latter reversed the
decision. VGCCI appealed to CA and the latter set aside
the orders of SEC on the ground of lack of jurisdiction
because
it
does
not
involve
intra-corporate
controversy.
ISSUE:
Unpaid Claim with regards to unpaid subscription.
HELD:
Sec. 63 of the Corporation Code which provides that
"no shares of stock against which the corporation holds
any unpaid claim shall be transferable in the books of
the corporation" cannot be utilized by VGCCI. The term
"unpaid claim" refers to "any unpaid claim arising from
unpaid subscription, and not to any indebtedness
which a subscriber or stockholder may owe the
corporation arising from any other transaction.
In the case at bar, the subscription for the share in
question has been fully paid as evidenced by the
issuance of Membership Certificate No. 1219. What
Calapatia owed the corporation were merely the
monthly dues. Hence, the aforequoted provision does
not apply.
17.
Fua Cun v. Summers, et al.44 Phil.
704 (1923)
FACTS:
It appears from the evidence that on August 26, 1920,
one Chua Soco subscribed for five hundred shares of
stock of the defendant Banking Corporation at a par
value of P100 per share, paying the sum of P25,000,
one-half of the subscription price, in cash, for which a
receipt was issued.
On May 18, 1921, Chua Soco executed a promissory
note in favor of the plaintiff Fua Cun for the sum of
P25,000 payable in ninety days and drawing interest at
the rate of 1 per cent per month, securing the note
with a chattel mortgage on the shares of stock
subscribed for by Chua Soco, who also endorsed the
receipt above mentioned and delivered it to the
mortgagee. The plaintiff thereupon took the receipt to
the manager of the defendant Bank and informed him
of the transaction with Chua Soco, but was told to
await action upon the matter by the Board of Directors.
In the meantime Chua Soco appears to have become
indebted to the China Banking Corporation in the sum
of P37,731.68 for dishonored acceptances of
commercial paper and in an action brought against
him to recover this amount, Chua Soco's interest in the
five hundred shares subscribed for was attached and
the receipt seized by the sheriff. The attachment was
levied after the defendant bank had received notice of
the facts that the receipt had been endorsed over to
the plaintiff. Fua Cun thereupon brought the present

action maintaining that by virtue of the payment of the
one-half of the subscription price of five hundred
shares Chua Soco in effect became the owner of two
hundred and fifty shares and praying that his, the
plaintiff's, lien on said shares, by virtue of the chattel
mortgage, be declared to hold priority over the claim
of the defendant Banking Corporation; that the
defendants be ordered to deliver the receipt in
question to him; and that he be awarded the sum of
P5,000 in damages for wrongful attachment.
ISSUE:
WON petitioner is entitled to issuance of stock
certificate.
HELD:
NO. A subscriber does not become the owner of a
particular number of shares corresponding to the
amount he already paid but merely holds a right of
equity in the total number of shares subscribed.
Complete ownership over the total number of shares
subscribed will only vest with the stockholder upon
payment of the whole subscription price.
In the absence of special agreement to the contrary, a
subscriber for a certain number of shares of stock does
not, upon payment of one-half of the subscription price
become entitled to the issuance of certificates for onehalf of the number of shares subscribed for; the
subscriber's right consists only in equity entitling him
to a certificate for the total number of shares
subscribed for by him upon payment of the remaining

portion of the subscription price.
18.
Baltazar v. Lingayen Gulf 14 SCRA
522 (1965)
FACTS:
The Lingayen Gulf Electric Power Co., Inc., hereinafter
referred to as Corporation, was doing business in the
Philippines, with principal offices at Lingayen,
Pangasinan, and with an authorized capital stock of
P300.000.00 divided into 3,000 shares of voting stock
at P100.00 par value, per share. Plaintiffs Baltazar and
Rose were among the incorporators, having subscribed
to 600 and 400 shares of the capital stock, or a total
par value of P60,000.00 and P40.000.00, respectively.
It is alleged that it has always been the practice and
procedure of the Corporation to issue certificates of
stock to its individual subscribers for unpaid shares of
stock. Of the 600 shares of capital stock subscribed by
Baltazar, he had fully paid 535 shares of stock, and the
Corporation issued to him several fully paid up and
non-assessable certificates of stock, corresponding to
the 535 shares. After having made transfers to third
persons and acquired new ones, Baltazar had to his
credit, on the filing of the complaint 341 shares fully
paid and non-assessable.
The respondents Ungson, Estrada, Fernandez and
Yuson were small stockholders of the Corporation, all
holding a total number of fully paid-up shares of stock,
of not more than 100 shares, with a par value of
P10,000.00 and the defendant Acena, was likewise an
incorporator and stockholder, holding 600 shares of
stock, for which certificate of stock were issued to him
and as such, was the largest individual stockholder

thereof. Defendants Ungson, Estrada, Fernandez and
Yuzon, constituted the majority of the holdover sevenmember Board of Directors of the Corporation, in 1955,
two (2) of said defendants having been elected as
members of the Board in the annual stockholders'
meeting held in May 1954, largely on the vote of their
co-defendant Acena, while the other two (2) were
elected mainly on the vote of the plaintiffs and their
group of stockholders. Let the first group be called the
Ungson group and the second, the Baltazar group.
ISSUE:
WON petitioner is entitled to issuance of stock
certificate.
HELD:
YES. The Court held that shares of stock covered by
fully paid capital stock shares certificates are entitled
to vote. Where the corporation has issued certificate of
stock of a definite number corresponding to the initial
payment made on the subscription, said shares may
validly be voted at all meetings and only the remaining
number of shares in the unpaid subscription will be
affected by the call and subsequent declaration of
delinquency in case of non-payment of the
subscription balance.
Corporation may choose to apply payments to
subscription either as: (a) full payment for
corresponding number of stock the par value of which
is covered by such payment; or (b) as payment pro-
rata to each subscribed share. The corporation chose

the first option, and, having done so, it cannot
unilaterally nullify the certificates issued.
19.
Nava v. Peers Mktg. Corp.76 SCRA 65
(1976)
WON the shares may be transferred in the books of the

corporation and may stock certificate be issued.
HELD:
FACTS:
Teofilo Po as an incorporator subscribed to 80

shares of Peers Marketing Corporation at P100 PV
and paid 25%. No certificate of stock was issued to
him or to any incorporator, subscriber or
stockholder.
April 2, 1966: Po sold to Ricardo A. Nava for P2,000
20 of 80 shares
Nava requested to register the sale in the books of
the corporation.
o denied - Po has not paid fully the amount of
his subscription
o Po was delinquent of the balance due so the
corporation claimed on his entire subscription
of which included 20 shares sold to Nava.
December 21, 1966: Nava filed this mandamus to
register 20 shares in Nava's name in the
corporation's transfer book.
CFI: court dismissed the petition
Nava appealed on the basis that
o Section 37: "no certificate of stock shall be
issued to a subscriber as fully paid up until
the full
par
value thereof,
or
the full
subscription in case of no par stock, has been
paid by him to the corporation"
ISSUE:
NO. It was held that the transfer is effective only

between Co and Nava and does not affect the
corporation. The Fua Cun ruling applies. Lingayen
Gulf does not apply because, unlike in Lingayen Gulf,
no certificate of stock was issued to Co.
No shares of stock against which the corporation holds
an unpaid claim are transferable in the books of the
corporation. Mandamus will not lie to compel corporate
officers to record the transfer of shares in its books
where no shares of stocks were issued for the unpaid
subscription. The issuance of the certificate of stock,
its indorsement and delivery to the transferee, and the
surrender thereof to the corporation are requisites for
the recording of the transfer in the corporate books.
CAMPOS NOTES: The Nava case reinforced the ruling
in the Fua Cun case, making it clear that the decision
in Lingayen Gulf case should be applicable only to
the special circumstances appearing there.
Section 64 of the Code clearly supports the Fua Cun
case and its prohibitory language seems to rule out an
agreement contrary to its provisions. The rule applies
to par and no par stocks leaving no room for the
application of the Lingayen Gulf case.
20.
Tan v. SEC (206 SCRA 740)
FACTS:
Respondent corporation was registered on October 1,
1979. As incorporator, petitioner had four hundred
(400) shares of the capital stock standing in his name
at the par value of P100.00 per share, evidenced by
Certificate of Stock No. 2. He was elected as President
and subsequently reelected, holding the position as
such until 1982 but remained in the Board of Directors
until April 19, 1983 as director.
On January 31, 1981, while petitioner was still the
president of the respondent corporation, two other
incorporators, namely, Antonia Y. Young and Teresita Y.
Ong, 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-in-trade.
Petitioner's certificate of stock No. 2 was cancelled by
the corporate secretary and respondent Patricia Aguilar
by virtue of Resolution No. 1981 (b), 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
(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
and on March 27, 1981, the minutes of said meeting
was filed with the SEC. These facts stand
unchallenged.
ISSUE:
Whether or not the 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. (YES)
HELD:
Under the instant case, the fact of the matter is, the
new holder, Angel S. Tan has already exercised his
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.
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.
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 transferors creditor may
have under the law, except insofar as such rights or
defenses are subject to the limitations imposed by the
principles governing estoppel."
In the case at bar, a by-law which prohibits a transfer
of stock without the consent or approval of all the
stockholders or of the President or Board of Directors is
illegal as constituting undue limitation on the right of
ownership and in restraint of trade.
While Sec. 47 (9) of the Corporation Code grants to
stock corporations the authority to determine in the
by-laws the "manner of issuing certificates" of shares
of stock, however, the power to regulate is not the
power to prohibit, or to impose unreasonable
restrictions of the right of stockholders to transfer their
shares. To uphold the cancellation of a stock
certification as null and void for lack of delivery of the
cancelled "mother" certificate whose endorsement was
deliberately withheld by petitioner, is to prescribe
certain restrictions on the transfer of stock in violation
of the Corporation Code as the only law governing

transfer of stocks.
21.
Nautica Canning Corp. Yumul GR
164588 (Oct. 19, 2005)
WON Yumul is a stockholder. (Proof of Ownership of

Shares)
FACTS:
Yumul was appointed Chief Operating Officer/General
Manager of Nautica. First Dominion Prime Holdings,
Inc., Nauticas parent company, through its Chairman
Alvin Y. Dee, granted Yumul an Option to Purchase up
to 15% of the total stocks it subscribed from Nautica. A
Deed of Trust and Assignment was executed between
First Dominion Prime Holdings, Inc. and Yumul whereby
the former assigned 14,999 of its subscribed shares in
Nautica to the latter.
After Yumuls resignation from Nautica, he wrote a
letter to Dee requesting the latter to formalize his offer
to buy Yumuls 15% share in Nautica and demanding
the issuance of the corresponding certificate of shares
in his name should Dee refuse to buy the same. Dee
denied the request claiming that Yumul was not a
stockholder of Nautica. Yumul requested that the Deed
of Trust and Assignment be recorded in the Stock and
Transfer Book of Nautica, and that he, as a stockholder,
be allowed to inspect its books and records. Yumuls
requests were denied. Yumul filed a petition for
mandamus praying that the Deed of Trust and
Assignment be recorded in the Stock and Transfer Book
of Nautica and that the certificate of stocks
corresponding thereto be issued in his name.
ISSUE:
HELD:
YES. Indeed, it is possible for a business to be wholly
owned by one individual.
The validity of its
incorporation is not affected when such individual
gives nominal ownership of only one share of stock to
each of the other four incorporators. This is not
necessarily illegal. But, this is valid only between or
among the incorporators privy to the agreement. It
does bind the corporation which, at the time the
agreement is made, was non-existent.
Thus,
incorporators continue to be stockholders of a
corporation unless, subsequent to the incorporation,
they have validly transferred their subscriptions to the
real parties in interest.
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 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.
22.
Lao v. Lao GR 170585 (Oct 6, 2008)
FACTS:
Petitioners David and Jose Lao filed a petition with the
SEC against respondent Dionisio Lao, president of
Pacific Foundry Shop Corporation (PFSC). Petitioners
prayed for a declaration as stockholders and directors
of PFSC, issuance of certificates of shares in their name
and to be allowed to examine the corporate books of
PFSC.
Petitioners claimed that they are stockholders of PFSC
based on the General Information Sheet filed with the
SEC, in which they are named as stockholders and
directors of the corporation. David Lao acquired his
shares from his father and Jose Lao from respondent
himself. Respondent denied petitioners' claim. He also
claimed that petitioners did not acquire any shares in
PFSC by any of the modes recognized by law, namely
subscription, purchase, or transfer.
Meanwhile, R.A. 8799, otherwise known as the
Securities Regulation Code, was enacted, transferring
jurisdiction over all intra-corporate disputes from the
SEC to the RTC. RTC denied their petition on the ground
that they have no stock certificates in their names.
ISSUE:
Is the mere inclusion as shareholder in the General
Information Sheet of a corporation sufficient proof that
one is a shareholder in such corporation?
HELD:
NO. The mere inclusion as shareholder of petitioners in
the General Information Sheet of PFSC is insufficient
proof that they are shareholders of the company. The
information in the document will still have to be
correlated with the corporate books of PFSC.
A certificate of stock is the evidence of a holder's
interest and status in a corporation. It is a written
instrument signed by the proper officer of a
corporation stating or acknowledging that the person
named in the document is the owner of a designated
number of shares of its stock. It is prima facie evidence
that the holder is a shareholder of a corporation.
23.
Fleischer v. Botica Nolasco (1925) 47
Phil. 583
FACTS:
Manuel Gonzales made a written statement to the
respondent, requesting that 5 shares of stock sold by
him to Henry Fleischer be noted transferred to
Fleischer's name. He also acknowledged in said written
statement the preferential right of the corporation to
buy said five shares but later withdrew and cancelled
his written statement. However, the respondent
replied that his letter was of no effect, and that the
shares in question had been registered in the name of
the Botica Nolasco, Inc.
Fleischer filed an amended complaint against the
respondent, alleging that he became the owner of 5
shares of fully paid stock purchase by him from the
original owner, Manuel Gonzalez. Despite repeated
demands, respondent refused to register said shares in
his name in the books of the corporation. Respondents
defense is that it has preferential right to buy the
shares at the par value based on their Art. 12 of the
by-laws. Trial court favored petitioner and ordered the
shares be registered. Hence, this appeal.
ISSUE:
Is a by-law restricting a transfer of shares valid?
HELD:
As a general rule, the by-laws of a corporation are valid

if they are reasonable and calculated to carry into
effect the objective of the corporation and are not
contradictory to the general policy of the laws of the
land. Under a statute authorizing by-laws for the
transfer of stock, a corporation can do no more than
prescribe a general mode of transfer on the
corporation books and cannot justify an restriction
upon the right of sale.
Moreover, a by-law which prohibits a transfer of stock
without the consent or approval of all the stockholders
or of the President or Board of Directors is illegal as
constituting undue limitation on the right of ownership
and in restraint of trade.
The only restraint imposed by the Corporation Law
upon transfer of shares is found in Section 35 of Act
No. 1459 (now Section 63): "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."
This restriction is necessary in order that the officers of
the corporation may know who are the stockholders,
which is essential in conducting elections of officers, in
calling meeting of stockholders, and for other
purposes. but any restriction of the nature of that
imposed in the by-law now in question, is ultra vires,
violative of the property rights of shareholders, and in
restraint of trade.
24.
Thomson v. CA (298 SCRA 280)
FACTS:
Petitioner was the EVP and later on the Management
Consultant of the private respondent, American
Chamber of Commerce in the Philippines (AmCham).
While petitioner was still working with private
respondent, his superior, Burridge, retired as
AmCham's President. Burridge wanted to transfer his
proprietary share in the Manila Polo Club (MPC) to
petitioner. However, through the intercession of
Burridge, private respondent paid for the share but had
it listed in petitioner's name. Upon his admission as a
new member of the MPC, petitioner paid the transfer
fee from his own funds; but private respondent
subsequently reimbursed this amount. Thereafter, MPC
issued
Proprietary
Membership
Certificate
but
petitioner failed to execute a document recognizing
private respondent's beneficial ownership over said
share.
When petitioner's contract of employment was up for
renewal, he notified private respondent that he would
no longer be available as EVP, but the latter insisted
that he stay for 6 months. Petitioner indicated his
acceptance of the consultancy arrangement with a
counter-proposal among others is the retention of the
Polo Club share. Private respondent rejected the
counter-proposal.
Pending
the
negotiation
for
consultancy
arrangement,
private
respondent
executed a release and quitclaim against petitioner.
Private respondent sent a letter to the petitioner

demanding the return and delivery of the MPC share
but failed to get a response. Hence, the former filed a
complaint against petitioner for the return of MPC
share. The trial court awarded the MPC share to
petitioner on the ground that the AOI and By-laws of
Manila Polo Club prohibit artificial persons, such as
corporations, to be club members. CA reversed the
decision of the trial court.
ISSUE:
Restrictions on Transfer of Shares.
HELD:
The Manila Polo Club does not necessarily prohibit the
transfer of proprietary shares by its members. The
Club only restricts membership to deserving applicants
in accordance with its rules, when the amended
Articles of Incorporation states that: "No transfer shall
be valid except between the parties, and shall be
registered in the Membership Book unless made in
accordance with these Articles and the By-Laws". Thus,
as between parties herein, there is no question that a
transfer is feasible. Moreover, authority granted to a
corporation to regulate the transfer of its stock does
not empower it to restrict the right of a stockholder to
transfer his shares, but merely authorizes the adoption
of regulations as to the formalities and procedure to be

followed in effecting transfer.
25.
Rural Bank of Salinas, Inc. v. CA (210
SCRA 510)
stock certificates in the name of Clemente G. Guerrero,

and the issuance of new stock certificates covering the
transferred shares of stocks in the name of the new
owners thereof. However, petitioner Bank denied the
request of respondent Melania Guerrero.
FACTS:
Clemente G. Guerrero, President of the Rural Bank of
Salinas, Inc., executed a Special Power of Attorney in
favor of his wife, private respondent Melania Guerrero,
giving and granting the latter full power and authority
to sell or otherwise dispose of and/or mortgage 473
shares of stock of the Bank registered in his name
(represented by the Bank's stock certificates nos. 26,
49 and 65), to execute the proper documents therefor,
and to receive and sign receipts for the dispositions.
On February 27, 1980, and pursuant to said Special
Power of Attorney, private respondent Melania
Guerrero, as Attorney-in-Fact, executed a Deed of
Assignment for 472 shares out of the 473 shares, in
favor of private respondents Luz Andico (457 shares),
Wilhelmina Rosales (10 shares) and Francisco
Guerrero, Jr. (5 shares).Almost four months later, or
two (2) days before the death of Clemente Guerrero on
June 24, 1980, private respondent Melania Guerrero,
pursuant to the same Special Power of Attorney,
executed a Deed of Assignmentfor the remaining one
(1) share of stock in favor of private respondent
Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero
presented to petitioner Rural Bank of Salinas the two
(2) Deeds of Assignment for registration with a request
for the transfer in the Bank's stock and transfer book of
the 473 shares of stock so assigned, the cancellation of
ISSUE:
Whether or not a Mandamus lie against the Rural Bank
of Salinas to register in its stock and transfer book the
transfer of 473 shares of stock to private respondents.
HELD:
YES. Section 5 (b) of P.D. No. 902-A grants to the SEC
the original and exclusive jurisdiction to hear and
decide cases involving intracorporate controversies. An
intra-corporate controversy has been defined as one
which arises between a stockholder and the
corporation. There is neither distinction, qualification,
nor any exception whatsoever. The case at bar
involves shares of stock, their registration, cancellation
and issuances thereof by petitioner Rural Bank of
Salinas. It is therefore within the power of respondent
SEC to adjudicate.
A corporation, either by its board, its by-laws, or the
act of its officers, cannot create restrictions in stock
transfers, because: Restrictions in the traffic of stock
must have their source in legislative enactment, as the
corporation itself cannot create such impediment. Bylaws are intended merely for the protection of the
corporation, and prescribe regulation, not restriction;

they are always subject to the charter of the
corporation. The corporation, in the absence of such
power, cannot ordinarily inquire into or pass upon the
legality of the transactions by which its stock passes
from one person to another, nor can it question the
consideration upon which a sale is based.
Whenever a corporation refuses to transfer and
register stock in cases like the present, mandamus will
lie to compel the officers of the corporation to transfer
said stock in the books of the corporation.
Respondent SEC correctly ruled in favor of the
registering of the shares of stock in question in private
respondent's names. Such ruling finds support under
Section 63 of the Corporation Code. The only limitation
imposed by Section 63 of the Corporation Code is
when the corporation holds any unpaid claim against
the shares intended to be transferred, which is absent
here.
A corporation, either by its board, its by-laws, or the
act of its officers, cannot create restrictions in stock
transfers. Restrictions in the traffic of stock must have
their source in legislative enactment, as the
corporation itself cannot create such impediment. Bylaws are intended merely for the protection of the
corporation, and prescribe regulation, not restriction;
they are always subject to the charter of the
corporation. The corporation, in the absence of such
power, cannot ordinarily inquire into or pass upon the
legality of the transactions by which its stock passes
from one person to another, nor can it question the
consideration upon which a sale is based. The right of
a transferee/assignee to have stocks transferred to his
name is an inherent right flowing from his ownership of

the stocks.
26.
Razon v. IAC (March 16, 1992)
FACTS:
Petitions centers on the ownership of 1,500 shares of
stock in E. Razon, Inc. covered by Stock Certificate No.
003 issued and registered under the name of Juan T.
Chuidian in the books of the corporation. The then
Court of First Instance of Manila, now Regional Trial
Court of Manila, declared that Enrique Razon, the
petitioner is the owner of the said shares of stock. The
then Intermediate Appellate Court, now Court of
Appeals, however, reversed the trial court's decision
and ruled that Juan T. Chuidian, the deceased father of
petitioner Vicente B. Chuidian is the owner of the
shares of stock. Both parties filed separate motions for
reconsideration. Enrique Razon wanted the appellate
court's decision reversed and the trial court's decision
affirmed while Vicente Chuidian asked that all cash and
stock dividends and all the pre-emptive rights accruing
to the 1,500 shares of stock be ordered delivered to
him. The appellate court denied both motions. Hence,
these petitions.
ISSUE:
When there is an effective transfer of shares of stock?
HELD:
The law is clear that in order for a transfer of stock
certificate to be effective, the certificate must be
properly indorsed and that title to such certificate of

stock is vested in the transferee by the delivery of the
duly indorsed certificate of stock. (Section 35,
Corporation Code)
Since the certificate of stock covering the questioned
1,500 shares of stock registered in the name of the
late Juan Chuidian was never indorsed to the
petitioner, the inevitable conclusion is that the
questioned shares of stock belong to Chuidian. The
petitioner's asseveration that he did not require an
indorsement of the certificate of stock in view of his
intimate friendship with the late Juan Chuidian can not
overcome the failure to follow the procedure required
by law or the proper conduct of business even among
friends. To reiterate, indorsement of the certificate of
stock is a mandatory requirement of law for an
effective transfer of a certificate of stock.
27.
Torres v. CA (278 SCRA 793)
FACTS:
The late Manuel A. Torres, Jr. (Judge Torres for brevity)
was the majority stockholder of Tormil Realty &
Development Corporation while private respondents
who are the children of Judge Torres, deceased brother
Antonio
A.
Torres,
constituted
the
minority
stockholders.
The 1987 annual stockholders meeting and election of
directors of Tormil corporation was scheduled in
compliance with the provisions of its by-laws. Judge
Torres assigned from his own shares, one (1) share
each to petitioners Tobias, Jocson, Jurisprudencia,
Azura and Pabalan. These assigned shares were in the
nature of qualifying shares, for the sole purpose of
meeting the legal requirement to be able to elect them
(Tobias and company) to the Board of Directors as
Torres nominees.
The annual stockholders meeting was held as
scheduled. Two representatives of the SEC were
present in the meeting. Antonio Torres Jr. questioned
the presence of the SEC representatives holding that
the subject meeting is for the family corporation and
private firm. The SEC representatives explained that it
was merely in response to the request of Manuel
Torres, Jr. and that SEC has jurisdiction over all
registered corporations. The meeting resulted into
chaos which in effect ousted Manuel Torres and his
group but nevertheless were able to elect the officers.
Consequently, private respondents instituted a

complaint with the SEC praying in the main, that the
election of petitioners to the Board of Directors be
annulled. Private respondents alleged that the
petitioners-nominees were not legitimate stockholders
of Tormil because the assignment of shares to them
violated the minority stockholders right of pre-emption
as provided in the corporations articles and by-laws.
ISSUE:
WON the assignment of shares made by Judge Torres is
valid despite being only the signatory to the
certificates issued.
HELD:
NO. It is the corporate secretarys duty and obligation
to register valid transfers of stocks and if said
corporate officer refuses to comply, the transferorstockholder may rightfully bring suit to compel
performance. In the absence of any provision to the
contrary, the corporate secretary is the custodian of
corporate records. Corollarily, he keeps the stock and
transfer book and makes proper and necessary entries
therein.
In the case at bar, the stock and transfer book of
TORMIL was not kept by Ms. Maria Cristina T. Carlos,
the corporate secretary but by respondent Torres, the
President and Chairman of the Board of Directors of
TORMIL. In contravention to the above cited provision,
the stock and transfer book was not kept at the
principal office of the corporation either but at the
place of respondent Torres.
These being the obtaining circumstances, any entries

made in the stock and transfer book on March 8, 1987
by respondent Torres of an alleged transfer of nominal
shares to Pabalan and Co. cannot therefore be given
any valid effect. Where the entries made are not valid,
Pabalan and Co. cannot therefore be considered
stockholders of record of TORMIL. Because they are not
stockholders, they cannot therefore be elected as
directors of TORMIL.
28.
Rural Bank of Lipa v. CA (Sept. 28,
2001)
FACTS:
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 15 November
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 therefor. When the Villanueva
spouses failed to settle their obligation to the Bank on
the due date, the Board sent them a letter demanding:
(1) the surrender of all the stock certificates issued to
them; and (2) the delivery of sufficient collateral to
secure the balance of their debt amounting to
P3,346,898.54.
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 15 January 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. In a letter dated 19 January
1994, Atty. Amado Ignacio, counsel for the Villanueva
spouses, questioned the legality of the said
stockholders' meeting and the validity of all the
proceedings therein. In reply, the new set of officers of
the Bank informed Atty. Ignacio that the Villanuevas
were no longer entitled to notice of the said meeting
since they had relinquished their rights as stockholders
in favor of the Bank. Consequently, the Villanueva
spouses filed with the Securities and Exchange
Commission (SEC), a petition for annulment of the
stockholders' meeting and election of directors and
officers on 15 January 1994, with damages and prayer
for preliminary injunction (SEC Case 02-94-4683_.
Joining them as co-petitioners were Catalino
Villanueva,
Andres
Gonzales,
Aurora
Lacerna,
CelsoLaygo, Edgardo Reyes, Alejandro Tonogan, and
Elena Usi. Named respondents were the newly-elected
officers and directors of the Rural Bank, namely:
Bernardo Bautista, Jaime Custodio, Octavio Katigbak,
Francisco Custodio and Juanita Bautista. On 6 April
1994, 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

16 December 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 Bautista,
et. al. from acting as directors and officers of the bank.
Thereafter, Bautista, et al. 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 14 January 1995 be suspended or held in
abeyance, and that the 1993 Board of Directors be
allowed, in the meantime, to act as such. 1 day before
the scheduled stockholders meeting, the SEC Hearing
Officer granted the Omnibus Motion by issuing a
temporary restraining order preventing Bautista, et al.
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. On 7 June 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 29 September 1995.
A petition for review was filed before the Court of
Appeals (CA-GR SP 38861), assailing the Order dated 7
June 1995 and the Resolution dated 29 September
1995 of the SEC en banc in SEC EB 440. The appellate
court upheld the ruling of the SEC. Bautista, et al.'s
motion for reconsideration was likewise denied by the
Court of Appeals in an Order dated 29 March 1996. The

bank, Bautista, et al. filed the instant petition for
review.
ISSUE:
Whether there was valid transfer of the shares to the
Bank.
HELD:
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. Still, while the
assignment may be valid and binding on the bank, et
al. and the Villanuevas, it does not necessarily make
the transfer effective. Consequently, the bank et al., 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 Villanuevas 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.
29.
Rivera v. Florendo 144 SCRA 647
(1986)
FACTS:
Isamu Akasako, a Japanese national who was allegedly
the real owner of the shares of stock in the name of
one Aquilino Rivera, a registered stockholder of
Fujuyama Hotel and Restaurant, Inc., sold 2,550 shares
of the same to Milagros Tsuchiya along with the
assurance that Tsuchiya would be made President of
the corporation after the purchase. Rivera assured her
that he would sign the stock certificates because
Akasako was the real owner. However, after the sale
was consummated and the consideration paid, Rivera
refused to make the indorsement unless he is also
paid.
Tsuchiya, et al. attempted several times to have the
shares registered but were refused compliance by the
corp. They filed a special action for mandamus and
damages.
ISSUES:
1.) WON Rivera had the right to refuse the indorsement
of the shares of stock in question.
2.) WON the Corporation had the right to refuse the
registration of the respondents shares.
HELD:
The Supreme Court denied the writ of preliminary

mandatory injunction and remanded the case to the
lower court for a trial on the merits. As found in Sec.
63 of the Corporation Code, shares of stock may be
transferred by delivery of the certificate after
indorsement by the owner or his attorney-in-fact or
other person legally authorized to make the transfer.
By this provision it is evident that Riveras indorsement
must be obtained before any transfer of the
questioned shares is effected.
On the matter of jurisdiction, the SEC does not have
jurisdiction of the case since the dispute is not an
intra-corporate controversy. What it simply involves is
a conflict on the ownership of a group of shares
between the registered owner and an outside party.
Hence, because of this conflict in ownership rights, a
mandatory injunction can not lie.
30.
Lim Tay v. CA GR 126891 (Aug. 5,
1998)
FACTS:
On January 8, 1980, Respondent-Appellee Sy Guiok
secured a loan from the petitioner in the amount of
P40,000 payable within six (6) months. To secure the
payment of the aforesaid loan and interest thereon,
Respondent Guiok executed a Contract of Pledge in
favor of the [p]etitioner whereby he pledged his three
hundred (300) shares of stock in the Go Fay &
Company Inc., Respondent Corporation, for brevity's
sake. Respondent Guiok obliged himself to pay interest
on said loan at the rate of 10% per annum from the
date of said contract of pledge. On the same date,
Alfonso Sy Lim secured a loan from the [p]etitioner in
the amount of P40,000 payable in six (6) months. To
secure the payment of his loan, Sy Lim executed a
"Contract of Pledge" covering his three hundred (300)
shares of stock in Respondent Corporation. Under said
contract, Sy Lim obliged himself to pay interest on his
loan at the rate of 10% per annum from the date of the
execution of said contract.
However, Respondent Guiok and Sy Lim failed to pay
their respective loans and the accrued interests
thereon to the [p]etitioner. In October, 1990, the
petitioner filed a "Petition for Mandamus" against
Respondent Corporation, with the SEC entitled "Lim Tay
versus Go Fay & Company. Inc., SEC Case No. 03894".
Go Fay & Company filed its answer contending that

SEC had no jurisdiction to entertain the complaint on
the ground that since Lim Tay was not a stockholder of
the company, no intra corporate controversy took
place; and furthermore, that the default of payment of
Sy Guiok and Sy Lim did not automatically vest in Lim
Tay
the
ownership
of
the
pledged
shares.
SEC dismissed the complaint. On appeal to the CA, it
affirmed SECs decision.
ISSUE:
WON Lim Tay is the owner of the shares previously
subjected to pledge, for him to cause the registration
of said shares in his own name.
HELD:
Lim Tay's ownership over the shares was not yet
perfected when the Complaint was filed. The contract
of pledge certainly does not make him the owner of
the shares pledged. When shares of stocks are pledged
by means of endorsement in blank and delivery of the
covering certificates to secure a mortgage loan, the
pledgee does not become the owner of the shares
simply by the failure of the registered stockholder to
pay his loan. Consequently, without proper foreclosure,
the lender cannot demand that the shares be
registered in his name. A contract of pledge of shares
does not make the pledgee the owners of the shares
pledged.
===
At the outset, it must be underscored that petitioner

did not acquire ownership of the shares by virtue of the
contracts of pledge. Article 2112 of the Civil Code
states: The creditor to whom the credit has not been
satisfied in due time, may proceed before a Notary
Public to the sale of the thing pledged. This sale shall
be made at a public auction and with notification to the
debtor and the owner of the thing pledged in a proper
case, stating the amount for which the public sale is to
be held. If at the first auction the thing is not sold, a
second one with the same formalities shall be held;
and if at the second auction there is no sale either, the
creditor may appropriate the thing pledged. In this
case he shall be obliged to give an acquaintance for
his entire claim.
There is no showing that petitioner made any attempt
to foreclose or sell the shares through public or private
auction, as stipulated in the contracts of pledge and as
required by Article 2112 of the Civil Code. Therefore,
ownership of the shares could not have passed to him.
The pledgor remains the owner during the pendency of
the pledge and prior to foreclosure and sale, as
explicitly provided by Article 2103 of the same Code:
Unless the thing pledged is expropriated, the debtor
continues to be the owner thereof.
Neither did petitioner acquire the shares by virtue of a
novation of the contract of pledge. Novation is defined
as "the extinguishment of an obligation by a
subsequent one which terminates it, either by
changing its object or principal conditions, by
substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the
creditor."Novation of a contract must not be presumed.
"In the absence of an express agreement, novation
takes place only when the old and the new obligations
are incompatible on every point.
31.
Ponce v. Alsons Cement GR 139802
( Dec. 10, 2002)
FACTS:
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.
Ponce, filed a complaint with the SEC for mandamus
and damages against Alsons Cement Corporation and
its corporate secretary Francisco M. Giron, Jr. ACC and
Giron moved to dismiss. SEC Hearing Officer Enrique L.
Flores, Jr. granted the motion to dismiss. Ponce
appealed the Order of dismissal. The Commission En
Banc reversed the appealed Order and directed the
Hearing Officer to proceed with the case. In ruling that
a transfer or assignment of stocks need not be
registered first before it can take cognizance of the
case to enforce Ponce's rights as a stockholder, the
Commission En Banc cited the Supreme Court's ruling
in Abejo vs. De la Cruz. ACC and Giron appealed the
decision of the SEC En Banc to CA. The latter ruled that
mandamus should be dismissed for failure to state a

cause of action.
ISSUE:
WON the certificate
transferred to Ponce.
of
stocks
of
Gaid
can
be
HELD:
NO. 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. Hence, without such recording, the transferee
may not be regarded by the corporation as one among
its stockholders and the corporation may legally refuse
the issuance of stock certificates in the name of the
transferee even when there has been compliance with
the requirements of Section 64 of the Corporation
Code. 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 transferee's name.
Even if a certificate is indorsed and delivered to a third

person it does not automatically entitle such person to
register such certificate in his name, or compel the
corporation to register the certificate in his name even.
An indorsed and delivered certificate does not create a
clear right with respect to the possession of such
certificate by the third person, as the same mode
(indorsement and delivery) applies to sale, pledge and
mortgage. This is where the registered owner must
come in; he must inform the corporation whether the
disposition was a pledge, or mortgage or sale, which
would determine whether or not the third person is
entitled registration. Since almost all dealings
comprise of the same mode, the owner must apprise
the corporation with the necessary information and
instructions.
32.
Rural Bank of Salinas, Inc. v. CA (210
SCRA 510)
FACTS:
Clemente Guerrero, President of the petitioner-bank,
executed a SPA in favor of his wife, private respondent
Melania Guerrero, giving and granting the latter full
power and authority to sell or otherwise dispose of
and/or mortgage his 473 shares of stock of the Bank
registered in his name. First deed of assignment was
made on the 472 out of 473 shares, in favor of private
respondents Luz Andico, Wilhelmina Rosales and
Francisco Guerrero, Jr. Months later, second deed of
assignment was executed for the remaining one share
of stock in favor of private respondent Francisco
Guerrero, Sr.
Subsequently, private respondent Melania Guerrero
presented to petitioner-bank the two Deeds of
Assignment for registration with a request for the
transfer in the Bank's stock and transfer book of the
shares of stock so assigned, the cancellation of stock
certificates and the issuance of new stock certificates
covering the transferred shares of stocks in the name
of the new owners thereof. However, petitioner-bank
denied the request.
Private respondent filed a mandamus against
petitioner-bank in the SEC. The latter alleged in their
answer that upon the death of Clemente Guerrero, his
shares of stock became the property of his estate, and
his property and that of his widow should first be

settled and liquidated in accordance with law before
any distribution can be effected so that petitioners
may not be a party to any scheme to evade payment
of estate or inheritance tax and in order to avoid
liability to any third persons or creditors. SEC granted
the writ of mandamus. SEC en banc and CA likewise
affirmed the decision of SEC.
ISSUE:
WON the corporate secretary is compelled to register
the said transfer of shares.
HELD:
YES. Based on those circumstances, there was a clear
duty on the part of the corporate secretary to register
the 473 shares in favor of the new owners, since the
person who sought the transfer of shares had express
instructions from and specific authority given by the
registered stockholder to cause the disposition of
stocks registered in his name.
The right of a transferee/assignee to have stocks
transferred to his name is an inherent right flowing
from his ownership of the stocks. Thus, whenever a
corporation refuses to transfer and register stock,
mandamus will lie to compel the officers of the
corporation to transfer said stock in the books of the
corporation.
This is because the corporation's
obligation to register is ministerial. (Note, however,
that in such cases, the person requesting the
registration must be the prima facie owner of the

shares. Cf. Lim Tay v. CA, 293 SCRA 634)
33.
Hager v. Bryan 19 PHIL 138 (1911)

HELD:
FACTS:
Petitioner filed an original action to secure a writ of
mandamus against the respondent, to compel him, as
secretary of the Visayan Electric Company, to transfer
upon the books of the company certain shares of
stock. He based the urgency of his action on a
supposed agreement to sell the said shares to a Mr.
Levering. Furthermore, he also stated that the issuing
company holds no unpaid claims against the shares of
stock. However, on the books of the company, it turns
out that petitioner is not the registered owner of the
stock which he seeks to have transferred. His only
claim as owner is based on his averment that such
were indorsed to him on February 5 by the BryanLandon Company, in whose name it is registered on
the books of the Visayan Electric Company. There was
no allegation that the petitioner holds any power of
attorney from the Bryan-Landon Company authorizing
him to make demand on the secretary of the Visayan
Electric Company to make the transfer which petitioner
seeks to have made through the medium of the
mandamus of this court.
ISSUE:
WON a writ of mandamus will lie under the
circumstances of the case to allow the transfer of
shares as being requested by the petitioner.
The Supreme Court denied the writ. Petitioner did not

have the right to demand the transfer since he was not
the stockholder of record. This was proven by the fact
that the said shares were still registered under the
name of Bryan-Landon Company. Furthermore, even
the latter did not demand from the company the
transfer of said shares. Neither did it give by way of a
special power of attorney to petitioner the authority to
effect such a transfer. Hence, there is no clear and
legal obligation upon the respondent that will justify
the issuance of a writ to compel the latter to perform a
transfer.
As a general rule, 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,
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.
34.
Bitong v. CA 292 SCRA 503
WON Bitong is the real party-in-interest.
FACTS:
Bitong was the treasurer and member of the BOD of
Mr. & Mrs. Publishing Co. She filed a complaint with
the SEC to hold respondent spouses Apostol liable for
fraud, misrepresentation, disloyalty, evident bad faith,
conflict of interest and mismanagement in directing
the affairs of the corporation to the prejudice of the
stockholders. She alleges that certain transactions
entered into by the corporation were not supported by
any stockholders resolution.
The complaint sought to enjoin Apostol from further
acting as president-director of the corporation and
from disbursing any money or funds. Apostol contends
that Bitong was merely a holder-in-trust of the JAKA
shares of the corporation, hence, not entitled to the
relief she prays for. SEC Hearing Panel issued a writ
enjoining Apostol.
After hearing the evidence, SEC Hearing Panel
dissolved the writ and dismissed the complaint filed by
Bitong. Bitong appealed to the SEC en banc which the
latter reversed SEC Hearing Panel decision. Apostol
filed petition for review with the CA. CA reversed SEC
en banc ruling holding that Bitong was not the owner
of any share of stock in the corporation and therefore,
not a real party in interest to prosecute the complaint.
ISSUE:
HELD:
NO. Based on the evidence presented, it could be
gleaned that Bitong was not a bona fide stockholder of
the corporation. Several corporate documents disclose
that the true party in interest was JAKA.
Section 63 of the Corporation Code envisions a formal
certificate of stock which can be issued only upon
compliance with certain requisites. First, the
certificate must be signed by the president or vicepresident, 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 is 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.
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 estoppel cannot operate to create
stock which under the law cannot have existence.
35.
Abejo v. De la Cruz 149 SCRA 654
(1987)
FACTS:
Case involves a dispute between the principal
stockholders of the corporation Pocket Bell Philippines,
Inc. (Pocket Bell) namely spouses Abejos and the
purchaser, Telectronic Systems, Inc. (Telectronics) of
their minority shareholdings and of shares registered in
the name of spouses Bragas. With the said purchases,
Telectronics would become the majority stockholder,
holding 56% of the outstanding stock and voting power
of the corporation Pocket Bell.
Telectronics requested the corporate secretary of the
corporation, Norberto Braga, to register and transfer to
its name, and those of its nominees the total 196,000
Pocket Bell shares in the corporation's transfer book,
cancel the surrendered certificates of stock and issue
the corresponding new certificates of stock in its name
and those of its nominees. The latter refused to
register the aforesaid transfer of shares in the
corporate books, asserting that the Bragas claim preemptive rights over the Abejo shares and that Virginia
Braga never transferred her shares to Telectronics but
had lost the five stock certificates representing those
shares. This triggered off the series of intertwined
actions between the protagonists, all centered on the
question of jurisdiction over the dispute. The Bragas
assert that the regular civil court has original and
exclusive jurisdiction as against the SEC, while the
Abejos and Telectronics, as new majority shareholders,

claim the contrary. Respondent Judge de la Cruz issued
an order rescinding the order which dismissed the
complaint of the Bragas in the RTC, thus holding that
the RTC and not the SEC had jurisdiction. Respondent
judge also revived the TRO previously issued
restraining Telectronics' agents or representatives from
enforcing their resolution constituting themselves as
the new set of officers of Pocket Bell and from
assuming control of the corporation and discharging
their functions. The Abejos filed a MR, which motion
was duly opposed by the Bragas, which was denied by
respondent Judge.
ISSUE:
(1)Who has jurisdiction?
(2)WON the corporate secretary may refuse to register
the transfer of shares in the corporate books.
HELD:
(1)The Court ruled that the SEC has original and
exclusive jurisdiction and that the SEC correctly
ruled in dismissing the Bragas' petition questioning
its jurisdiction, that "the issue is not the ownership
of shares but rather the non-performance by the
Corporate Secretary of the ministerial duty of
recording transfers of shares of stock of the
Corporation of which he is secretary."
The dispute at bar, as held by the SEC, is an intracorporate dispute that has arisen between and
among the principal stockholders of the corporation
Pocket Bell due to the refusal of the corporate
secretary, backed up by his parents as erstwhile

majority shareholders, to perform his "ministerial
duty" to record the transfers of the corporation's
controlling (56%) shares of stock, covered by duly
endorsed certificates of stock, in favor of
Telectronics as the purchaser thereof.
(2) NO. As pointed out by the Abejos, Pocket Bell is
not a close corporation, and no restriction over the
free transferability of the shares appears in the
Articles of Incorporation, as well as in the bylaws
and the certificates of stock themselves, as required
by law for the enforcement of such restriction. As
the SEC maintains, "There is no requirement that a
stockholder of a corporation must be a registered
one in order that the Securities and Exchange
Commission may take cognizance of a suit seeking
to enforce his rights as such stockholder." This is
because the SEC by express mandate has "absolute
jurisdiction, supervision and control over all
corporations" and is called upon to enforce the
provisions of the Corporation Code, among which is
the stock purchaser's right to secure the
corresponding certificate in his name under the
provisions of Section 63 of the Code.
36.
Lee v. Trocino, et al. GR 164648 (June
19, 2009)
37.
Santamaria vs. Hongkong 89 Phil. 780
(1951)
FACTS:
Mrs. Josefa T. Santamaria bought 10,000 shares of the
Batangas Minerals, Inc., through the offices of Woo, UyTioco & Naftaly, a stock brokerage firm and pay
therefore the sum of P8,041.20 as shown by receipt
Exh. B. The buyer received Stock Certificate No. 517
issued in the name of Woo, Uy-Tioco & Naftaly and
indorsed in bank by this firm.
On March 9, 1937, Mrs. Santamaria placed an order for
the purchase of 10,000 shares of the Crown Mines, Inc.
with R.J. Campos & Co., a brokerage firm, and delivered
Certificate No. 517 to the latter as security therefor
with the understanding that said certificate would be
returned to her upon payment of the 10,000 Crown
Mines, Inc. shares. Exh. D. is the receipt of the
certificate in question signed by one Mr. Cosculluela,
Manager of the R.J. Campos & Co., Inc. According to
certificate Exh. E, R. J. Campos & Co., Inc. bought for
Mrs. Josefa Santamaria 10,000 shares of the Crown
Mines, Inc. at .225 a share, or the total amount of
P2,250. Two days later, on March 11, Mrs. Santamaria
went to R.J. Campos & Co., Inc. to pay for her order of
10,000 Crown Mines shares and to get back Certificate
No. 517. Cosculluela then informed her that R.J.
Campos & Co., Inc. was no longer allowed to transact
business due to a prohibition order from Securities and
Exchange Commission. She was also inform that her
Stock certificate was in the possession

Hongkong and Shanghai Banking Corporation.
of
the
ISSUE:
Whether or not the obligation of the defendant Bank to
have inquired into the ownership of the certificate
when it received it from R.J. Campos & Co., Inc. and not
conclude that the Bank was negligent for not having
done so, contrary to the claim of the plaintiff that
defendant Bank acted negligently, if not in bad faith, in
accepting delivery of said certificate from RJ. Campos
& Co., Inc.
HELD:
YES. Certificate No. 517 came into the possession of
the defendant Bank because R.J. Campos & Co., Inc.
had opened an overdraft account with said Bank and to
this effect it had executed on April 16, 1946, a letter of
hypothecation by the terms of which R.J. Campos &
Co., Inc. pledged to the said Bank "all Stocks, Shares
and Securities which I/we may hereafter come into
their possession on my/our account and whether
originally deposited for safe custody only or for any
other purpose whatever or which may hereafter be
deposited by me/us in lieu of or in addition to the
Stocks, Shares, and Securities now deposited or for
any other purpose whatsoever."
It should be noted that the certificate of stock in
question was issued in the name of the brokerage firmWoo, Uy-Tioco & Naftaly and that it was duly indorsed
in blank by said firm, and that said indorsement was
guaranteed by R.J. Campos & Co., Inc., which in turn

indorsed it in blank. This certificate is what it is known
as street certificate. Upon its face, the holder was
entitled to demand its transfer into his name from the
issuing corporation. The Bank was not obligated to look
beyond the certificate to ascertain the ownership of
the stock at the time it received the same from R.J.
Campos & Co., Inc., for it was given to the Bank
pursuant to their letter of hypothecation. Even if said
certificate had been in the name of the plaintiff but
indorsed in blank, the Bank would still have been
justified in believing that R.J. Campos & Co., Inc. had
title thereto for the reason that it is a well-known
practice that a certificate of stock, indorsed in blank, is
deemed quasi negotiable, and as such the transferee
thereof is justified in believing that it belongs to the
holder and transferor.
38.
De los Santos vs. McGrath 96 Phil.
577 (1955)
FACTS:
De los Santos filed a claim with the Alien Property
Custodian for a number of shares of the Lepanto
Corporation. He contended that said shares were
bought from one Campos and Hess, both of them
dead. The Philippine Alien Property Administrator
rejected the claim. He instituted the present action to
establish title to the aforementioned shares of stock.
The US Attorney General, the successor of the Alien
Property Administrator, opposed the action on the
ground that the said shares of stock were bought by
one Madrigal, in trust for the true owner, Matsui, and
then delivered to the latter indorsed in blank.
ISSUE:
Had de los Santos in fact purchased the shares of
stock?
HELD:
De los Santos sole evidence that he purchased the
said shares was his own unverified testimony. The
alleged vendors of the shares of stock, who could have
verified the allegation, were already dead. Further, the
receipt that might have proven the sale was said to
have been lost in a fire. On the other hand, it was

shown that the shares of stock were registered in the
records of Lepanto in the name of Madrigal, the trustee
of Matsui; that Matsui was subsequently given
possession of the corresponding stock certificates,
though endorsed in blank; and, that Matsui had neither
sold, conveyed nor alienated these to anybody.
It is the rule that if the owner of the certificate has
endorsed it in blank, and is stolen, no title is acquired
by an innocent purchaser of value. This is so because
even though a stock certificate is regarded as quasinegotiable, in the sense that it may be transferred by
endorsement, coupled with delivery, the holder thereof
takes it without prejudice to such rights or defenses as
the registered owner or credit may have under the law,
except in so far as such rights or defenses are subject
to the limitations imposed by the principles governing
estoppel.
COMPARISON of Santamaria case and De los Santos
case:
In Santamaria case, a certificate of stock, indorsed in
blank, is deemed quasi-negotiable, and as such the
transferee thereof is justified in believing that it
belongs to the holder and transferor.
In De los Santos case, although a stock certificate is
sometimes regarded as quasi-negotiable, in the sense
that it may be transferred by endorsement, coupled
with delivery it is well settled that the instrument is
non-negotiable, because the holder thereof takes it
without prejudice to such rights or defense as the
registered owner or credit may have under the law,

except in so far as such rights or defenses are subject
tot eh limitations imposed by the principles governing
estoppel.
39.
Guy v. Guy GR 189486 (Sept. 5, 2012)
40.
Uson v. Diosomito (61 Phil. 535;
1935)
FACTS:
Toribia Uson filed a civil action for debt against Vicente
Diosomito. Upon institution of said action, an
attachment was duly issued and respondents property
was levied upon, including 75 shares of the North
Electric Co., which stood in his name on the books of
the company when the attachment was levied. The
sheriff sold said shares at a public auction with Uson
being the highest bidder. Jollye claims to be the owner
of said certificate of stock issued to him by the North
Electric Co.
There is no dispute that Diosomito was the original
owner of said shares, which he sold to Barcelon.
However, Barcelon did not present these certificates to
the corporation for registration until 19 months after
the delivery thereof by Barcelon, and 9 months after
the attachment and levy on said shares. The transfer
to Jollye was made 5 months after the issuance of a
certificate of stock in Barcelon's name.
ISSUE:
Is a bona fide transfer of the shares of corp., not
registered or noted on the books of the corp., valid as
against a subsequent lawful attachment of said shares,
regardless of whether the attaching creditor had actual
notice of said transfer or not?
HELD:
NO, it is not valid. The transfer of the 75 shares in the
North Electric Co., Inc made by the defendant
Diosomito as to the defendant Barcelon was not valid
as to the plaintiff. Toribia Uson, on 18 Jan. 1932, the
date on which she obtained her attachment lien on
said shares of stock will still stood in the name of
Diosomito on the books of the corp. Sec. 35 provides
that No transfer, however, is 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.
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 to subsequent
purchasers in good faith, and indeed, as to all persons
interested, except the parties to such transfers.
41.
Chua Guan vs. SamahangMagsasaka
62 Phil. 473
FACTS:
A certain Co Toco was the owner of 5,894 shares of
Samahang Magsasaka, Inc. which he mortgaged
to Chua Chiu to guarantee the payment of debt. The
corresponding certificates were delivered to Chua Chiu
and were duly registered in the office of the register of
deeds of Manila and in the office of the said
corporation. About five months after, Chua Chui
assigned all his rights and interest in said mortgage to
the plaintiff, Chua Gan which was also duly recorded.
Co Toco defaulted. The plaintiff foreclosed on the
mortgage. In the public auction he won as the highest
bidder. However, upon presenting the certificates to
the corporation for registration, the officers refused
because they and the plaintiff could not agree on the
noting of nine other attachments that had been issued,
served and noted on the books of the corporation
against the shares of Co Toco.
ISSUE:
WON the said mortgage takes priority over the already
noted writs of attachment.
HELD:
The Supreme Court ruled that the attaching creditors
are entitled to priority over the defectively registered
mortgage of the appellant. The court argues that the

registration in the register of deeds must be done both
at the place where the owner is domiciled and at the
place where the principal office of the corporation is
located. The purpose of this is to give sufficient
constructive of any claim or encumbrance over the
recorded shares to third persons. Furthermore, any
share 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. Thus, the game here is to have the
highest or most preferred priority over any pledged or
mortgaged shares.
NOTE: The provision of the Chattel Mortgage Law (Act
No. 1508) providing for delivery of mortgaged property
to the mortgagee as a mode of constituting a chattel
mortgage is no longer valid in view of the Civil Code
provision defining such as a pledge.
42.
Chemphil Export & Import v. CA (Dec.
12, 1995)
Who has priority to the shares of stock an attaching

creditor or the subsequent buyer?
FACTS:
This case involved a consortium of banks which
obtained a writ of preliminary attachment in a civil
case ("consortium case") over shares of stock
belonging to Mr. Antonio Garcia in the Chemical
Industries of the Philippines ("Chemphil"). The
attachment, which was served on the secretary to the
President of Chemphil, was not registered in the stock
and transfer book of Chemphil. A few years thereafter,
Mr. Garcia sold the same shares of stock to the Ferro
Chemicals, Inc. ("FCI"). FCI subsequently assigned the
shares to the Chemphil Export and Import Corporation
("CEIC"). The shares were registered and recorded in
the corporate books of Chemphil in CEICs name and
the corresponding stock certificates were issued to it.
The consortium case was appealed to the CA. While
the appeal was pending, Mr. Garcia and the bank
consortium amicably settled the case. The CA rendered
a judgment by compromise. Unfortunately, Mr. Garcia
failed to comply with the compromise agreement. The
consortium of banks caused to be sold on execution
the shares of stock (earlier attached by them), which
were the same shares subsequently sold by Mr. Garcia
to CEIC. A certificate of sale covering the shares was
issued in the name of the bank consortium.
ISSUE:
HELD:
The Supreme Court ruled that the attachment lien
acquired by the bank consortium is valid and effective
even as against the buyer (FCI) and its assignee
(CEIC), notwithstanding the fact that said attachment
lien was not registered in the corporate books of
Chemphil. "Both the Revised Rules of Court and the
Corporation Code", according to the Court, "do not
require annotation in the corporations stock and
transfer book for the attachment of shares of stock to
be valid and binding on the corporation and third
party."
Consequently, when FCI purchased the shares of stock
from Mr. Garcia, it purchased them subject to the
attachment lien of the bank consortium. In this regard,
the High Court explained that a preliminary
attachment is a security for the satisfaction of
whatever judgment may be obtained by the attaching
creditor in a court action, which continues until the
judgment debt is fully satisfied.
COMPARISON of the abovementioned three cases:
Among the three cases mentioned, settled is the rule
that the attaching creditor enjoys priority to the shares
of stock as against a subsequent lawful buyer.
43.
Makati Sports Club, Inc. v. Cheng
(June 16, 2010)
FACTS:
On October 20, 1994, plaintiff Makati Sports Club,
Inc.s Board of Directors adopted a resolution
authorizing the sale of 19 unissued shares at a floor
price of P400,000 and P450,000 per share for Class A
and B, respectively.
Defendant Cecile Cheng was a Treasurer and Director
of Makati Sports Club in 1985.
On July 7, 1995, Joseph L. Hodreal expressed his
interest to buy a share, for this purpose he sent the
letter in which he requested that his name be included
in the waiting list.
Sometime in November 1995, McFoods expressed
interest in acquiring a share of Makati Sports Club, and
one was acquired with the payment to the plaintiff by
McFoods of P1,800,000 through Urban Bank. On
December 15, 1995, the Deed of Absolute Sale was
executed by the plaintiff and McFoods; Stock
Certificate No. A 2243 was issued to McFoods on
January 5, 1996.
On December 27, 1995, McFoods sent a letter to
the plaintiff giving advice of its offer to resell
the share.
It appears that while the sale between the
plaintiff
and
McFoods
was
still
under
negotiations, there were negotiations between

McFoods and Hodreal for the purchase by the
latter of a share of the plaintiff.
On November 24, 1995, Hodreal paid McFoods
P1,400,000. Another payment of P1,400,000 was made
by Hodreal to McFoods on December 27, 1995, to
complete the purchase price of P2,800,000.
On February 7, 1996, plaintiff was advised of the sale
by McFoods to Hodreal of the share evidenced by
Certificate No. 2243 for P2.8 Million. Upon request, a
new certificate was issued.
In 1997, an investigation was conducted and the
committee held that there is prima facie evidence to
show that defendant Cheng profited from the
transaction because of her knowledge.
xxx xxx xxx
Plaintiff's evidence of fraud are [a] letter of Hodreal
dated July 7, 1995 where he expressed interest in
buying one (1) share from the plaintiff with the request
that he be included in the waiting list of buyers; [b]
declaration of Lolita Hodreal in her Affidavit that in
October 1995, she talked to Cheng who assured her
that there was one (1) available share at the price of
P2,800,000. The purchase to be validated by paying
50% immediately and the balance after thirty (30)
days; [c] Marian Punzalan, Head, Membership Section
of the plaintiff declared that she informed Cheng of the
intention of Hodreal to purchase one (1) share and she
gave to Cheng the contact telephone number of
Hodreal; and [d] the authorization from Sabarre to

claim the stock certificate.
conditions shall be null and void and shall not be

recorded in the books of the Club.
MSCI asserts that Mc Foods never intended to become

a legitimate holder of its purchased Class "A" share but
did so only for the purpose of realizing a profit in the
amount of P1,000,000.00 at the expense of the former.
MSCI further claims that Cheng confabulated with Mc
Foods by providing it with an insider's information as to
the status of the shares of stock of MSCI and even,
allegedly with unusual interest, facilitated the transfer
of ownership of the subject share of stock from Mc
Foods to Hodreal, instead of an original, unissued share
of stock.
It is also MSCI's stance that Mc Foods violated
Section 30 (e) of MSCI's Amended By-Laws on its
pre-emptive rights, which provides
SEC. 30.. . . .
(e)Sale of Shares of Stockholder. Where the registered
owner of share of stock desires to sell his share of
stock, he shall first offer the same in writing to the
Club at fair market value and the club shall have thirty
(30) days from receipt of written offer within which to
purchase such share, and only if the club has excess
revenues over expenses (unrestricted retained
earning) and with the approval of two-thirds (2/3) vote
of the Board of Directors. If the Club fails to purchase
the share, the stockholder may dispose of the same to
other persons who are qualified to own and hold shares
in the club. If the share is not purchased at the price
quoted by the stockholder and he reduces said price,
then the Club shall have the same pre-emptive right
subject to the same conditions for the same period of
thirty (30) days. Any transfer of share, except by
hereditary succession, made in violation of these
The share of stock so acquired shall be offered and

sold by the Club to those in the Waiting List in the
order that their names appear in such list, or in the
absence of a Waiting List, to any applicant.
Thus, petitioner sought judgment that would order
respondents to pay the sum of P1,000,000.00,
representing the amount allegedly defrauded, together
with interest and damages.
The RTC rendered its decision dismissing
complaint, including all counterclaims.
the
Aggrieved, Makati Sports Club, Inc. (MSCI) appealed to

the CA. The CA promulgated its assailed Decision,
affirming the decision of the RTC.
Hence, this petition.
ISSUE:
W/N Mc Foods violated Section 30 (e) of MSCI's
Amended By-Laws on its pre-emptive rights
HELD:
The court held that Mc Foods did not violate Section 30
(e) of MSCIs Amended By-Laws on its pre-emptive
rights.
Undeniably, on December 27, 1995, when Mc Foods
offered for sale one Class "A" share of stock to MSCI for
the price of P2,800,000.00 for the latter to exercise its
pre-emptive right as required by Section 30 (e) of

MSCI's Amended By-Laws, it legally had the right to do
so since it was already an owner of a Class "A" share
by virtue of its payment on November 28, 1995, and
the Deed of Absolute Share dated December 15, 1995,
notwithstanding the fact that the stock certificate was
issued only on January 5, 1996.
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 a 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. It 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 of stock or the
nature of the relation of shareholder to the corporation.
Therefore, Mc Foods properly complied with the
requirement of Section 30 (e) of the Amended
By-Laws on MSCI's pre-emptive rights. Without
doubt, MSCI failed to repurchase Mc Foods' Class
"A" share within the thirty (30) day pre-emptive
period as provided by the Amended By-Laws.
It was only on January 29, 1996, or 32 days after
December 28, 1995, when MSCI received Mc Foods'
letter of offer to sell the share, that Mc Foods and
Hodreal executed the Deed of Absolute Sale over the
said share of stock. While Hodreal had the right to
demand the immediate execution of the Deed of
Absolute Sale after his full payment of Mc Foods' Class
"A" share, he did not do so. Perhaps, he wanted to wait
for Mc Foods to first comply with the pre-emptive
requirement as set forth in the Amended By-Laws.
Neither can MSCI argue that Mc Foods was not yet a

registered owner of the share of stock when the latter
offered it for resale, in order to void the transfer from
Mc Foods to Hodreal. The corporation's obligation to
register is ministerial upon the buyer's acquisition of
ownership of the share of stock. The corporation, either
by its board, its by-laws, or the act of its officers,
cannot create restrictions in stock transfers.
Moreover, MSCI's ardent position that Cheng was in
cahoots with Mc Foods in depriving it of selling an
original, unissued Class "A" share of stock for
P2,800,000.00 is not supported by the evidence on
record. The mere fact that she performed acts upon
authority of Mc Foods, i.e., receiving the payments of
Hodreal in her office and claiming the stock certificate
on behalf of Mc Foods, do not by themselves,
individually or taken together, show badges of fraud,
since Mc Foods did acts well within its rights and there
is no proof that Cheng personally profited from the
assailed transaction. Even the statement of MSCI that
Cheng doctored the books to give a semblance of
regularity to the transfers involving the share of stock
covered by Certificate A 2243 remains merely a plain
statement not buttressed by convincing proof.
44.
Marcus v. RH Macy 74 N.E. 2d 228
(1947)
Whether or not Marcus may exercise her right of

appraisal.
HELD:
FACTS:
Hazel Marcus is the owner of 50 common shares of
stocks in R.H, Macy Co., Inc., which are stocks with
voting rights. On September 28, 1945, the corporation
gave a formal notice to its stockholders, including
Marcus, that in its upcoming annual meeting, there will
be a vote on a proposal to vest voting rights to holders
of preferred stocks. A day before the annual meeting,
Marcus sent by registered mail to the corporation its
written notice of objection to the proposal and
demanded to exercise her appraisal right. In the
meeting, Marcus voted against the proposal, however,
the proposal was approved.
Marcus, thereafter, instituted a proceeding to
determine the value of her stocks and be paid therefor.
However, her application for the appointment of
appraisers was denied on the ground that the vesting
of voting rights to shares of stock previously without
such right does not divest nor limit her right as a
common stockholder, citing the Kenny case, and in
considering that she only owns 50 shares out of 1.6
million shares of common stock. The Appellate Division
affirmed the said decision.
ISSUE:
Marcus may exercise her right of appraisal. The Kenny

case is inapplicable in this case as in that case, voting
rights were given to newly issued stocks while in this
case, voting rights were given to existing stocks and
previously without voting rights. Vesting voting rights
to the preferred shares, in the case of R.H. Macy,
resulted to the increase in aggregate number of shares
with voting rights which in effect diminished the
potential worth of the common shares as a factor in
the management of the corporation's affairs. As to
Marcus owning only 50 shares, the law does not
provide for a minimum percentage or value of stock
which must be owned by a non-consenting stockholder
to qualify to invoke her appraisal right.
45.
Turner v. Lorenzo Shipping GR
157479 Nov. 24, 2010

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OUTLINE 4 - BUSINESS ORGANIZATION 2

1. Phil. Trust Co. v. Rivera 44 Phil. 469

Prof. M.I.P. Romero (2015 2016)

appear that the formalities prescribed in section 17 of

OUTLINE 4 - BUSINESS ORGANIZATION 2

In the case before us the resolution releasing the

Prof. M.I.P. Romero (2015 2016)

OUTLINE 4 - BUSINESS ORGANIZATION 2

2. Ong Yong v. Tiu G.R. 144476; 4/8/2003

Prof. M.I.P. Romero (2015 2016)

(for 300,000 shares) and P49.8 million (for 49,800

OUTLINE 4 - BUSINESS ORGANIZATION 2

Prof. M.I.P. Romero (2015 2016)

March 2002, pointing out that there was no violation of

No. first of all, a subscription contract as defined under

Any contract for the acquisition of unissued stock in

A subscription contract necessarily involves the

OUTLINE 4 - BUSINESS ORGANIZATION 2

the corporation its shares of stock. Thus, the

Considering therefore that the real contracting parties

Prof. M.I.P. Romero (2015 2016)

the procedures for the valid distribution of assets and

The Trust Fund Doctrine, first enunciated by this Court

The distribution of corporate assets and property

OUTLINE 4 - BUSINESS ORGANIZATION 2

corporate peace laudably hoped for by the court will

Prof. M.I.P. Romero (2015 2016)

OUTLINE 4 - BUSINESS ORGANIZATION 2

3. Halley v. Printwell, Inc. G.R. 157549; May

BMPI (Business Media Philippines Inc.) is a

Halley contends that:

Prof. M.I.P. Romero (2015 2016)

3. BOD and SH had resolved to dissolve BMPIRTC

Defendant merely used the corporate fiction as a

OUTLINE 4 - BUSINESS ORGANIZATION 2

cannot now claim the doctrine of corporate fiction

Prof. M.I.P. Romero (2015 2016)

OUTLINE 4 - BUSINESS ORGANIZATION 2

4. Castillo v. Balinghasay Oct. 18, 2004

Prof. M.I.P. Romero (2015 2016)

MCPI is a domestic corporation with offices at Dr. A.

OUTLINE 4 - BUSINESS ORGANIZATION 2

Only holders of Class A shares have the right to vote

Prof. M.I.P. Romero (2015 2016)

declared over the objections of herein petitioners, that

OUTLINE 4 - BUSINESS ORGANIZATION 2

Subsequently, the complaint was amended to implead

Prof. M.I.P. Romero (2015 2016)

We find merit in the petition.

OUTLINE 4 - BUSINESS ORGANIZATION 2

inserted in the provision governing the grant of

Prof. M.I.P. Romero (2015 2016)

is nothing in the Articles of Incorporation nor an

OUTLINE 4 - BUSINESS ORGANIZATION 2

5. Delpher Trades Corp. v. IAC (1988) 157

Prof. M.I.P. Romero (2015 2016)

5. On the ground that it was not given the first option

OUTLINE 4 - BUSINESS ORGANIZATION 2

since the Pachecos remained in control of the

Prof. M.I.P. Romero (2015 2016)

ownership from unincorporated to incorporated form

The Deed of Exchange of property cannot be a

OUTLINE 4 - BUSINESS ORGANIZATION 2

appearance of a given sum in money, as in the case