Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-42135

June 17, 1935

TORIBIA USON, plaintiff-appellee,

vs.
VICENTE DIOSOMITO, ET AL., defendants.
VICENTE DIOSOMITO, EMETERIO BARCELON, H.P.L. JOLLYE and
NORTH ELECTRIC COMPANY, INC.,appellants.
Lino S. Gabriel for appellant Diosomito.
Emeterio Barcelon and M.B. Villanueva for appellant Barcelon.
Ross, Lawrence and Selph for appellants Jollye and North Electric Co.,
Inc.
Encarnacion and Arca for appellee.
BUTTE, J.:
This is an appeal from a decision of the Court of First Instance of Cavite
involving the ownership of seventy-five shares of stock in the North
Electric Company, Inc. The plaintiff-appellee claims to be the owner of
these shares by virtue of purchase at a sheriff's sale for the sum of
P2,617.18.
It appears that Toribia Uson had filed a civil action for debt in the Court
of First Instance of Cavite, No. 2525, against Vicente Diosomito and that
upon institution of said action an attachment was duly issued and levied
upon the property of the defendant Diosomito, including seventy-five
shares of the North Electric Co., Inc., which stood in his name on the
books of the company when the attachment was levied on January 18,
1932. Subsequently, on June 23, 1932, in said civil case No. 2525,
Toribia Uson obtained judgment against the defendant Diosomito for the

sum of P2,300 with interest and costs. To satisfy said judgment, the
sheriff sold said shares at public auction in accordance with law on
March 20, 1933. The plaintiff Toribia Uson was the highest bidder and
said shares were adjudicated to her. (See Exhibit K.) In the present
action, H.P.L. Jollye claims to be the owner of said 75 shares of the
North Electric Co., Inc., and presents a certificate of stock issued to him
by the company on February 13, 1933.
There is no dispute that the defendant Vicente Diosomito was the
original owner of said shares of stock, having a par value of P7,500, and
that on February 3, 1931, he sold said shares to Emeterio Barcelon and
delivered to the latter the corresponding certificates Nos. 2 and 19. But
Barcelon did not present these certificates to the corporation for
registration until the 16th of September, 1932, when they were cancelled
and a new certificate, No. 29, was issued in favor of Barcelon, who
transferred the same of the defendant H.P.L. Jollye to whom a new
certificate No. 25 was issued on February 13, 1933.
It will be seen, therefore, that the transfer of said shares by Vicente
Diosomito, the judgment debtor in suit No. 2525, to Barcelon was not
registered and noted on the books of the corporation until September 16,
1932, which was some nine months after the attachment had been
levied on said shares in civil case No. 2525 as above stated.
Thus arises in this case one of the most vexing questions in the law of
corporations, namely, whether a bona fidetransfer of the shares of a
corporation, not registered or noted on the books of the corporation, is
valid as against a subsequent lawful attachment of said shares,
regardless of whether the attaching creditor had actual notice of said
transfer or not. This is the first case in which this question has been
squarely presented to us for decision. The case of Uy Piaco vs.
McMicking (10 Phil., 286), decided in 1908, arose before the Philippine
Corporation Law, Act No. 1459, took effect (April 1, 1906). The cases of
Fua Cun vs. Summer and China Banking Corporation, 44 Phil., 705
[1923] and Fleischer vs. Botica Nolasco Co., 47 Phil., 583 [1925] are not
in point.

Section 35 of the Corporation Law is as follows:

SEC. 35. The capital stock of stock corporations shall be divided
into shares for which certificates signed by the president or the
vice-president, countersigned by the secretary or clerk and sealed
with the by-laws. Shares of stock so issued are personal property
and may be transferred by delivery of the certificate indorsed by
the owner or his attorney in fact or other person legally
authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is entered
and noted upon the books of the corporation so as to show the
names of the parties to the transaction, the date of the transfer,
the number of the certificate, and the number of shares
transferred.
No shares of stock against which the corporation holds any
unpaid claim shall be transferable on the books of the
corporation.
The sentence of the foregoing section immediately applicable in the
present case is as follows:
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.
The appellants cites decision from a number of states of the American
Union which hold that an unregistered transfer is valid as against the
lien of a subsequent attachment sued out by a creditor of the assignor,
whether such creditor has notice of the transfer or not. These decisions
are founded upon the theory that the attachment reaches only such title
or interest as the defendant may have in the property at the time of the
levy; and if all title and interest had previously passed by assignment
from the debtor to a third person, the attaching creditor obtains nothing
by the levy; that the owner of shares of stock has the common law right
to dispose of the same as personal property. But with the exception of

California, to which reference will be made later, none of the decisions

cited by the appellants construed statues identical with ours. Much of
the confusion which is to be found in the decision has arisen because
the courts have failed to note the difference in the various statutes of the
American Union on the question considered here. For an illuminating
discussion of this confusion the following authorities may be consulted:
Fletcher, Cyclopedia of the Law of Private Corporations (1932),
vol. 12, pages 358-389.
American and English Annotated Cases, vol. 21, pages 13911407.
American Law Review, vol. 35, pages 238-251. 55 Cent. L. J.,
243-251.
The statutes on this point may be put roughly in three groups: First,
those that provide, in substance, that no transfer of shares is valid for
any purpose unless registered on the books of the corporation. This rule
apparently once prevailed in Colorado and the District of Columbia both
of which have since amended it by statute. Second, that group which,
like our own Act No. 1459, holds to the rule that no transfer shall be
valid except as between the parties until the transfer is duly registered.
This group, according to the best information available here, includes or
has included the State of Arizona, California, the Territory of Hawaii,
Idaho, Iowa, Nevada, New Mexico, North Dakota, Oklahoma, South
Dakota, Washington, Wisconsin. The thirds group which includes the
remaining jurisdictions follows the rule and the doctrine invoked by the
appellant in this case, which, by amendment of the statutes, is becoming
the prevailing rule in the United States.
The decision of the Supreme Court of California in the case of National
Bank of the Pacific vs. Western Pacific Railway Company (157 Cal., 573
[1910]; 108 Pac., 676), sitting in division of three, construed section 324
of the Civil Code of California which is identical with section 35, supra,
of the Philippine Corporation Law. The court stressed the provision that
the shares of stock in a corporation are personal property and may be
transferred by endorsement and delivery of the certificate. The opinion
also endeavors to distinguish the prior decisions of Weston vs. Bear River
and Auburn Water and Mining Co. (5 Cal., 186); Strout vs. Natoma

Water and Mining Company (9 Cal., 78), and Naglee vs. Pacific Wharf
Company (20 Cal., 529), which are frequently cited in other jurisdictions
as sustaining the theory of the superiority of the attachment lien over
the unregistered stock transfer. (See Lyndonville National Bank vs.
Folsom, 7 N.M., 611 [1894]; 38 Pac., 253.) The California decision leaves
us unconvinced that the statutes which fall in the second group above
mentioned should be given the same effect as the statute in the third
group without any necessity for legislative amendment.

provision that "no transfer, however, shall be valid, except as between the
parties, until the transfer is entered and noted upon the books of the
corporation." Therefore, the transfer of the 75 shares in the North
Electric Company, Inc., made by the defendant Diosomito to the
defendant Barcelon was not valid as to the plaintiff-appellee, Toribia
Uson, on January 18, 1932, the date on which she obtained her
attachment lien on said shares of stock which still stood in the name of
Diosomito on the books of the corporation.

We prefer to adopt the line followed by the Supreme Courts of

Massachusetts and of Wisconsin. (See Clews vs. Friedman, 182 Mass.,
555; 66 N.E. 201, and In re Murphy, 51 Wis., 519; 8 N.W., 419.)

We have considered the remaining assignments of error of the appellants

and finding no merit in them in results that the judgment must be
affirmed with costs against the appellants.

In the latter case the court had under consideration a statute identical
with our own section 35, supra, and the court said:
We think the true meaning of the language is, and the obvious
intention of the legislature in using it was, that all transfers of
shares should be entered, as here required, on the books of the
corporation. And it is equally clear to us that all transfers of
shares not so entered are invalid as to attaching or execution
creditors of the assignors, as well as to the corporation and to
subsequent purchasers in good faith, and indeed, as to all
persons interested, except the parties to such transfers. All
transfers not so entered on the books of the corporation are
absolutely void; not because they are without notice or
fraudulent in law or fact, but because they are made so void by
statute.
Some of the states, including Wisconsin, which has held to the rather,
strict but judicial interpretation of the statutory language here in
question have amended the statute so as to fall in line with the more
liberal and rational doctrine of the third group referred to above. This
court still adheres to the principle that its function is jus dicere non jus
dare. To us the language of the legislature is plain to the effect that the
right of the owner of the shares of stock of a Philippine corporation to
transfer the same by delivery of the certificate, whether it be regarded as
statutory on common law right, is limited and restricted by the express

an undetermined number of shares in escrow of the Filipinas Mining

Corporation and to pay the sum of P500 as damages, with the proviso
that the escrow shares shall be transferred and delivered to the plaintiff
only after they shall have been released by the company. On June 25,
1937, a writ of garnishment was served by the sheriff of Manila upon
the Filipinas Mining Corporation to satisfy the said judgment; and on
July 29, 1937, the Filipinas Mining Corporation advised the sheriff of
Manila that according to its books the judgment debtor Silverio Salvosa
was the registered owner of 1,000 active shares and about 21,339
unissued shares held in escrow by the said corporation. The sheriff sold
the 1,000 active shares at public auction, realizing therefrom only the
sum of P10, which was applied in partial satisfaction of the judgment for
damages in the sum of P500.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-49003

July 28, 1944

ANTONIO ESCAO, plaintiff-appellee,

vs. FILIPINAS MINING CORPORATION, ET Al., defendants.
STANDARD INVESTMENT OF THE PHILIPPINES, appellant.
Jose P. Bengzon for appellant.
Matias E. Vergara and Jose Ma. Reyes for appellee.
OZAETA, J.:
This case was submitted to and decided by the Court of First Instance of
Manila upon an agreed statement of facts which may be restated as
follows:
On March 8, 1937, the plaintiff-appellee obtained judgment in the Court
of First Instance of Manila against Silverio Salvosa whereby the latter
was ordered to transfer and deliver to the former 116 active shares and

The present case, which was instituted by Antonio Escao against the
Filipinas Mining Corporational and the Standard Investment of the
Philippines, relates to the escrow shares involved in the garnishment
proceeding above mentioned. It appears that after the complaint in the
original case of Escao vs. Salvosa was filed but before judgment we as
rendered therein, that lis to say, on November 21, 1936, Silverio Salvosa
sold to Jose P. Bengzon all his right, title, and interest in and to 18,580
shares of stock of the Filipinas Mining Corporation held in escrow which
the said Salvosa was entitled to receive, and which Bengzon in turn
subsequently sold and transferred to the present defendant-appellant,
Standard Investment of the Philippines. Neither Salvosa's sale to
Bengzon nor Bengzon's sale to the Standard Investment of the
Philippines was notified to and recorded in the books of the Filipinas
Mining Corporation until December 7, 1940, that is to say, more than
three years after the escrow shares in question were attached by
garnishment served on the Filipinas Mining Corporation as hereinbefore
set forth. On January 24, 1941, the defendant Filipinas Mining
Corporation issued in favor of the defendant Standard Investment of the
Philippines certificate of stock for the 18,580 shares formerly held in
escrow by Silverio Salvosa and which had been adversely by the present
plaintiff-appellee on the one hand and the Standard Investment of the
Philippines on the other, the first by virtue of garnishment proceedings
and the second by virtue of the sale made to it by Jose P. Bengzon as
aforesaid.

The question to determine is whether the issuance by the Filipinas

Mining Corporation of the said 18,580 shares of its stock to the
Standard Investment of the Philippines was valid as against the
attaching judgment creditor of the original owner, Silverio Salvosa,
namely, the present plaintiff-appellee Antonio Escao.
In addition to the above stipulated facts, the trial court found from the
supplementary oral evidence adduced by the plaintiff "that several
promises were made by the secretary of the defendant Filipinas Mining
Corporation that as soon as the escrow shares pertaining to Silverio
Salvosa were released he (the secretary) would notify the plaintiff so that
the latter might take the proper action for the execution of the judgment
rendered in the said case entitled "Antonio Escao vs. Silverio Salvosa,"
civil case No. 50575 of the Court of First Instance of Manila. But the
secretary, instead of complying with his promises, issued the escrow
shares to the defendant Standard Investment of the Philippines . . ."
The trial court held that the transfer of the escrow shares in question
from Salvosa to Bengzon and from Bengzon to the Standard Investment
of the Philippines, not having been recorded in the books of the
corporation as required by section 35 of the Corporation Law, could not
prevail over the garnishment previously made by the plaintiff of the said
shares, and rendered judgment "ordering the defendants Filipinas
Mining Corporation and the Standard Investment of the Philippines to
issue to the plaintiff out of the escrow shares which formerly belonged to
Silverio Salvosa, 4,152 shares of the Filipinas Mining Corporation and to
pay to him the dividends which have been and may be declared on said
shares until the delivery thereof to the plaintiff; and ordering the sheriff
to levy execution on the remaining shares which formerly belonged to
Silverio Salvosa in order to satisfy the balance of the judgment rendered
in the civil case entitled "Antonio Escao vs. Silverio Salvosa," civil case
No. 50575 of the Court of First Instance of Manila, with costs against the
defendants." From that judgment the Standard Investment of the
Philippines has appealed to this Court and makes the following
assignment of errors:
1. The trial court erred in holding that section 35 of Act 14599 and the
doctrine laid down in the case of Uson vs. Diosomito, 61 Phil., 535, are

applicable to the case at bar.

2. The trial court erred in "ordering the sheriff to levy execution on the
remaining shares of the 18,580 shares to satisfy the balance of the
judgment rendered in civil case No. 50575 of the Court of First
Instance of Manila"; and in not holding that because of the delay or
neglect for an unreasonable length of time by the plaintiff to enforce
his execution, the 18,580 shares affected in this litigation has been
discharged thru his waiver or abandonment.
1. Sections 431 and 432 of the Code of Civil Procedure (now sections 7
and 8 of Rule 59), which were in force at the time the garnishment in
question was served on the defendant Filipinas Mining Corporation,
provide as follows:
Sec. 431. Executing Order of Attachment as to debts and Credits.
Debts and credits, and other personal property not capable of manual
delivery, shall be attached by leaving with the person owing such
debts or having in his possession or under his control, such credits
and other personal property, a copy of the order of attachment and a
notice that the debts owing by him to the defendant, or the credits
and other personal property in his possession or under his control,
belonging to the defendant, are attached in pursuance of such order.
Sec. 432. Effect of Attachment of Debts and Credits. All persons
having in their possession or under their control any credits or other
personal property belonging to the defendant, or owing any debts to
the defendant at the time of service upon them of a copy of the order
of attachment and notice as provided in the last section, shall be,
unless such property be delivered up or transferred, or such debts be
paid to the clerk of the court in which the action is pending, liable to
the plaintiff for the amount of such credits, property, or debts, until
the attachment be discharged, or any judgment recovered by him be
satisfied."
Under the section last above quoted, the Filipinas Mining Corporation
became liable to the plaintiff for the shares of stock mentioned in its
return to the sheriff of July 29, 1937, wherein it informed the latter in

response to the notice of garnishment "that according to its books said

Silverio Salvosa was the registered owner of 1,000 active shares evidence
by certificate of stock No. 235 and about 21,338 unissued shares held in
escrow by the defendant Filipinas Mining Corporation."
Counsel for the appellant Standard Investment of the Philippines
contends that a distinction should be drawn between issued shares
evidenced by certificates of stock and unissued shares held in escrow, in
that while the transfer of the former is subject to the restriction
contained in section 35 of the Corporation Law, that of the latter is not.
The said section, insofar as pertinent here, reads as follows:
. . . Shares of stock so issued are personal property and may be
transferred by delivery of the certificate indorsed by the owner or his
attorney in fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as between the
parties, until the transfer is entered and noted upon the books of the
corporation so as to show the names of the parties to the transaction,
the date of the transfer, the number of the certificate, and the number
of shares transferred.
It is admitted that under this legal provision and the decision of this
Court in Uson vs. Diosomito, 61 Phil. 535, the transfer of duly issued
shares of stock is not valid as against third parties and the corporation
until it is noted upon the books of the corporation; but it is contended
that the transfer of unissued shares of stock held in escrow is valid
against the whole world although not notified to the corporation and not
noted upon its books. Since the sale, transfer, or assignment of unissued
shares of stock held in escrow is not specifically provided for by law, the
question has to be resolved by resorting to analogy. What is the reason of
the law for requiring the recording upon the books of the corporation of
transfers of shares of stock as a condition precedent to their validity
against the corporation, and third parties? We imagine that it is (1) to
enable the corporation to know at all times who its actual stockholders
are, because mutual rights and obligations exist between the corporation
and its stockholders; (2) to afford to the corporation an opportunity to
object or refuse its consent to the transfer in case it has any claim
against the stock sought to be transferred, or for any other valid reason;

and (3) to avoid fictitious or fraudulent transfers. Do these reasons hold

as to the transfer of unissued shares held in escrow? To sustain
appellant's contention is to declare that they do not. But we see no valid
reason for treating unissued shares held in escrow differently from
issued shares insofar as their sale and transfer is concerned. In both
cases the corporation is entitled to know who the actual owners of the
shares are, and to object to the transfer upon any valid ground.
Likewise, in both cases the possibility of fictitious or fraudulent transfers
exists. The only reason advanced by the appellant for exempting the
transfer of unissued shares from recording is that in case of unissued
shares there is no certificate number to be recorded. But that is a mere
detail which does not affect the reasons behind the rule. The lack of
such detail does not make it impossible to record the transfer upon the
books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, and the number of shares
transferred, which are the most essential data. As a matter of fact, the
defendant Filipinas Mining Corporation was able to take not of the
transfer of the escrow shares in question to the Standard Investment of
the Philippines on December 7, 1940, without knowing the certificate
number that would correspond to said shares.
Moreover, it seems illogical and unreasonable to hold that inactive or
unissued shares still held by the corporation in escrow pending receipt
of authorization from the Government to issue them, may be negotiated
or transferred unrestrictedly and more freely than active or issued
shares evidenced by certificates of stock.
We are, therefore, of the opinion and so hold that section 35 of the
Corporation Law, which requires the registration of transfers of shares
stock upon the books of the corporation as a condition precedent to their
validity against the corporation and third parties, is also applicable to
unissued shares held by the corporation in escrow.
2. Under its second assignment of error appellant contends that appellee
has been guilty of laches in neglecting for an unreasonable length of
time to enforce its levy on the 18,580 shares of stock in question by
having them sold at public auction, and that, consequently, said levy
should be considered discharged through waiver or abandonment. We

find no factual basis for the alleged laches and abandonment. The trial
court found that the secretary of the defendant Filipinas Mining
Corporation had repeatedly promised the plaintiff that he would notify
the latter as soon as the escrow shares pertaining to Silverio Salvosa
were released so that he ((plaintiff) might take the proper action for the
execution of his judgment. The Filipinas Mining Corporation having
advised the sheriff that it was holding the escrow shares of the judgment
debtor Silverio Salvosa, the plaintiff as execution creditor had the right
to wait for the release or issuance of said shares before having the same
sold at public auction, so long as the period of five years within which to
execution his judgment had not yet lapsed. Moreover, the judgment itself
provided "that the escrow shares shall be transferred and delivered to
the plaintiff only after they have been released by the company." It is
stated in the stipulation of facts that it was only after shares in favor of
the Standard Investment of the Philippines that the plaintiff Antonio
Escao came to know that Jose P. Bengzon and the Standard Investment
of the Philippines had acquired Silverio Salvosa's rights to the shares in
question. Upon these facts, together with the consideration that the
delay had not in any way misled the appellant to its prejudice, we find
appellant's second assignment of error untenable.
The judgment appealed from is affirmed, with costs.

[G.R. NO. 139802. December 10, 2002]

C.

PONCE, petitioner,

CORPORATION,

and

vs.

petitioners complaint. Also assailed is the CAs resolution [4] of August 10,
1999, denying petitioners motion for reconsideration.
On January 25, 1996, plaintiff (now petitioner) Vicente C. Ponce,
filed a complaint[5] with the SEC for mandamus and damages against
defendants (now respondents) Alsons Cement Corporation and its
corporate secretary Francisco M. Giron, Jr. In his complaint, petitioner
alleged, among others, that:
xxx
5. The late Fausto G. Gaid was an incorporator of Victory Cement
Corporation (VCC), having subscribed to and fully paid 239,500 shares
of said corporation.
6. On February 8, 1968, plaintiff and Fausto Gaid executed a Deed of
Undertaking and Indorsement whereby the latter acknowledges that the
former is the owner of said shares and he was therefore
assigning/endorsing the same to the plaintiff. A copy of the said
deed/indorsement is attached as Annex A.
7. On April 10, 1968, VCC was renamed Floro Cement Corporation (FCC
for brevity).

SECOND DIVISION

VICENTE

and reinstated the order[3] of the Hearing Officer dismissing herein

ALSONS

FRANCISCO

M.

CEMENT
GIRON,

JR., respondents.
DECISION
QUISUMBING, J.:
This petition for review seeks to annul the decision

[1]

of the Court of

Appeals, in CA-G.R. SP No. 46692, which set aside the decision[2] of the
Securities and Exchange Commission (SEC) En Banc in SEC-AC No. 545

8. On October 22, 1990, FCC was renamed Alsons Cement Corporation

(ACC for brevity) as shown by the Amended Articles of Incorporation of
ACC, a copy of which is attached as Annex B.
9. From the time of incorporation of VCC 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.
10. Despite repeated demands, the defendants refused and continue to
refuse without any justifiable reason to issue to plaintiff the certificates
of stocks corresponding to the 239,500 shares of Gaid, in violation of
plaintiffs right to secure the corresponding certificate of stock in his

name.[6]
Attached to the complaint was the Deed of Undertaking and
Indorsement[7] upon
which
petitioner
based
his
mandamus. Said deed and indorsement read as follows:

petition

for

DEED OF UNDERTAKING
KNOW ALL MEN BY THESE PRESENTS:
I, VICENTE C. PONCE, is the owner of the total subscription of Fausto
Gaid with Victory Cement Corporation in the total amount of TWO
HUNDRED THIRTY NINE THOUSAND FIVE HUNDRED (P239,500.00)
PESOS and that Fausto Gaid does not have any liability whatsoever on
the subscription agreement in favor of Victory Cement Corporation.
(SGD.) VICENTE C. PONCE
February 8, 1968
CONFORME:
(SGD.) FAUSTO GAID
INDORSEMENT
I, FAUSTO GAID is indorsing the total amount of TWO HUNDRED
THIRTY NINE THOUSAND FIVE HUNDRED (239,500.00) stocks of
Victory Cement Corporation to VICENTE C. PONCE.
(SGD.) FAUSTO GAID
With these allegations, petitioner prayed that judgment be rendered
ordering respondents (a) to issue in his name certificates of stocks
covering the 239,500 shares of stocks and its legal increments and (b) to
pay him damages.[8]
Instead of filing an answer, respondents moved to dismiss the

complaint on the grounds that: (a) the complaint states no cause of

action; mandamus is improper and not available to petitioner; (b) the
petitioner is not the real party in interest; (c) the cause of action is
barred by the statute of limitations; and (d) in any case, the petitioners
cause of action is barred by laches.[9] They argued, inter alia, that there
being no allegation that the alleged INDORSEMENT was recorded in the
books of the corporation, said indorsement by Gaid to the plaintiff of the
shares of stock in questionassuming that the indorsement was in fact a
transfer of stockswas not valid against third persons such as ALSONS
under Section 63 of the Corporation Code.[10] There was, therefore, no
specific legal duty on the part of the respondents to issue the
corresponding certificates of stock, and mandamus will not lie.[11]
Petitioner filed his opposition to the motion to dismiss on February
19, 1996 contending that: (1) mandamus is the proper remedy when a
corporation and its corporate secretary wrongfully refuse to record a
transfer of shares and issue the corresponding certificates of stocks; (2)
he is the proper party in interest since he stands to be benefited or
injured by a judgment in the case; (3) the statute of limitations did not
begin to run until defendant refused to issue the certificates of stock in
favor of the plaintiff on April 13, 1992.
After respondents filed their reply, SEC Hearing Officer Enrique L.
Flores, Jr. granted the motion to dismiss in an Order dated February 29,
1996, which held that:
xxx
Insofar as the issuance of certificates of stock is concerned, the real
party in interest is Fausto G. Gaid, or his estate or his heirs. Gaid was
an incorporator and an original stockholder of the defendant corporation
who subscribed and fully paid for 239,500 shares of stock (Annex
"B"). In accordance with Section 37 of the old Corporation Law (Act No.
1459) obtaining in 1968 when the defendant corporation was
incorporated, as well as Section 64 of the present Corporation Code
(Batas Pambansa Blg. 68), a stockholder who has fully paid for his
subscription together with interest and expenses in case of delinquent
shares, is entitled to the issuance of a certificate of stock for his

shares.According to paragraph 9 of the Complaint, no stock certificate

was issued to Gaid.
Comes now the plaintiff who seeks to step into the shoes of Gaid and
thereby become a stockholder of the defendant corporation by
demanding issuance of the certificates of stock in his name. This he
cannot do, for two reasons: there is no record of any assignment or
transfer in the books of the defendant corporation, and there is no
instruction or authority from the transferor (Gaid) for such assignment
or transfer. Indeed, nothing is alleged in the complaint on these two
points.

63 of the Code. Needless to say, any problem encountered in securing

the certificates of stock representing the investment made by the buyer
must be expeditiously dealt with through administrative mandamus
proceedings with the SEC, rather than through the usual tedious
regular court procedure. xxx
Applying this principle in the case on hand, a transfer or assignment of
stocks need not be registered first before the Commission can take
cognizance of the case to enforce his rights as a stockholder. Also, the
problem encountered in securing the certificates of stock made by the
buyer must be expeditiously taken up through the so-called
administrative mandamus proceedings with the SEC than in the regular

xxx

courts.[13]

In the present case, there is not even any indorsement of any stock
certificate to speak of. What the plaintiff possesses is a document by
which Gaid supposedly transferred the shares to him. Assuming the
document has this effect, nevertheless there is neither any allegation nor
any showing that it is recorded in the books of the defendant
corporation, such recording being a prerequisite to the issuance of a

The Commission En Banc also found that the Hearing Officer erred
in holding that petitioner is not the real party in interest.

stock certificate in favor of the transferee.

[12]

Petitioner appealed the Order of dismissal. On January 6, 1997, 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 the petitioners rights as a stockholder,
the Commission En Banc cited our ruling in Abejo vs. De la Cruz, 149
SCRA 654 (1987) to the effect that:
xxx 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 purchasers right to secure
the corresponding certificate in his name under the provisions of Section

xxx
As appearing in the allegations of the complaint, plaintiff-appellant is
the transferee of the shares of stock of Gaid and is therefore entitled to
avail of the suit to obtain the proper remedy to make him the rightful
owner and holder of a stock certificate to be issued in his
name. Moreover, defendant-appellees failed to show that the transferor
nor his heirs have refuted the ownership of the transferee. Assuming
these allegations to be true, the corporation has a mere ministerial duty
to register in its stock and transfer book the shares of stock in the name
of the plaintiff-appellant subject to the determination of the validity of
the deed of assignment in the proper tribunal. [14]
Their motion for reconsideration having been denied, herein
respondents appealed the decision[15] of the SEC En Banc and the
resolution[16] denying their motion for reconsideration to the Court of
Appeals.
In its decision, the Court of Appeals held that in the absence of any
allegation that the transfer of the shares between Fausto Gaid and
Vicente C. Ponce was registered in the stock and transfer book of

ALSONS, Ponce failed to state a cause of action. Thus, said the CA, the
complaint for mandamus should be dismissed for failure to state a cause
of action.[17] petitioners motion for reconsideration was likewise denied in

does not mean that the transferee cannot ask for the issuance of stock
certificates.

I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

THE COMPLAINT FOR ISSUANCE OF A CERTIFICATE OF STOCK FILED
BY PETITIONER FAILED TO STATE A CAUSE OF ACTION BECAUSE IT
DID NOT ALLEGE THAT THE TRANSFER OF THE SHARES (SUBJECT
MATTER OF THE COMPLAINT) WAS REGISTERED IN THE STOCK AND
TRANSFER BOOK OF THE CORPORATION, CITING SECTION 63 OF
THE CORPORATION CODE.

Secondly, according to petitioner, there is no law, rule or regulation

requiring a transferor of shares of stock to first issue express
instructions or execute a power of attorney for the transfer of said shares
before a certificate of stock is issued in the name of the transferee and
the transfer registered in the books of the corporation. He contends
that Hager vs. Bryan, 19 Phil. 138 (1911), and Rivera vs. Florendo, 144
SCRA 643 (1986), cited by respondents, do not apply to this case. These
cases contemplate a situation where a certificate of stock has been
issued by the company whereas in this case at bar, no stock certificates
have been issued even in the name of the original stockholder, Fausto
Gaid.

II. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING

THE CASES OF ABEJO VS. DE LA CRUZ, 149 SCRA 654 AND RURAL
BANK OF SALINAS, INC., ET AL VS. COURT OF APPEALS, ET AL., G.R.
NO. 96674, JUNE 26, 1992.

Finally, petitioner maintains that since he is under no compulsion to

register the transfer or to secure stock certificates in his name, his cause
of action is deemed not to have accrued until respondent ALSONS
denied his request.

III. THE HONORABLE COURT OF APPEALS ERRED IN APPLYING A

1911 CASE, HAGER VS. BRYAN, 19 PHIL. 138, TO DISMISS THE

Respondents, in their comment, maintain that the transfer of shares

of stock not recorded in the stock and transfer book of the corporation is
non-existent insofar as the corporation is concerned and no certificate of
stock can be issued in the name of the transferee. Until the recording is
made, the transfer cannot be the basis of issuance of a certificate of
stock. They add that petitioner is not the real party in interest, the real
party in interest being Fausto Gaid since it is his name that appears in
the records of the corporation. They conclude that petitioners cause of
action is barred by prescription and laches since 24 years elapsed before
he made any demand upon ALSONS.

a resolution[18] dated August 10, 1999.

Hence, the instant petition for review on certiorari alleging that:

COMPLAINT FOR ISSUANCE OF A CERTIFICATE OF STOCK.[19]

At issue is whether the Court of Appeals erred in holding that
herein petitioner has no cause of action for a writ of mandamus.
Petitioner first contends that the act of recording the transfer of
shares in the stock and transfer book and that of issuing a certificate of
stock for the transferred shares involves only one continuous
process.Thus, when a corporate secretary is presented with a document
of transfer of fully paid shares, it is his duty to record the transfer in the
stock and transfer book of the corporation, issue a new stock certificate
in the name of the transferee, and cancel the old one. A transferee who
requests for the issuance of a stock certificate need not spell out each
and every act that needs to be done by the corporate secretary, as a
request for issuance of stock certificates necessarily includes a request
for the recording of the transfer. Ergo, the failure to record the transfer

We find the instant petition without merit. The Court of Appeals did
not err in ruling that petitioner had no cause of action, and that his
petition for mandamus was properly dismissed.
There is no question that Fausto Gaid was an original subscriber of
respondent corporations 239,500 shares. This is clear from the
numerous pleadings filed by either party. It is also clear from the

10

Amended Articles of Incorporation[20] approved on August 9, 1995[21] that

each share had a par value of P1.00 per share. And, it is undisputed
that petitioner had not made a previous request upon the corporate
secretary of ALSONS, respondent Francisco M. Giron Jr., to record the
alleged transfer of stocks.
The Corporation Code states that:
SEC. 63. Certificate of stock and transfer of shares.The capital stock of
stock corporations shall be divided into shares for which certificates
signed by the president or vice-president, countersigned by the secretary
or assistant secretary, and sealed with the seal of the corporation shall
be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded in the
books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim
shall be transferable in the books of the corporation.
Pursuant to the foregoing provision, a transfer of shares of stock not
recorded in the stock and transfer book of the corporation is nonexistent as far as the corporation is concerned.[22] 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. [23] 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[24] of the Corporation Code. This is the import of Section 63
which states that No transfer, however, shall be valid, except between the
parties, until the transfer is recorded in the books of the corporation
showing the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of
shares transferred. The situation would be different if the petitioner was
himself the registered owner of the stock which he sought to transfer to a
third party, for then he would be entitled to the remedy of mandamus.[25]
From the corporations point of view, the transfer is not effective
until it is recorded. Unless and until such recording is made the demand
for the issuance of stock certificates to the alleged transferee has no legal
basis. 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. [26] In other
words, the stock and transfer book is the basis for ascertaining the
persons entitled to the rights and subject to the liabilities of a
stockholder. Where a transferee is not yet recognized as a stockholder,
the corporation is under no specific legal duty to issue stock certificates
in the transferees name.
It follows that, as held by the Court of Appeals:
x x x until registration is accomplished, the transfer, though valid
between the parties, cannot be effective as against the
corporation. Thus, in the absence of any allegation that the transfer of
the shares between Gaid and the private respondent [herein petitioner]
was registered in the stock and transfer book of the petitioner
corporation, the private respondent has failed to state a cause of action.
[27]

Petitioner insists that it is precisely the duty of the corporate

secretary, when presented with the document of fully paid shares, to
effect the transfer by recording the transfer in the stock and transfer
book of the corporation and to issue stock certificates in the name of the
transferee. On this point, the SEC En Banc cited Rural Bank of Salinas,
Inc. vs. Court of Appeals, [28] where we held that:

11

For the petitioner Rural Bank of Salinas to refuse registration of the

transferred shares in its stock and transfer book, which duty is
ministerial on its part, is to render nugatory and ineffectual the spirit
and intent of Section 63 of the Corporation Code. Thus, respondent
Court of Appeals did not err in upholding the decision of respondent
SEC affirming the Decision of its Hearing Officer directing the
registration of the 473 shares in the stock and transfer book in the
names of private respondents. At all events, the registration is without
prejudice to the proceedings in court to determine the validity of the
Deeds of Assignment of the shares of stock in question.
In Rural Bank of Salinas, Inc., however, private respondent Melania
Guerrero had a Special Power of Attorney executed in her favor by
Clemente Guerrero, the registered stockholder. It gave Guerrero full
authority to sell or otherwise dispose of the 473 shares of stock
registered in Clementes name and to execute the proper documents
therefor. Pursuant to the authority so given, Melania assigned the 473
shares of stock owned by Guerrero and presented to the Rural Bank of
Salinas the deeds of assignment covering the assigned shares. Melania
Guerrero prayed for the transfer of the stocks in the stock and transfer
book and the issuance of stock certificates in the name of the new
owners thereof. 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.
That cannot be said of this case. The deed of undertaking with
indorsement presented by petitioner does not establish, on its face, his
right to demand for the registration of the transfer and the issuance of
certificates of stocks. In Hager vs. Bryan, 19 Phil. 138 (1911), this Court
held that a petition for mandamus fails to state a cause of action where
it appears that the petitioner is not the registered stockholder and there
is no allegation that he holds any power of attorney from the registered
stockholder, from whom he obtained the stocks, to make the transfer,
thus:
It appears, however, from the original as well as the amended petition,

that this petitioner is not the registered owner of the stock which he
seeks to have transferred, and except in so far as he alleges that he is
the owner of the stock and that it was "indorsed" to him on February 5
by the Bryan-Landon Company, in whose name it is registered on the
books of the Visayan Electric Company, there is 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.
Without discussing or deciding the respective rights of the parties which
might be properly asserted in an ordinary action or an action in the
nature of an equitable suit, we are all agreed that in a case such as
that at bar, a mandamus should not issue to compel the secretary
of a corporation to make a transfer of the stock on the books of
the company, unless it affirmatively appears that he has failed or
refused so to do, upon the demand either of the person in whose
name the stock is registered, or of some person holding a power of
attorney for that purpose from the registered owner of the
stock. There is no allegation in the petition that the petitioner or anyone
else holds a power of attorney from the Bryan-Landon Company
authorizing a demand for the transfer of the stock, or that the BryanLandon Company has ever itself made such demand upon the Visayan
Electric Company, and in the absence of such allegation we are not able
to say that there was such a clear indisputable duty, such a clear legal
obligation upon the respondent, as to justify the issuance of the writ to
compel him to perform it.
Under the provisions of our statute touching the transfer of stock (secs.
35 and 36 of Act No. 1459),[29] the mere indorsement of stock certificates
does not in itself give to the indorsee such a right to have a transfer of
the shares of stock on the books of the company as will entitle him to
the writ of mandamus to compel the company and its officers to make
such transfer at his demand, because, under such circumstances the
duty, the legal obligation, is not so clear and indisputable as to justify
the issuance of the writ. As a general rule and especially under the
above-cited statute, as between the corporation on the one hand, and its

12

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.[30]
In Rivera vs. Florendo, 144 SCRA 643, 657 (1986), we reiterated that
a mere indorsement by the supposed owners of the stock, in the absence
of express instructions from them, cannot be the basis of an action for
mandamus and that the rights of the parties have to be threshed out in
an ordinary action. That Hager and Rivera involved petitions for
mandamus to compel the registration of the transfer, while this case is
one for issuance of stock, is of no moment. It has been made clear, thus
far, that before a transferee may ask for the issuance of stock
certificates, he must first cause the registration of the transfer and
thereby enjoy the status of a stockholder insofar as the corporation is
concerned. A corporate secretary may not be compelled to register
transfers of shares on the basis merely of an indorsement of stock
certificates. With more reason, in our view, a corporate secretary may
not be compelled to issue stock certificates without such registration.[31]
Petitioners reliance on our ruling in Abejo vs. De la Cruz, 149 SCRA
654 (1987), that notice given to the corporation of the sale of the shares
and presentation of the certificates for transfer is equivalent to
registration is misplaced. In this case there is no allegation in the
complaint that petitioner ever gave notice to respondents of the alleged
transfer in his favor. Moreover, that case arose between and among the
principal stockholders of the corporation, Pocket Bell, due to the refusal
of the corporate secretary to record the transfers in favor of Telectronics
of the corporations controlling 56% shares of stock which were covered
by duly endorsed stock certificates. As aforesaid, the request for the
recording of a transfer is different from the request for the issuance of
stock certificates in the transferees name. Finally, in Abejo we did not
say that transfer of shares need not be recorded in the books of the
corporation before the transferee may ask for the issuance of stock
certificates. The Courts statement, that 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 among which is the
stock purchasers right to secure the corresponding certificate in his
name,[32] was addressed to the issue of jurisdiction, which is not
pertinent to the issue at hand.
Absent an allegation that the transfer of shares is recorded in the
stock and transfer book of respondent ALSONS, there appears no basis
for a clear and indisputable duty or clear legal obligation that can be
imposed upon the respondent corporate secretary, so as to justify the
issuance of the writ of mandamus to compel him to perform the transfer
of the shares to petitioner. The test of sufficiency of the facts alleged in a
petition is whether or not, admitting the facts alleged, the court could
render a valid judgment thereon in accordance with the prayer of the
petition.[33] This test would not be satisfied if, as in this case, not all the
elements of a cause of action are alleged in the complaint. [34] Where the
corporate secretary is under no clear legal duty to issue stock certificates
because of the petitioners failure to record earlier the transfer of shares,
one of the elements of the cause of action for mandamus is clearly
missing.
That petitioner was under no obligation to request for the
registration of the transfer is not in issue. It has no pertinence in this
controversy. One may own shares of corporate stock without possessing
a stock certificate. In Tan vs. SEC, 206 SCRA 740 (1992), we had
occasion to declare that a certificate of stock is not necessary to render
one a stockholder in a corporation. But a certificate of stock is the
tangible evidence of the stock itself and of the various interests
therein. The certificate is the evidence of the holders interest and status
in the corporation, his ownership of the share represented thereby. The
certificate is in law, so to speak, an equivalent of such ownership. It
expresses the contract between the corporation and the stockholder, but
it is not essential to the existence of a share in stock or the creation of
the relation of shareholder to the corporation. [35] In fact, it rests on the
will of the stockholder whether he wants to be issued stock certificates,
and a stockholder may opt not to be issued a certificate. In Won vs. Wack
Wack Golf and Country Club, Inc., 104 Phil. 466 (1958), we held that

13

considering that the law does not prescribe a period within which the
registration should be effected, the action to enforce the right does not
accrue until there has been a demand and a refusal concerning the
transfer. In the present case, petitioners complaint for mandamus must
fail, not because of laches or estoppel, but because he had alleged no
cause of action sufficient for the issuance of the writ.
WHEREFORE, the petition is DENIED for lack of merit. The
decision of the Court of Appeals, in CA-G.R. SP No. 46692, which set
aside that of the Securities and Exchange Commission En Banc in SECAC No. 545 and reinstated the order of the Hearing Officer, is
hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

14

same into Stock Certificates No. 6 (for Angel S. Tan) and

No. 8 (for Alfonso S. Tan);

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 95696 March 3, 1992
ALFONSO S. TAN, Petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION, VISAYAN
EDUCATIONAL SUPPLY CORP., TAN SU CHING, ALFREDO B. UY,
ANGEL S. TAN and PATRICIA AGUILAR, Respondents.

2. Invalidating the sale of shares represented under Stock

Certificate No. 8 between Alfonso S. Tan and the
respondent corporation which converted the said stocks
into treasury shares, as well as those transactions
involved in the withdrawal of the stockholders from the
respondent corporation for being contrary to law, but
ordering the neither party may recover pursuant to Article
1412 (1) Civil Code of the Philippines; and
3. Revoking the Order of Hearing Officer Felix Chan to
reinstate complainant's original 400 shares of stock in the
books of the corporation in view of the validity of the sale
of 50 shares represented under stock certificate No. 6;
and the nullity of the sale 350 shares represented under
stock certificate No. 8, pursuant to the "in pari delicto"
doctrine aforecited. (Rollo, p. 4)
The antecedent facts of the case are as follows:

PARAS, J.:
Petitioner filed a petition for certiorari against the public respondent
Securities and Exchange Commission and its co-respondents, after the
former in an en banc Order, overturned with modification, the decision
of its Cebu SEC Extension hearing officer, Felix Chan, in SEC Case No.
C-0096, dated May 23, 1989, on October 10, 1990, under SEC-AC No.
263. (Rollo, pp. 3 and 4)
Sought to be reversed by petitioner, is the ruling of the Commission,
specifically declaring that:
1. Confirming the validity of the resolution of the board of
directors of the Visayan Educational Supply Corporation
so far as it cancelled Stock Certificate No. 2 and split the

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.
(Rollo, p. 5)
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. (Rollo, p. 43)
Petitioner's certificate of stock No. 2 was cancelled by the corporate
secretary and respondent Patricia Aguilar by virtue of Resolution No.

15

1981 (b), which was passed and approved while petitioner was still a
member of the Board of Directors of the respondent corporation. (Rollo,
p. 6)
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. (Rollo, p. 43)
Accordingly, as a result of the sale by petitioner of his fifty (50) shares of
stock to Angel S. Tan on April 16, 1981, Certificate of Stock No. 2 was
cancelled and the corresponding Certificates Nos. 6 and 8 were issued,
signed by the newly elected fifth member of the Board, Angel S. Tan as
Vice-president, upon instruction of Alfonso S. Tan who was then the
president of the Corporation.(Memorandum of the Private Respondent,
p. 15)
With the cancellation of Certificate of stock No. 2 and the subsequent
issuance of Stock Certificate No. 6 in the name of Angel S. Tan and for
the remaining 350 shares, Stock Certificate No. 8 was issued in the
name of petitioner Alfonso S. Tan, Mr. Buzon, submitted an Affidavit
(Exh. 29), alleging that:
9. That in view of his having taken 33 1/3 interest, I was
personally requested by Mr. Tan Su Ching to request Mr.
Alfonso Tan to make proper endorsement in the cancelled
Certificate of Stock No. 2 and Certificate No. 8, but he did
not endorse, instead he kept the cancelled (1981)
Certificate of Stock No. 2 and returned only to me
Certificate of Stock No. 8, which I delivered to Tan Su
Ching.
10. That the cancellation of his stock (Stock No. 2) was
known by him in 1981; that it was Stock No. 8, that was

delivered in March 1983 for his endorsement and

cancellation. (Ibid, p. 18)
From the same Affidavit, it was alleged that Atty. Ramirez prepared a
Memorandum of Agreement with respect to the transaction of the fifty
(50) shares of stock part of the Stock Certificate No. 2 of petitioner,
which was submitted to its former owner, Alfonso Tan, but which the
purposely did not return. (Ibid., p. 18)
On January 29, 1983, during the annual meeting of the corporation,
respondent Tan Su Ching was elected as President while petitioner was
elected as Vice-president. He, however, did not sign the minutes of said
meeting which was submitted to the SEC on March 30, 1983. (Rollo, p.
43)
When petitioner was dislodged from his position as president, he
withdrew from the corporation on February 27, 1983, on condition that
he be paid with stocks-in-trade equivalent to 33.3% in lieu of the stock
value of his shares in the amount of P35,000.00. After the withdrawal of
the stocks, the board of the respondent corporation held a meeting on
April 19, 1983, effecting the cancellation of Stock Certificate Nos. 2 and
8 (Exh. 278-C) in the corporate stock and transfer book 1 (Exh. 1-1-A)
and submitted the minutes thereof to the SEC on May 18, 1983. (Rollo,
p. 44)
Five (5) years and nine (9) months after the transfer of 50 shares to
Angel S. Tan, brother of petitioner Alfonso S. Tan, and three (3) years
and seven (7) months after effecting the transfer of Stock Certificate Nos.
2 and 8 from the original owner (Alfonso S. Tan) in the stock and
transfer book of the corporation, the latter filed the case before the Cebu
SEC Extension Office under SEC Case No. C-0096, more specifically on
December 3, 1983, questioning for the first time, the cancellation of his
aforesaid Stock Certificates Nos. 2 and 8. (Rollo, p. 44)
The bone of centention raised by the petitioner is that the deprivation of
his shares despite the non-endorsement or surrender of his Stock
Certificate Nos. 2 and 8, was without the process contrary to the
provision of Section 63 of the Corporation Code (Batas Pambansa Blg.

16

68), which requires that:

. . . No transfer, however, shall be valid, except as between
the parties, until the transfer is recorded to the books of
the corporation so as to show the names of the parties to
the transaction, the date of the transfer, the number of
the certificate or certificates and the number of shares
transferred.
After hearing, the Cebu SEC Extension Office Hearing Officer, Felix
Chan ruled, that:
a) The cancellation of the complainant's shares of stock
with the Visayan Educational Supply Corporation is null
and void;
b) The earlier cancellation of stock certificate No. 2 and
the subsequent issuance of stock certificate No. 8 is also
hereby declared null and void;
c) The Secretary of the Corporation is hereby ordered to
make the necessary corrections in the books of the
corporation reinstating thereto complainant's original 400
shares of stock. (Rollo, pp. 39-40)
Private respondent in the original complaint went to the Securities and
Exchange and Commission on appeal, and on October 10, 1990, the
commission en banc unanimously overturned the Decision of the
Hearing Officer under SEC-AC No. 263. (Order, Rollo, pp. 42-49)
The petition for certiorari centered on three major issues, with other
issues considered as subordinate to them, to wit:
1. The meaning of shares of stock are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the
owner or his attorney-in-fact or other person legally authorized to make
the transfer. (Rollo, p. 10)

The case of Nava vs. peers Marketing corporation (74 SCRA 65) was cited
by petitioner making the reference to commentaries taken from 18 C.J.S.
928-930, that the transfer by delivery to the transferee of the certificate
should be properly indorsed, and that "There should be compliance with
the mode of transfer prescribed by law." Using Section 35, now Section
63 of the Corporation Code, the provision of the law, reads:
SEC. 63. Certificate of stock and transfer of shares. The
capital stock and stock and corporations shall be divided
into shares for which certificates signed by the president
and vice president, countersigned by the secretary or
assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the bylaws. Shares of stocks so issued are personal property
and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact
or other person legally authorized to make the transfer.
No transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the
corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares
transferred.
No shares of stocks against which the corporation holds
any unpaid claim shall be transferable in the books of the
corporations.
There is no doubt that there was delivery of Stock Certificate No. 2 made
by the petitioner to the Corporation before its replacement with the
Stock Certificate No. 6 for fifty (50) shares to Angel S. Tan and Stock
Certificate No. 8 for 350 shares to the petitioner, on March 16, 1981. The
problem arose when petitioner was given back Stock Certificate No. 2 for
him to endorse and he deliberately witheld it for reasons of his own. That
the Stock Certificate in question was returned to him for his purpose
was attested to by Mr. Buzon in his Affidavit, the pertinent portion of
which has been earlier quoted.

17

The proof that Stock Certificate No. 2 was split into two (2) consisting of
Stock Certificate No. 6 for fifty (50) shares and Stock Certificate No. 8 for
350 shares, is the fact that petitioner surrendered the latter stock (No. 8)
1

in lieu of P2 million pesos worth of stocks, which the board passed in a

resolution in its meeting on April 19, 1983. Thus, on February 27, 1983,
petitioner indicated he was withdrawing from the corporation on
condition that he be paid with stock-in-trade corresponding to 33.3%
(Exh. 294), which had only a par value of P35,000.00. In this same
meeting, the transfer of Stock Certificate Nos. 2 and 8 from the original
owner, Alfonso S. Tan was ordered to be recorded in the corporate stock
and transfer book (Exh. "I-1-A") thereafter submitting the minutes of
said meeting to the SEC on May 18, 1983 (Exhs. 12 and I). (Order, Rollo,
p. 44)
It is also doubtless that Stock Certificate No. 8 was exchanged by
petitioner for stocks-in-trade since he was operating his own enterprise
engaged in the same business, otherwise, why would a businessman be
interested in acquiring P2,000,000.00 worth of goods which could
possibly at that time, fill up warehouse? In fact, he even padlocked the
warehouse of the respondent corporation, after withdrawing the thirtythree and one-third (33 1/3%) percent stocks. Accordingly, the
Memorandum of Agreement prepared by the respondents' counsel, Atty.
Ramirez evidencing the transaction, was also presented to petitioner for
his signature, however, this document was never returned by him to the
corporate officer for the signature of the other officers concerned. (Rollo,
p. 28)
At the time the warehouse was padlocked by the petitioner, the
remaining stock inventory was valued at P7,454,189.05 of which 66 2/3
percent thereof belonged to the private respondents. (Ibid., p. 28)
It was very obvious that petitioner devised the scheme of not returning
the cancelled Stock Certificate No. 2 which was returned to him for his
endorsement, to skim off the largesse of the corporation as shown by the
trading of his Stock Certificate No. 8 for goods of the corporation valued
at P2 million when the par value of the same was only worth
P35,000.00. (Ibid., p. 470) He also used this scheme to renege on his
indebtedness to respondent Tan Su Ching in the amount of P1 million.

(Decision, p. 6)
It is not remote that if petitioner could have cashed in on Stock
Certificate No. 2 with the remainder of the goods that he padlocked, he
would have done so, until the respondent corporation was bled entirely.
Along this line, petitioner put up the argument that he was responsible
for the growth of the corporation by the alleging that during his
incumbency, the corporation grew, prospered and flourished in the court
of business as evidenced by its audited financial statements, and
grossed the following incomes from: 1980 P8,658,414.10, 1981
P8,039,816.67, 1982 P7,306,168.67, 1983 P5,874,453.55, 1984
P3,911,667.76. (Ibid., Rollo, p. 24)
Moreover, petitioner asserted that he was ousted from the corporation by
reason of his efforts to establish fiscal controls and to demand an
accounting of corporate funds which were accordingly being transferred
and diverted to certain of private respondents' personal accounts which
were allegedly misapplied, misappropriated and converted to their own
personal use and benefit. (Ibid., p. 125)
2. Petitioner further claims that "(T)he cancellation and transfer of
petitioner's shares and Certificate of Stock No. 2 (Exh. A) as well as the
issuance and cancellation of Certificate of Stock No. 8 (Exh. M) was
patently and palpably unlawful, null and void, invalid and fraudulent."
(Rollo, p. 9) And, that Section 63 of the Corporation Code of the
Philippines is "mandatory in nature", meaning that without the actual
delivery and endorsement of the certificate in question, there can be no
transfer, or that such transfer is null and void. (Rollo, p. 10)
These arguments are all motivated by self-interest, using foreign
authorities that are slanted in his favor and even misquoting local
authorities to prop up his erroneous posture and all these attempts are
intended to stifle justice, truth and equity.
Contrary to the understanding of the petitioner with respect to the use
of the word "may", in the case of Shauf v. Court of Appeals, (191 SCRA
713, 27 November 1990), this Court held, that "Remedial law statues are

18

to be construed liberally." The term 'may' as used in adjective rules, is

only permissive and not mandatory. In several earlier cases, the usage of
the word "may" was described as follows:
The word "may"is an auxilliary verb showing among
others, opportunity or possibility. Under ordinary
circumstances, the phrase "may be" implies the possible
existence of something. In this case, the "something" is a
law governing sectoral representation. The phrase in
question should, therefore, be understood to mean as
prescribed by such law that governs the matter at the
time . . . The phrase does not and cannot, by its very
wording, restrict itself to the uncertainly of future
legislation. (Legaspi v. Estrella, 189 SCRA 58, 24 Aug.
1990, En Banc)
Years before the above rulings concerning the interpretation of the word
"may", this Court held in Chua v. Samahang Magsasaka, that "the word
"may" indicates that the transfer may be effected in a manner different
from that provided for in the law." (62 Phil. 472)
Moreover, it is safe to infer from the facts deduced in the instant case
that, there was already delivery of the unendorsed Stock Certificate No.
2, which is essential to the issuance of Stock Certificate Nos. 6 and 8 to
angel S. Tan and petitioner Alfonso S. Tan, respectively. What led to the
problem was the return of the cancelled certificate (No. 2) to Alfonso S.
Tan for his endorsement and his deliberate non-endorsement.
For all intents and purposes, however, since this was already cancelled
which cancellation was also reported to the respondent Commission,
there was no necessity for the same certificate to be endorsed by the
petitioner. All the acts required for the transferee to exercise its rights
over the acquired stocks were attendant and even the corporation was
protected from other parties, considering that said transfer was earlier
recorded or registered in the corporate stock and transfer book.
Following the doctrine enunciated in the case of Tuazon v. La Provisora
Filipina, where this Court held, that:

But delivery is not essential where it appears that the

persons sought to be held as stockholders are officers of
the corporation, and have the custody of the stock book . .
. (67 Phi. 36).
Furthermore, there is a necessity to delineate the function of the stock
itself from the actual delivery or endorsement of the certificate of stock
itself as is the question in the instant case. A certificate of stock is not
necessary to render one a stockholder in corporation.
Nevertheless, a certificate of stock is the paper representative or tangible
evidence of the stock itself and of the various interests therein. The
certificate is not stock in the corporation but is merely evidence of the
holder's interest and status in the corporation, his ownership of the
share represented thereby, but is not in law the equivalent of such
ownership. It expresses the contract between the corporation and the
stockholder, but is not essential to the existence of a share in stock or
the nation of the relation of shareholder to the corporation. (13 Am. Jur.
2d, 769)
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.
Besides, in Philippine jurisprudence, a certificate of stock is not a
negotiable instrument. "Although it is sometime regarded as quasinegotiable, in the sense that it may be transferred by endorsement,
coupled with delivery, it is well-settled that it is non-negotiable, because
the holder thereof takes it without prejudice to such rights or defenses
as the registered owner/s or transferror's creditor may have under the
law, except insofar as such rights or defenses are subject to the
limitations imposed by the principles governing estoppel." (De los Santos
vs. McGrath, 96 Phil. 577)

19

To follow the argument put up by petitioner which was upheld by the

Cebu SEC Extension Office Hearing Officer, Felix Chan, that the
cancellation of Stock Certificate Nos. 2 and 8 was null and void for lack
of delivery of the cancelled "mother" Certificate No. 2 whose endorsement
was deliberately withheld by petitioner, is to prescribe certain
restrictions on the transfer of stock in violation of the corporation law
itself as the only law governing transfer of stocks. While Section 47(s)
grants a 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. (Emphasis supplied)
In Fleisher v. Botica Nolasco Co., Inc., it was held that 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. (47 Phil. 583)
3. Attempt to mislead Petitioner should be held guilty of manipulating
the provision of Section 63 of the Corporation Law for contumaciously
withholding the endorsement of Stock Certificate No. 2 which was
returned to him for the purpose, wasting time and resources of the
Court, even after he had received the stocks-in-trade equivalent to
P2,000,000.00 in lieu of his 350 shares of stock with a par value of
P35,000.00 only, and thereafter withdrawing from the respondent
corporation.
Not content with the fantastic return of his investment in the
corporation and bent on sucking out the corporate resources by filing
the instant case for damages and seeking the nullity of the cancellation
of his Certificate of Stock Nos. 2 and 8, petitioner even attempted to
mislead the Court by erroneously quoting the ruling of the Court in C.
N. Hodges v. Lezama, which has some parallelism with the instant case
was the parties involved therein were also close relatives as in this case.
The quoted portion appearing on p. 11 of the petition, was cut short in
such a way that relevant portions thereof were purposely left out in

order to impress upon the Court that the unendorsed and uncancelled
stock certificate No. 17, was unconditionally declared null and void,
flagrantly omitting the justifying circumstances regarding its acquisition
and the reason given by the Court why it was declared so. The history of
certificate No. 17 is quoted below, showing the reason why the certificate
in question was considered null and void, as follows:
(P)etitioner Hodges did not cause to be entered in the
books of the corporation as he had his stock certificate
No. 17 which, therefore had not been endorsed by him to
anybody or cancelled and which he considered still
subsisting. On September 18, 1958, petitioner Hodges
again sold his aforesaid 2,230 shares of stock covered by
his stock certificate No. 17 on installment basis to his copetitioner Ricardo Gurrea, but continued keeping the stock
certificate in his possession without endorsing it to Gurrea
or causing the sale to be entered in the books of the
corporation, believing that said shares of stock were his
until fully paid for. Up to the present, petitioner Hodges has
in his possession and under his control his aforesaid stock
certificate No. 17, unendorsed and uncancelled (Exhs. A &
A-1), a fact known to the respondents. (14 SCRA p. 1032)
The pertinent misquoted portion follows:
Before the stockholders' meeting of the La Paz ice Plant &
Cold Storage Co., Inc., hereinafter referred to as the
Corporation - which was scheduled to be held on August
6, 1959, petitioners C.N. Hodges and Ricardo Gurrea filed
with the CFI of Iloilo, a petition docketed as Civil Case
No. 5261 of said court for a writ of prohibition with
preliminary injunction, to restrain respondents Jose
Manuel Lezama, as president and secretary, respectively,
of said Corporation from allowing their brother-in-law and
brother, respectively, respondent Benjamin L. Borja, to
vote in said meeting on the aforementioned 2,230 shares
of stock. Upon the filing of said petition and of a bond in
the sum of P1,000, the writ of preliminary injunction

20

prayed for was issued. After due trial, or on March 28,

1960, (start of petitioner's quotation) "The court of origin
rendered a decision holding that, in view of the provision
in stock certificate no. 17, in the name of Hodges, to the
effect that he
. . . is the owner of Two Thousand Two
Hundred Thirty shares of the capital stock
of La Paz Ice Plant & Cold Storage Co., Inc.,
transferrable only on the books of the
corporation by the holder hereof in person
or by attorney upon surrender of this
certificate properly endorsed.
stock certificate no. 18, issued in favor of Borja and the
entry thereof at his instance in the books of the
corporation without stock certificate no. 17 being first
properly endorsed, surrendered and cancelled, is null and
void. . . . " (end of quotation by petitioner, but the ruling,
continues without the period after the word void.) "and
that it would be unconscionable and for Borja to vote on
said shares of stock, knowing that he had ceased to have
actual interest therein since September 17, 1958, when
Hodges bought such interest at the public auction held in
the proceedings for the foreclosure of his chattel was
rendered making said preliminary injunction permanent
and declaring Hodges as the one entitled to vote on the
shares of stock in question.
Petitioner ought to have even included the following which was the
reason for declaring the following which was the reason for declaring the
unedorsed, unsurrendered and uncancelled stock certificate, null and
void:

records of the Corporation as owner of the shares, despite

the aforementioned sale thereof and the chattel mortgage
thereon. In other words, the parties thereto intended
Hodges to continue, for all intents and purposes, as owner
of said share, until Borja shall have fully paid its stipulated
price. (Ibid, pp. 1033-1034)
Other issues raised by the petitioner, subordinate to the principal issues
above, (except the ruling by the respondent Commission with respect to
the "pari delicto" doctrine which is not acceptable to this Court) are of no
moment.
Considering the circumstances of the case, it appearing that petitioner is
guilty of manipulation, and high-handedness, circumventing the clear
provisions of law in shielding himself from his wrongdoing contrary to
the protective mantle that the law intended for innocent parties, the
Court finds the excuses of the petitioner as unworthy of belief.
WHEREFORE, in view of the foregoing, the Order of the Commission
under SEC-AC No. 263 dated October 10, 1990 is hereby AFFIRMED but
modified with respect to the "nullity of the sale of 350 shares
represented under stock certification No. 8, pursuant to the "in pari
delicto" doctrine. The court holds that the conversion of the 350 shares
with a par value of only P35,000.00 at P100.00 per share into treasury
stocks after petitioner exchanged them with P2,000,000.00 worth of
stocks-in-trade of the corporation, is valid and lawful. With regard to the
damages being claimed by the petitioner, the respondent Commission is
not empowered to award such, other than the imposition of fine and
imprisonment under Section 56 of the Corporation Code of the
Philippines, as amended.
SO ORDERED.

. . . It is, moreover, obvious that Hodges retained it (stock

certificate no. 17) with Borja's consent. It was evidently
part of their agreement, or implied therein, that Hodges
would keep the stock certificate and thus remain in the

21

EN BANC
[G.R. No. L-6230. March 21, 1911.]
A.R. HAGER, Petitioner, v. ALBERT J. BRYAN, Respondent.
SYLLABUS

1. CORPORATION; TRANSFER OF SHARES OF STOCK; MANDAMUS.

Upon the application of the registered owner of shares of stock in a
corporation organized under the provisions of Act No. 1459, mandamus
will lie to compel the secretary of the corporation to transfer them upon
the books of the corporation, where it appears:chanrob1es virtual 1aw
library
(a) That due application therefor has been made and denied;
(b) That there are no unpaid claims against the stock by the corporation;
(c) That an ordinary action against the corporation for damages would be
inadequate; and

22

(d) That an action in the nature of a suit in equity to secure a decree

ordering the transfer would also be inadequate.
2. ID.; ID.; ID.; DUTY TO PROVIDE FOR TRANSFERS. Impliedly, if not
expressly, section 52 of Act No. 1469 imposes the duty upon a
corporation organized under that Act, and upon the officer in charge of
the books of the corporation, to provide for the entry and noting upon
the books of the corporation of lawful transfers of stock, where the entry
of such transfers is lawfully demanded.
3. ID.; ID.;. RIGHTS OF INDORSEE OF SHARES OF STOCK. As a
general rule, and especially under the above-cited statute, as between
the corporation on the one hand and its shareholders 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, certificate of stock,
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.
DECISION

The petitioner now submits an amended petition wherein he definitely

and specifically alleges in addition to the allegations of the original
petition, "that the Visayan Electric Company holds no unpaid claims
against the shares of stock the subject of this action, and that said
petitioner, A. R. Hager, is not indebted in any manner to said Visayan
Electric Company." To this amended petition respondent demurs, on the
ground that as amended it still does not state facts which constitute a
cause of action.
We are all agreed that, if the petitioner were himself the registered owner
of the stock which he seeks to have transferred to Mr. Levering, to whom
he alleges he agreed to sell it on February 25, 1910, he would be entitled
to his remedy by mandamus upon his amended petition, and that under
all the circumstances of this case the mandamus would issue from this
court. So far as the petitioner is concerned, the amended petition clearly,
definitely and specifically alleges facts which, if true, squarely meet and
refute the contention that a mandamus should not issue to compel the
secretary of the company to transfer the stock because of the possibility
of the existence of unpaid claims against it, a possibility which, as
pointed out in the former opinion, might impose upon the secretary a
duty to refuse to make such transfer under the provisions of section 35
of "The Corporation Law." (Act No. 1495.)

CARSON, J.:

This is an original action brought in this court under section 515 of the
Code of Civil Procedure 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 mentioned in the petition.
The original petition and statement of the facts sufficiently definite for
the purposes of this decision will be found in the decision of this court
filed January 18, 1911, 1 sustaining a demurrer to the original petition
on the ground that it not state facts constituting a cause of action.

Were the petitioner the registered owner or the stock, we think that the
additional allegations contained in the amended petition, taken together
with the allegations in the original petition, would undoubtedly take his
case out of the class of "ordinary cases" in which Judge Sanborn, in his
article on Mandamus in the Cyclopedia of Law and Procedure (26 Cyc.,
347), says mandamus, by the weight of authority, will not lie; because as
it appears and is clearly alleged in the amended petition, first, an
ordinary action against the corporation for damages would in this case
be wholly inadequate; second, an action of the nature of a suit in equity
to secure a decree ordering the transfer would also be inadequate, in
view of the delay involved in the trial and possible appeal of such action,
which under the allegations of the amended petition would defeat the
principal purpose for which this action is brought, that is to say, to
secure to the purchaser the right to vote this stock at the regular and
special meetings of the stockholders; and third, because we think that

23

the statute if not expressly, at least impliedly, imposes the duty upon a
corporation, organized under Act No. 1459, and the officer in charge of
the books of such corporation, to provide for the entry and noting upon
the books of the corporation of lawful transfers of stock when the entry
of such transfer is lawfully demanded.

Mandamus will lie, where the right is clear, to compel a transfer of stock
to the purchaser of the same at a judicial sale, as required by statute. In
no case will the writ be granted if the title to the stock is disputed and
the right to the relief asked for is not clear, or where the relators claim
rests on a mere equitable right, or equitable issues are involved."cralaw
virtua1aw library

Section 52 of Act No. 1459 is as follows:jgc:chanrobles.com.ph

"Business corporations must also keep a book to be known as the "Stock
and transfer book," in which must be kept a record of all stock, the
names of the stockholders or members alphabetically arranged; the
installments paid and unpaid on all stock, for which the subscription
has been made, and the date of payment of any installment; a statement
of every alienation, sale, or transfer of stock made, the date thereof, and
by and to whom made; and such other entries as the by-laws may
prescribe. The stock and transfer book shall be open to the inspection of
any director, stockholder, or member of the corporation at reasonable
hours."cralaw virtua1aw library
Without inserting the numerous citations with which Judge Sanborn
supports the text, we quote at length from his observations on the
"Transfer of shares" contained in his article on Mandamus (26 Cyc.,
347), believing, as we do, that as appears from his discussion of the
doctrine, we are supported by both reason and authority in our ruling in
this regard:jgc:chanrobles.com.ph
"g. Transfer of shares. By the weight of authority mandamus will not
lie in ordinary cases to compel a corporation or its officers to transfer
stock on its books and issue new certificates of the transferee, since the
right is a purely private one, and there is generally an adequate remedy
by an action against the corporation for damages or by a suit in equity to
secure a decree ordering the transfer. Some courts, however, have held
that mandamus will lie, as the remedy by action for refusal to permit a
transfer is too doubtful and uncertain in its character to supersede the
specific and speedier remedy by mandamus. The writ will lie if it
authorized by statute or, it seems, if the duty to register transfers is
expressly imposed by statute, or if there are special circumstances in
any case rendering the remedy by action for damages inadequate.

It appears, however, from the original as well as the amended petition,

that this petitioner is not the registered owner of the stock which he
seeks to have transferred, and except in so far as he alleges that he is
the owner of the stock and that it was "indorsed" to him on February 5
by the Bryan-Landon Company, in whose name it is registered on the
books of the Visayan Electric Company, there is 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.
Without discussing or deciding the respective rights of the parties which
might be properly asserted in an ordinary action or an action in the
nature of an equitable suit, we are all agreed that in a case such as that
at bar, a mandamus should not issue to compel the secretary of a
corporation to make a transfer of the stock on the books of the company,
unless it affirmatively appears that he has failed or refused so to do,
upon the demand either of the person in whose name the stock is
registered, or of some person holding a power of attorney for that
purpose from the registered owner of the stock. There is no allegation in
the petition that the petitioner or anyone else holds a power of attorney
from the Bryan-Landon Company authorizing a demand for the transfer
of the stock, or that the Bryan-Landon Company has ever itself made
such demand upon the Visayan Electric Company, and in the absence of
such allegation we are not able to say that there was such a clear
indisputable duty, such a clear legal obligation upon the respondent, as
to justify the issuance of the writ to compel him to perform it.
Under the provisions of our statute touching the transfer of stock (secs.
35 and 36 of Act No. 1459), the mere indorsement of stock certificates
does not in itself give to the indorsee such a right to have a transfer of

24

the shares of stock on the books of the company as will entitle him to
the writ of mandamus to compel the company and its officers to make
such transfer at his demand, because, under such circumstances the
duty, the legal obligation, is not so clear and indisputable as to justify
the issuance of the writ. As a general rule and especially under the
above-cited statute, as between the corporation on the one hand, and 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.
The usual practice in the United States in effecting transfers by
indorsement and delivery of certificate with power of attorney in blank is
thus stated in 10 Cyc., 594, 595:jgc:chanrobles.com.ph
"The usual share certificate contains on its back a printed assignment or
indorsement and also a power of attorney in blank, like the following:
"For value received I hereby assign the within named shares to . . . . . . . .
. . . . ., and appoint my, . . . . . . . . . . . . . . . attorney to make the transfer
on the books of the company." This is signed by the person to whom the
shares are issued. In this manner, by the usages of business, of which
the courts take judicial notice, the certificate may be passed from hand
to hand indefinitely by the person to whom the certificate is issued
simply signing this indorsement and delivering the certificate with the
blanks unfilled to his assignee. When it reaches the hands of some one
who desires to assume the legal rights of a shareholder, so as to be
entitled to vote at corporate elections and to receive dividends, he fills up
the blanks by inserting his own name as transferee, just as the holder of
a promissory note indorsed in blank is entitled by the law merchant to
insert any name he pleases above the indorsement as the payee. He also
inserts in the second blank the name of the attorney in fact whom he
wishes to make the transfer for him on the books of the corporation.
This person is usually the secretary or some other officer of the
company, although he may insert the name of whomsoever he pleases.
The attorney so appointed does exactly what the original shareholder
would have done had he gone to the companys office to make the
transfer of the shares to his vendee. He makes an entry on the book kept

by the company for that purpose, usually the stock ledger, to the effect
that the shares have been transferred to the new purchaser. Then the
certificate is surrendered, as hereafter indicated, and a new certificate is
issued to the transferee."cralaw virtua1aw library
It may be that such method as this was adopted in making the transfer
in the case at bar, and that this is what is meant by the allegation of the
petition that the stock certificates were "indorsed" to the petitioner, but
the point having been raised, and there being no express allegation to
this effect in the petition, we think the demurrer must be sustained and
the petition dismissed with costs, unless within ten days from the receipt
of notice of this decision petitioner files an amended complaint.
It may be proper to add, in conclusion, that the specific point on which
the demurrer to the amended petition is sustained was not directly
brought to the attention of the court in the discussion of the demurrer
on the original petition, and for this reason, apparently, was not
discussed in the former opinion, that demurrer being sustained on a
different ground.

25

BATONG BUHAY GOLD MINES, INC., petitioner,

vs. THE COURT OF APPEALS and INC. MINING
CORPORATION, respondents.
Taada, Sanchez, Taada & Taada Law Office for petitioner.
Quisumbing, Caparas, Ilagan Alcantara & Mosqueda Law Office for
private respondent.

PARAS, J.:
This is a petition to review the decision dated August 27, 1976 of the
Court of Appeals (CA) in CA-G.R. No. 51313-R which modified the
decision of the then Court of First Instance (CFI) of Manila, Branch 11 in
Civil Case No. 79183 Also sought for review are the resolutions of the
aforenamed court dated October 21, 1976 and November 12, 1976 which
denied petitioner's motion for reconsideration of the subject decision and
petition and/or motion for new trial, respectively.
The dispositive portion of the CFI judgment reads:
WHEREFORE, the Court renders judgment enjoining the defendants
to effect the transfer of the shares covered by Stock Certificate No.
16807 to and in the name of plaintiff INCORPORATED Mining
Corporation, and the writ of preliminary mandatory injunction issued
on March 16, 1970 is hereby declared permanent.
Republic of the Philippines

SO ORDERED.

SUPREME COURT
Manila

Upon the other hand, the decretal portion of the CA decision states:

SECOND DIVISION

WHEREFORE, the judgment appealed from is hereby modified by

adding the following to the dispositive portion thereof:

G.R. No. L-45048 January 7, 1987

Ordering defendant Batong Buhay Gold Mines, Inc. to pay to the

plaintiff the sum of P5,625.55, with interest at the legal rate from

26

March 5, 1970 until full payment; and dismissing the complaint with
respect to defendant Del Rosario and Company. Defendant Batong
Buhay shall pay the costs.
IT IS SO ORDERED.
(pp. 67-68, Rollo)
The antecedent facts, as found by the Court of Appeals, are as follows:
The defendant Batong Buhay Gold Mines, Inc. issued Stock
Certificate No. 16807 covering 62,495 shares with a par value of
P0.01 per share to Francisco Aguac who was then legally married
to Paula G. Aguac, but the said spouses had lived separately for
more than fourteen (14) years prior to the said date. On
December 16, 1969, Francisco Aguac sold his 62,495 shares
covered by Stock Certificate No. 16807 for the sum of P9,374.70
in favor of the plaintiff, the said transaction being evidenced by a
deed of sale (Exhibit D). The said sale was made by Francisco
Aguac without the knowledge or consent of his wife Paula G.
Aguac.
On the same date of the sale, December 16, 1969, Paula G.
Aguac wrote a letter to the president of defendant Batong Buhay
Gold Mines, Inc. asking that the transfer of the shares sold by
her husband be withheld, inasmuch as the same constituted
conjugal property and her share of proceeds of the sale was not
given to her (Exhibit 1).
On January 5, 1970, under a covering letter dated December 26,
1969, plaintiff's counsel presented Stock Certificate No. 16807
duly endorsed by Francisco Aguac for registration and transfer of
the said stock certificate in the name of the plaintiff (Exhibit F).
The said letter was addressed to defendant Del Rosario and
Company which was the transfer agent of Batong Buhay at that
time. In a letter dated February 24, 1970 also addressed to Del
Rosario and Company, plaintiff's counsel requested information
as to the action taken on the transfer of Stock Certificate No.

16807 in favor of the plaintiff, nothing about which having heard

despite the lapse of over a month (Exhibit H). In a reply letter
dated February 28, 1970, Del Rosario and Company informed
plaintiff's counsel that Batong Buhay has referred the matter to
their attorneys, inasmuch as there was a "technical problem that
has developed in the transfer of stock," and further advised that
the plaintiff communicate directly with Batong Buhay for further
details (Exhibit 1).lwphl@it
It developed that when Batong Buhay was about to effect the
cancellation of Stock Certificate No. 16807 and transfer the
62,495 shares covered thereby to the plaintiff and had, in fact,
prepared new Stock Certificate No. 27650 dated January 5,
1970, it received the letter of Paula G. Aguac advising it to
withhold the transfer of the subject shares of stock on the
ground that the same are conjugal property.
On March 2, 1970 Francisco Aguac was charged in a criminal
complaint Pasil Kalinga-Apayao, docketed as Criminal Case No.
10, entitled "People vs. Francisco Aguac, et al."
The defendants justify their refusal to transfer the shares of stock
of Francisco Aguac in the name of the plaintiff in view of their
apprehension that they might he held liable for damages under
Article 173 of the Civil Code and the ruling of the Supreme Court
in Bucoy vs. Paulino, 23 SCRA 248.
On March 5, 1970, in view of the defendant's inaction on the
request for the transfer of the stock certificate in its name, the
plaintiff commenced this action before the Court of First Instance
of Manila, praying that the defendants be ordered to issue and
release the transfer stock certificate covering 62,495 shares of
defendant Batong Buhay, formerly registered in the name of
Francisco Aguac, in favor of the plaintiff, and for the recovery of
compensatory, exemplary and corrective damages and attorney's
fees. A writ of preliminary mandatory injunction was prayed for
to order the defendants to issue immediately the transfer
certificate covering the aforesaid shares of stock of defendant

27

Batong Buhay in the name of the plaintiff.

The trial court granted the prayer for the issuance of the writ of
preliminary mandatory injunction in its order of March 16, 1970.
In compliance therewith, Stock Certificate No. 16807 was
cancelled and new Stock Certificate No. 27650 dated January 5,
1970 was issued to and received by the plaintiff on July 20,
1970."
On October 28, 1971, the trial court handed down its judgment ordering
the defendant (herein petitioner) to effect the transfer of the shares
covered by Stock Certificate No. 16807 in the name of herein respondent
Incoporated Mining Corporation and declaring permanent the writ of
preliminary mandatory injunction issued on March 16, 1970.
Private respondent seasonably appealed the aforesaid decision to the
Court of Appeals anchored on the lower court's alleged failure to award
damages for the wrongful refusal of petitioner to transfer the subject
shares of stock and alleged failure to award attorney's fees, cost of
injunction bond and expenses of litigation.
On August 27, 1986, respondent appellate court rendered the subject
decision the dispositive portion of which has already been quoted
hereinabove.
Hence, this petition.
In assailing the decision of the Court of Appeals, petitioner poses the
following issues:
1. May the Court of Appeals award damages by way of unrealized profits
despite the absence of supporting evidence, or merely on the basis of
pure assumption, speculation or conjecture; or can the respondent
recover damages by way of unrealized profits when it has not shown that
it was damaged in any manner by the act of petitioner?
2. May the appellate court deny the petitioner the chance to present
evidence discovered after judgment which were not only very material to

its case, but would also show the untenability and illegality of private
respondent's position?
We answer the first issue in the negative.
The petitioner alleges that the appellate court gravely and categorically
erred in awarding damages by way of unrealized profit (or lucro cesante)
to private respondent. Petitioner company also alleges that the claim for
unrealized profit must be duly and sufficiently established, that is, that
the claimant must submit proof that it was in fact damaged because of
petitioner's act or omission.
The stipulation of facts of the parties does not at all show that private
respondent intended to sell, or would sell or would have sold the stocks
in question on specified dates. While it is true that shares of stock may
go up or down in value (as in fact the concerned shares here really rose
from fifteen (15) centavos to twenty three or twenty four (23/24) centavos
per share and then fell to about two (2) centavos per share, still whatever
profits could have been made are purely SPECULATIVE, for it was
difficult to predict with any decree of certainty the rise and fall in the
value of the shares. Thus this Court has ruled that speculative damages
cannot be recovered.
It is easy to say now that had private respondent gained legal title to the
shares, it could have sold the same and reaped a profit of P5,624.95 but
it could not do so because of petitioner's refusal to transfer the stocks in
the former's name at the time demand was made, but then it is also true
that human nature, being what it is, private respondent's officials could
also have refused to sell and instead wait for expected further increases
in value.
In view of what has been said, We find no necessity to discuss the
second issue.
WHEREFORE, the assailed decision and resolutions of the Court of
Appeals are hereby SET ASIDE, and a new one is hereby rendered
REINSTATING the decision of the trial court. No costs. SO ORDERED.

28

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-10122

August 30, 1958

LEE E. WON alias RAMON LEE, plaintiff-appellant,

vs.
WACK WACK GOLF and COUNTRY CLUB, INC., defendant-appellee.
Emilio Javier for appellant.
Juan T. Chuidian for appellee.
PARAS, C. J.:
On December 2, 1942, the defendant (a non-stock corporation) issued to
Iwao Teruyama Membership Certificate No. 201 which was assigned to
M. T. Reyes on April 22, 1944. Subsequently in the same year 1944, M.
T. Reyes transferred and assigned said certificate to the plaintiff. On
April 26, 1955, the plaintiff filed an action in the Court of First Instance
of Manila against the defendant, alleging that shortly after the
rehabilitation of the defendant after the war, the plaintiff asked the
defendant to register in its books the assignment in favor of the plaintiff
and to issue to the latter a new certificate, but that the defendant had
refused and still refuses to do so unlawfully; and praying that the
plaintiff be declared the owner of one share of stock of the defendant and
that the latter be ordered to issue a correspondent new certificate. On
June 6, 1955, the defendant filed a motion to dismiss, alleging that from
1944, when the plaintiff's right of action had accrued, to April 26, 1955,
when the complaint was filed, eleven years have elapsed, and that
therefore the complaint was filed beyond the 5-year period fixed in
Article 1149 of the Civil Code. On July 30, 1955, the Court of First
Instance of Manila issued an order dismissing the complaint. As
plaintiff's motion for reconsideration filed on August 27, 1955 and
second motion for reconsideration filed on September 13, 1955, were
both denied, the plaintiff has taken the present appeal.

The certificate in question contains a condition to the effect that no

assignment thereof "shall be effective with respect to the club until such
assignment is registered in the books of the club, as provided in the ByLaws." The decisive question that arises is whether the plaintiff was
bound, under said condition and By-Laws of the defendant or any
statutory rule for that matter, to present and register the certificate
assigned to him in 1944 within any definite or fixed period. The
defendant has not made herein any pretense to that effect; but it
contends that from the moment the certificate was assigned to the
plaintiff, the latter's right to have the assignment registered commenced
to exist. This contention is correct, but it would not follow that said right
should be exercised immediately or within a definite period. The
existence of a right is one thing, and the duration of said right is
another.
On the other hand, it is stated in the appealed order of dismissal that
the plaintiff sought to register the assignment on April 13, 1955;
whereas in plaintiff's brief it is alleged that it was only in February,
1955, when the defendant refused to recognize the plaintiff. If, as
already observed, there is no fixed period for registering an assignment,
how can the complaint be considered as already barred by the Statute of
Limitations when it was filed on April 26, 1955, or barely a few days
(according to the lower court) and two months (according to the
plaintiff), after the demand for registration and its denial by the
defendant. Plaintiff's right was violated only sometime in 1955, and it
could not accordingly have asserted any cause of action against the
defendant before that.
The defendant seems to believe that the plaintiff was compelled
immediately to register his assignment. Any such compulsion is
obviously for the benefit of the plaintiff, because it is only after
registration that the transfer would be binding against the defendant.
But we are not here concerned with a situation where the plaintiff
claims anything against the defendant allegedly accruing under the
outstanding certificate in question between the date of the assignment to
the plaintiff and the date of the latters demand for registration and
issuance of a new certificate.

29

The defendant has also intimated property holdings of Japanese

nationals were vested after the liberation upon the Alien Property
Administration or Custodian; that the plaintiff should have thereupon
registered the assignment to him of Certificate No. 201 issued to Iwao
Teruyama; and that in the meantime rights to said certificate by their
pre-war registered American owners were filed with the defendant and
correspondingly acted upon. These, however, are matters which may
affect the validity of the assignment to the plaintiff or his right to
register the same constituting special defenses, but certainly have no
bearing on the question of prescription.
Wherefore, the appealed order is hereby reversed and the case remanded
to the court of origin for further proceedings. So ordered with costs
against the defendant.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-7991

January 29, 1914

LEON J. LAMBERT, plaintiff-appellant,

vs.
T. J. FOX, defendant-appellee.
O'Brien and DeWitt and C. W. Ney, for appellant.
J. C. Hixon, for appellee.
MORELAND, J.:
This is an action brought to recover a penalty prescribed on a contract
as punishment for the breach thereof.
Early in 1911 the firm known as John R. Edgar & Co., engaged in the

retail book and stationery business, found itself in such condition

financially that its creditors, including the plaintiff and the defendant,
together with many others, agreed to take over the business, incorporate
it and accept stock therein in payment of their respective credits. This
was done, the plaintiff and the defendant becoming the two largest
stockholders in the new corporation called John R. Edgar & Co.,
Incorporated. A few days after the incorporation was completed plaintiff
and defendant entered into the following agreement:
Whereas the undersigned are, respectively, owners of large
amounts of stock in John R. Edgar and Co, Inc; and,
Whereas it is recognized that the success of said corporation
depends, now and for at least one year next following, in the
larger stockholders retaining their respective interests in the
business of said corporation:
Therefore, the undersigned mutually and reciprocally agree not to
sell, transfer, or otherwise dispose of any part of their present
holdings of stock in said John R. Edgar & Co. Inc., till after one
year from the date hereof.
Either party violating this agreement shall pay to the other the
sum of one thousand (P1,000) pesos as liquidated damages,
unless previous consent in writing to such sale, transfer, or other
disposition be obtained.
Notwithstanding this contract the defendant Fox on October 19, 1911,
sold his stock in the said corporation to E. C. McCullough of the firm of
E. C. McCullough & Co. of Manila, a strong competitor of the said John
R. Edgar & Co., Inc.
This sale was made by the defendant against the protest of the plaintiff
and with the warning that he would be held liable under the contract
hereinabove set forth and in accordance with its terms. In fact, the
defendant Foz offered to sell his shares of stock to the plaintiff for the
same sum that McCullough was paying them less P1,000, the penalty
specified in the contract.

30

The learned trial court decided the case in favor of the defendant upon
the ground that the intention of the parties as it appeared from the
contract in question was to the effect that the agreement should be good
and continue only until the corporation reached a sound financial basis,
and that that event having occurred some time before the expiration of
the year mentioned in the contract, the purpose for which the contract
was made and had been fulfilled and the defendant accordingly
discharged of his obligation thereunder. The complaint was dismissed
upon the merits.
It is argued here that the court erred in its construction of the contract.
We are of the opinion that the contention is sound. The intention of
parties to a contract must be determined, in the first instance, from the
words of the contract itself. It is to be presumed that persons mean what
they say when they speak plain English. Interpretation and construction
should by the instruments last resorted to by a court in determining
what the parties agreed to. Where the language used by the parties is
plain, then construction and interpretation are unnecessary and, if
used, result in making a contract for the parties. (Lizarraga Hermanos
vs. Yap Tico, 24 Phil. Rep., 504.)
In the case cited the court said with reference to the construction and
interpretation of statutes: "As for us, we do not construe or interpret this
law. It does not need it. We apply it. By applying the law, we conserve
both provisions for the benefit of litigants. The first and fundamental
duty of courts, in our judgment, is to apply the law. Construction and
interpretation come only after it has been demonstrated that application
is impossible or inadequate without them. They are the very last
functions which a court should exercise. The majority of the law need no
interpretation or construction. They require only application, and if there
were more application and less construction, there would be more
stability in the law, and more people would know what the law is."
What we said in that case is equally applicable to contracts between
persons. In the case at bar the parties expressly stipulated that the
contract should last one year. No reason is shown for saying that it shall
last only nine months. Whatever the object was in specifying the year, it
was their agreement that the contract should last a year and it was their

judgment and conviction that their purposes would not be subversed in

any less time. What reason can give for refusing to follow the plain words
of the men who made the contract? We see none.
The appellee urges that the plaintiff cannot recover for the reason that
he did not prove damages, and cites numerous American authorities to
the effect that because stipulations for liquidated damages are generally
in excess of actual damages and so work a hardship upon the party in
default, courts are strongly inclined to treat all such agreements as
imposing a penalty and to allow a recovery for actual damages only. He
also cites authorities holding that a penalty, as such, will not be
enforced and that the party suing, in spite of the penalty assigned, will
be put to his proof to demonstrate the damages actually suffered by
reason of defendants wrongful act or omission.
In this jurisdiction penalties provided in contracts of this character are
enforced . It is the rule that parties who are competent to contract may
make such agreements within the limitations of the law and public
policy as they desire, and that the courts will enforce them according to
their terms. (Civil Code, articles 1152, 1153, 1154, and 1155; Fornow
vs. Hoffmeister, 6 Phil. Rep., 33; Palacios vs. Municipality of Cavite, 12
Phil. Rep., 140; Gsell vs. Koch, 16 Phil. Rep., 1.) The only case
recognized by the Civil Code in which the court is authorized to
intervene for the purpose of reducing a penalty stipulated in the contract
is when the principal obligation has been partly or irregularly fulfilled
and the court can see that the person demanding the penalty has
received the benefit of such or irregular performance. In such case the
court is authorized to reduce the penalty to the extent of the benefits
received by the party enforcing the penalty.
In this jurisdiction, there is no difference between a penalty and
liquidated damages, so far as legal results are concerned. Whatever
differences exists between them as a matter of language, they are treated
the same legally. In either case the party to whom payment is to be made
is entitled to recover the sum stipulated without the necessity of proving
damages. Indeed one of the primary purposes in fixing a penalty or in
liquidating damages, is to avoid such necessity.

31

It is also urged by the appelle in this case that the stipulation in the
contract suspending the power to sell the stock referred to therein is an
illegal stipulation, is in restraint of trade and, therefore, offends public
policy. We do not so regard it. The suspension of the power to sell has a
beneficial purpose, results in the protection of the corporation as well as
of the individual parties to the contract, and is reasonable as to the
length of time of the suspension. We do not here undertake to discuss
the limitations to the power to suspend the right of alienation of stock,
limiting ourselves to the statement that the suspension in this particular
case is legal and valid.
The judgment is reversed, the case remanded with instructions to enter
a judgment in favor of the plaintiff and against the defendant for P1,000,
with interest; without costs in this instance.
EN BANC
G.R. No. L-23241 March 14, 1925
HENRY FLEISCHER, Plaintiff-Appellee, vs. BOTICA NOLASCO CO.,
INC., Defendant-Appellant.
Antonio Gonzalez for appellant.
Emilio M. Javier for appellee.
JOHNSON, J.:
This action was commenced in the Court of First Instance of the
Province of Oriental Negros on the 14th day of August, 1923, against the
board of directors of the Botica Nolasco, Inc., a corporation duly
organized and existing under the laws of the Philippine Islands. The
plaintiff prayed that said board of directors be ordered to register in the
books of the corporation five shares of its stock in the name of Henry
Fleischer, the plaintiff, and to pay him the sum of P500 for damages
sustained by him resulting from the refusal of said body to register the
shares of stock in question. The defendant filed a demurrer on the
ground that the facts alleged in the complaint did not constitute
sufficient cause of action, and that the action was not brought against

the proper party, which was the Botica Nolasco, Inc. The demurrer was
sustained, and the plaintiff was granted five days to amend his
complaint.chanroblesvirtualawlibrary chanrobles virtual law library
On November 15, 1923, the plaintiff filed an amended complaint against
the Botica Nolasco, Inc., alleging that he became the owner of five shares
of stock of said corporation, by purchase from their original owner, one
Manuel Gonzalez; that the said shares were fully paid; and that the
defendant refused to register said shares in his name in the books of the
corporation in spite of repeated demands to that effect made by him
upon said corporation, which refusal caused him damages amounting to
P500. Plaintiff prayed for a judgment ordering the Botica Nolasco, Inc. to
register in his name in the books of the corporation the five shares of
stock recorded in said books in the name of Manuel Gonzalez, and to
indemnify him in the sum of P500 as damages, and to pay the costs. The
defendant again filed a demurrer on the ground that the amended
complaint did not state facts sufficient to constitute a cause of action,
and that said amended complaint was ambiguous, unintelligible,
uncertain, which demurrer was overruled by the
court.chanroblesvirtualawlibrary chanrobles virtual law library
The defendant answered the amended complaint denying generally and
specifically each and every one of the material allegations thereof, and,
as a special defense, alleged that the defendant, pursuant to article 12 of
its by-laws, had preferential right to buy from the plaintiff said shares at
the par value of P100 a share, plus P90 as dividends corresponding to
the year 1922, and that said offer was refused by the plaintiff. The
defendant prayed for a judgment absolving it from all liability under the
complaint and directing the plaintiff to deliver to the defendant the five
shares of stock in question, and to pay damages in the sum of P500, and
the costs.chanroblesvirtualawlibrary chanrobles virtual law library
Upon the issue presented by the pleadings above stated, the cause was
brought on for trial, at the conclusion of which, and on August 21, 1924,
the Honorable N. Capistrano, judge, held that, in his opinion, article 12
of the by-laws of the corporation which gives it preferential right to buy
its shares from retiring stockholders, is in conflict with Act No. 1459
(Corporation Law), especially with section 35 thereof; and rendered a

32

judgment ordering the defendant corporation, through its board of

directors, to register in the books of said corporation the said five shares
of stock in the name of the plaintiff, Henry Fleischer, as the shareholder
or owner thereof, instead of the original owner, Manuel Gonzalez, with
costs against the defendant.chanroblesvirtualawlibrary chanrobles
virtual law library
The defendant appealed from said judgment, and now makes several
assignment of error, all of which, in substance, raise the question
whether or not article 12 of the by-laws of the corporation is in conflict
with the provisions of the Corporation Law (Act No.
1459).chanroblesvirtualawlibrary chanrobles virtual law library
There is no controversy as to the facts of the present case. They are
simple and may be stated as follows:chanrobles virtual law library
That Manuel Gonzalez was the original owner of the five shares of stock
in question, Nos. 16, 17, 18, 19 and 20 of the Botica Nolasco, Inc.; that
on March 11, 1923, he assigned and delivered said five shares to the
plaintiff, Henry Fleischer, by accomplishing the form of endorsement
provided on the back thereof, together with other credits, in
consideration of a large sum of money owed by Gonzalez to Fleischer
(Exhibits A, B, B-1, B-2, B-3, B-4); that on March 13, 1923, Dr. Eduardo
Miciano, who was the secretary-treasurer of said corporation, offered to
buy from Henry Fleischer, on behalf of the corporation, said shares of
stock, at their par value of P100 a share, for P500; that by virtue of
article 12 of the by-laws of Botica Nolasco, Inc., said corporation had the
preferential right to buy from Manuel Gonzalez said shares (Exhibit 2);
that the plaintiff refused to sell them to the defendant; that the plaintiff
requested Doctor Miciano to register said shares in his name; that
Doctor Miciano refused to do so, saying that it would be in contravention
of the by-laws of the corporation.chanroblesvirtualawlibrary chanrobles
virtual law library
It also appears from the record that on the 13th day of March, 1923, two
days after the assignment of the shares to the plaintiff, Manuel Gonzales
made a written statement to the Botica Nolasco, Inc., requesting that the
five 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 (Exhibit 3).
On June 14, 1923, Gonzalez wrote a letter to the Botica Nolasco,
withdrawing and cancelling his written statement of March 13, 1923
(Exhibit C), to which letter the Botica Nolasco on June 15, 1923, replied,
declaring that his written statement was in conformity with the by-laws
of the corporation; that his letter of June 14th was of no effect, and that
the shares in question had been registered in the name of the Botica
Nolasco, Inc., (Exhibit X).chanroblesvirtualawlibrary chanrobles virtual
law library
As indicated above, the important question raised in this appeal is
whether or not article 12 of the by-laws of the Botica Nolasco, Inc., is in
conflict with the provisions of the Corporation Law (Act No. 1459).
Appellant invoked said article as its ground for denying the request of
the plaintiff that the shares in question be registered in his (plaintiff's)
name, and for claiming that it (Botica Nolasco, Inc.) had the preferential
right to buy said shares from Gonzalez. Appellant now contends that
article 12 of the said by-laws is in conformity with the provisions of Act
No. 1459. Said article is as follows:
ART. 12. Las acciones de la Corporacion pueden ser transferidas a otra
persona, pero para que estas transferencias tengan validez legal, deben
constar en los registros de la Corporacion con el debido endoso del
accionista a cuyo nombre se ha expedido la accion o acciones que se
transfieran, o un documento de transferencia. Entendiendose que,
ningun accionista transferira accion alguna a otra persona sin participar
antes por escrito al Secretario-Tesorero. En igualdad de condiciones, la
sociedad tendra el derecho de adquirir para si la accion o acciones que se
traten de transferir. (Exhibit 2.)
The above-quoted article constitutes a by-law or regulation adopted by
the Botica Nolasco, Inc., governing the transfer of shares of stock of said
corporation. The latter part of said article creates in favor of the Botica
Nolasco, Inc., a preferential right to buy, under the same conditions, the
share or shares of stock of a retiring shareholder. Has said corporation
any power, under the Corporation Law (Act. No. 1459), to adopt such bylaw?chanrobles virtual law library

33

The particular provisions of the Corporation Law referring to transfer of

shares of stock are as follows:
SEC. 13. Every corporation has the power:
xxx

xxx

x x xchanrobles virtual law library

(7) To make by-laws, not inconsistent with any existing law, for the fixing
or changing of the number of its officers and directors within the limits
prescribed by law, and for the transferring of its stock, the administration
of its corporate affairs, etc.
xxx

xxx

x x xchanrobles virtual law library

SEC. 35. The capital stock of stock corporations shall de divided into
shares for which certificates signed by the president or the vicepresident, countersigned by the secretary or clerk and sealed with the
seal of the corporation, shall be issued in accordance with the bylaws. Shares of stock so issued are personal property and may be
transferred by delivery of the certificate indorsed by the owner or his
attorney in fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as between the
parties, until the transfer is entered and noted upon the books of the
corporation so as to show the names of the parties to the transaction, that
date of the transfer, the number of the certificate, and the number of
shares transferred. chanrobles virtual law library
No share of stock against which the corporation holds any unpaid claim
shall be transferable on the books of the corporation.
Section 13, paragraph 7, above-quoted, empowers a corporation to
make by-laws, not inconsistent with any existing law, for the transferring
of its stock. It follows from said provision, that a by-law adopted by a
corporation relating to transfer of stock should be in harmony with the
law on the subject of transfer of stock. The law on this subject is found
in section 35 of Act No. 1459 above quoted. Said section specifically
provides that the shares of stock "are personal property and may be
transferred by delivery of the certificate indorsed by the owner, etc." Said

section 35 defines the nature, character and transferability of shares of

stock. Under said section they are personal property and may be
transferred as therein provided. Said section contemplates no restriction
as to whom they may be transferred or sold. It does not suggest that any
discrimination may be created by the corporation in favor or against a
certain purchaser. The holder of shares, as owner of personal property,
is at liberty, under said section, to dispose of them in favor of
whomsoever he pleases, without any other limitation in this respect,
than the general provisions of law. Therefore, a stock corporation in
adopting a by-law governing transfer of shares of stock should take into
consideration the specific provisions of section 35 of Act No. 1459, and
said by-law should be made to harmonize with said provisions. It should
not be inconsistent therewith.chanroblesvirtualawlibrary chanrobles
virtual law library
The by-law now in question was adopted under the power conferred
upon the corporation by section 13, paragraph 7, above quoted; but in
adopting said by-law the corporation has transcended the limits fixed by
law in the same section, and has not taken into consideration the
provisions of section 35 of Act No.
1459.chanroblesvirtualawlibrary chanrobles virtual law library
As a general rule, the by-laws of a corporation are valid if they are
reasonable and calculated to carry into effect the objects of the
corporation, and are not contradictory to the general policy of the laws of
the land. (Supreme Commandery of the Knights of the Golden Rule vs.
Ainsworth, 71 Ala., 436; 46 Am. Rep., 332.)chanrobles virtual law
library
On the other hand, it is equally well settled that by-laws of a corporation
must be reasonable and for a corporate purpose, and always within the
charter limits. They must always be strictly subordinate to the
constitution and the general laws of the land. They must not infringe the
policy of the state, nor be hostile to public welfare. (46 Am. Rep., 332.)
They must not disturb vested rights or impair the obligation of a
contract, take away or abridge the substantial rights of stockholder or
member, affect rights of property or create obligations unknown to the
law. (People's Home Savings Bank vs. Superior Court, 104 Cal., 649; 43

34

Am. St. Rep., 147; Ireland vs. Globe Milling Co., 79 Am. St. Rep.,
769.)chanrobles virtual law library

welfare of the corporation, or to enable another shareholder to make

gains and profits. (10 Cyc., p. 577.)chanrobles virtual law library

The validity of the by-law of a corporation is purely a question of law.

(South Florida Railroad Co. vs. Rhodes, 25 Fla., 40.)

It follows from the foregoing that a corporation has no power to prevent or

to restrain transfers of its shares, unless such power is expressly
conferred in its charter or governing statute. This conclusion follows from
the further consideration that by-laws or other regulations restraining
such transfers, unless derived from authority expressly granted by the
legislature, would be regarded as impositions in restraint of trade. (10
Cyc., p. 578.)

The power to enact by-laws restraining the sale and transfer of stock must
be found in the governing statute or the charter. Restrictions upon the
traffic in stock must have their source in legislative enactment, as the
corporation itself cannot create such impediments. By-law are intended
merely for the protection of the corporation, and prescribe regulation
and not restriction; they are always subject to the charter of the
corporation. The corporation, in the absence of such a power, cannot
ordinarily inquire into or pass upon the legality of the transaction by
which its stock passes from one person to another, nor can it question
the consideration upon which a sale is based. A by-law cannot take away
or abridge the substantial rights of stockholder.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 corporate books and
cannot justify an unreasonable restriction upon the right of sale. (4
Thompson on Corporations, sec. 4137, p.
674.chanroblesvirtualawlibrary chanrobles virtual law library

The foregoing authorities go farther than the stand we are taking on this
question. They hold that the power of a corporation to enact by-laws
restraining the sale and transfer of shares, should not only be in
harmony with the law or charter of the corporation, but such power
should be expressly granted in said law or
charter.chanroblesvirtualawlibrary chanrobles virtual law library

The right of unrestrained transfer of shares inheres in the very nature of a

corporation, and courts will carefully scrutinize any attempt to impose
restrictions or limitations upon the right of stockholders to sell and
assign their stock. The right to impose any restraint in this respect must
be conferred upon the corporation either by the governing statute or by the
articles of the corporation. It cannot be done by a by-law without statutory
or charter authority. (4 Thompson on Corporations, sec. 4334, pp. 818,
819.)chanrobles virtual law library

The only restraint imposed by the Corporation Law upon transfer of

shares is found in section 35 of Act No. 1459, quoted above, as follows:
"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.chanroblesvirtualawlibrary chanrobles virtual law library

The jus disponendi, being an incident of the ownership of property, the

general rule (subject to exceptions hereafter pointed out and discussed)
is that every owner of corporate shares has the same uncontrollable right
to alien them which attaches to the ownership of any other species of
property. A shareholder is under no obligation to refrain from selling his
shares at the sacrifice of his personal interest, in order to secure the

And moreover, the by-laws now in question cannot have any effect on the
appellee. He had no knowledge of such by-law when the shares were
assigned to him. He obtained them in good faith and for a valuable
consideration. He was not a privy to the contract created by said by-law
between the shareholder Manuel Gonzalez and the Botica Nolasco, Inc.
Said by-law cannot operate to defeat his rights as a purchaser.

35

An unauthorized by-law forbidding a shareholder to sell his shares

without first offering them to the corporation for a period of thirty days
is not binding upon an assignee of the stock as a personal contract,
although his assignor knew of the by-law and took part in its adoption.
(10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.)chanrobles virtual
law library
When no restriction is placed by public law on the transfer of corporate
stock, a purchaser is not affected by any contractual restriction of which
he had no notice. (Brinkerhoff-Farris Trust and Savings Co. vs. Home
Lumber Co., 118 Mo., 447.)chanrobles virtual law library

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 upon the books of the corporation. (26
Cyc. 347; Hager vs. Bryan, 19 Phil., 138.)chanrobles virtual law library
In view of all the foregoing, we are of the opinion, and so hold, that the
decision of the lower court is in accordance with law and should be and
is hereby affirmed, with costs. So ordered.

The assignment of shares of stock in a corporation by one who has

assented to an unauthorized by-law has only the effect of a contract by,
and enforceable against, the assignor; the assignee is not bound by such
by-law by virtue of the assignment alone. (Ireland vs. Globe Milling Co.,
21 R.I., 9.)chanrobles virtual law library
A by-law of a corporation which provides that transfers of stock shall not
be valid unless approved by the board of directors, while it may be
enforced as a reasonable regulation for the protection of the corporation
against worthless stockholders, cannot be made available to defeat the
rights of third persons. (Farmers' and Merchants' Bank of Lineville vs.
Wasson, 48 Iowa, 336.)
Counsel for defendant incidentally argues in his brief, that the plaintiff
does not have any right of action against the defendant corporation, but
against the president and secretary thereof, inasmuch as the signing
and registration of shares is incumbent upon said officers pursuant to
section 35 of the Corporation Law. This contention cannot be sustained
now. The question should have been raised in the lower court. It is too
late to raise it now in this appeal. Besides, as stated above, the
corporation was made defendant in this action upon the demurrer of the
attorney of the original defendant in the lower court, who contended that
the Botica Nolasco, Inc., should be made the party defendant in this
action. Accordingly, upon order of the court, the complaint was amended
and the said corporation was made the party
defendant.chanroblesvirtualawlibrary chanrobles virtual law library

36

SECOND DIVISION
[G.R. No. 38684. December 21, 1933.]
CYRUS PADGETT, Plaintiff-Appellee, v. BABCOCK & TEMPLETON,

37

INC., and W. R. BABCOCK,Defendants-Appellants.

J. F. Boomer for appellant Babcock & Templeton, Inc.

IMPERIAL, J.:

W. R. Babcock in his own behalf.

Vicente Pelaez for Appellee.
SYLLABUS
1. SHARES OF CAPITAL STOCK; ILLEGAL RESTRICTION IMPOSED
THEREON. The restriction consisting in the word "nontransferable"
appearing on the twelve (12) certificates, Exhibits F to F-11, is illegal on
the ground that it constitutes an undue limitation of the right of
ownership and is in restraint of trade. It should, therefore, be
eliminated.
2. ID.; OBLIGATION TO PURCHASE. There is no existing law nor
authority in support of the plaintiffs claim to the effect that the
defendants are obliged to purchase his shares at par value plus the
interest demanded thereon. In this respect it is hereby held that there
has been no such contract, either express or implied, between the
plaintiff and the defendants.
3. ID.; NON-EXISTENT OR IMAGINARY OBLIGATION. In the absence
of a similar contractual obligation and a legal provision applicable
thereto, it is logical to conclude that it would be unjust and
unreasonable to compel the said defendants to comply with a nonexistent or imaginary obligation. Whereupon, the judgment originally
rendered to that effect is untenable and should be set aside.

DECISION

By resolution approved on November 25, 1933, this court set aside its
decision in this case, which was promulgated on October 13th of the
same year, and thereby granted a rehearing before the second division.
The defendant W. R. Babcock and his counsel J. F. Boomer, both of
whom were present during the said rehearing again argued the merits of
the case. Nobody appeared for the plaintiff.
The facts of the case have not suffered any change. They remain the
same as those which we stated in the original decision as follows: "The
appellee was an employee of the appellant corporation and rendered
services as such from January 1, 1923, to April 15, 1929. During that
period he bought 35 shares thereof at P100 a share at the suggestion of
the president of said corporation. He was also the recipient of 9 shares
by way of bonus during Christmas seasons. In this way the said appellee
became the owner of 44 shares for which the 12 certificates, Exhibits F
to F-11, were issued in his favor. The word nontransferable appears on
each and every one of these certificates. Before severing his connections
with the said corporation, the appellee proposed to the president that
the said corporation buy his 44 shares at par value plus the interest
thereon, or that he be authorized to sell them to other persons. The
corporation bought similar shares belonging to other employees, at par
value. Sometime later, the said president offered to buy the appellees
shares first at P85 each and then at P80. The appellee did not agree
thereto."cralaw virtua1aw library
The defendants admit that the 44 shares in question have become the
property of the plaintiff. They likewise grant that under the law the said
appellee has the right to have the restriction" nontransferable" appearing
on the 12 certificates eliminated therefrom. However, they vigorously
contend that there is no existing law nor authority in support of the

38

proposition that they are bound to redeem or buy said shares at par
value. Their admission is only limited to the proposition that after the
restriction appearing thereon is eliminated, the plaintiff may sell the
said shares to anybody, at their market value or at any price he sees fit.
We have not had the opportunity of hearing the opinion of the counsel
for the plaintiff. We have again studied the laws applicable thereto and
have searched for more authorities on the subject under discussion, but
we have not found anything that bears directly on the question whether
or not the defendants may be compelled, in this case, to buy the shares
in question at par value. However, the opinion seems to be unanimous
that a restriction imposed upon a certificate of shares, similar to the
ones under consideration, is null and void on the ground that it
constitutes an unreasonable limitation of the right of ownership and is
in restraint of trade.
"Shares of corporate stock being regarded as property, the owner of such
shares may, as a general rule, dispose of them as he sees fit, unless the
corporation has been dissolved, or unless the right to do so is properly
restricted, or the owners privilege of disposing of his shares has been
hampered by his own action." (14 C. J., sec. 1033, pp. 663, 664.)
"Any restriction on a stockholders right to dispose of his shares must be
construed strictly; and any attempt to restrain a transfer of shares is
regarded as being in restraint of trade, in the absence of a valid lien
upon its shares, and except to the extent that valid restrictive
regulations and agreements exist and are applicable. Subject only to
such restrictions, a stockholder cannot be controlled in or restrained
from exercising his right to transfer by the corporation or its officers or
by other stockholders, even though the sale is to a competitor of the
company, or to an insolvent person, or even though a controlling interest
is sold to one purchaser." (Ibid., sec. 1035, pp. 665, 666.)
In the case of Fleischer v. Botica Nolasco Co. (47 Phil., 583), we have
discussed the validity of a clause in the by-laws of the defendant
corporation, which provided that, under the same conditions, the owner
of a share of stock could not sell it to another person except to the
defendant corporation. In deciding the legality and validity of said

restriction, we held:jgc:chanrobles.com.ph
"The only restraint imposed by the Corporation Law upon transfer of
shares is found in section 35 of Act No. 1459, quoted above, as follows:
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 meetings 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." (Id., p. 592.)
It is obvious, therefore, that the restriction consisting in the word
"nontransferable," appearing on the 12 certificates, Exhibits F to F-11, is
illegal and should be eliminated.
As we have hereinbefore stated, there is no existing law nor authority in
support of the plaintiffs claim to the effect that the defendants are
obliged to buy his shares of stock at par value, plus the interest
demanded thereon. In this respect, we hold that there has been no such
contract, either express or implied, between the plaintiff and the
defendants. In the absence of a similar contractual obligation and of a
legal provision applicable thereto, it is logical to conclude that it would
be unjust and unreasonable to compel the said defendants to comply
with a non-existent or imaginary obligation. Whereupon, we are likewise
compelled to conclude that the judgment originally rendered to that
effect is untenable and should be set aside.
Wherefore, the judgment appealed from is hereby reversed, and the
restriction consisting in the word "non-transferable" appearing on the 12
certificates of shares of stock, is declared null and void. The defendants
herein are hereby ordered to cancel the certificates in question and to
issue in lieu thereof new ones without any restriction whatsoever, with
the costs of both instances against the said defendants-appellants. So
ordered.

39

G.R. No. L-2808

August 31, 1951

JOSEFA SANTAMARIA, assisted by her husband, FRANCISCO

SANTAMARIA, Jr., plaintiff-appellee,
vs.
THE HONGKONG AND SHANGHAI BANKING CORPORATION and R.
W. TAPLIN, defendants-appellant.
Nicodemus L. Dasig and Sotto and Sotto for plaintiff and appellant.
Quijano, Rosete and Tizon for defendants and appellants.
BAUTISTA ANGELO, J.:
This is an appeal from a decision of the Court of First Instance of Manila
ordering the Hongkong and Shanghai Banking Corporation to pay the
plaintiff the sum of P8,041.20 plus the costs of suit. The case was
certified to this Court of Appeals.
The facts of this case found by the Court of Appeals are as follows:
Sometime in February, 1937, Mrs. Josefa T. Santamaria bought
10,000 shares of the Batangas Minerals, Inc., through the offices
of Woo, Uy-Tioco & 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, Exh. "F", issued in the
name of Woo, Uy-Tioco & Naftaly and indorsed in bank by this
firm.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

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

40

amount of P2,250.
At the time of the delivery of a stock Certificate No. 517 to R.J.
Campos & Co., Inc. this certificate was in the same condition as
that when Mrs. Santamaria received from Woo, Uy-Tioco &
Naftaly, with the sole difference that her name was later written
in lead pencil on the upper right hand corner thereof.
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 of the Hongkong and Shanghai
Banking Corporation.
Certificate No. 517 came into possession of the Hongkong and
Shanghai Banking Corporation because R.J. Campos & Co., Inc.
had opened an overdraft account with this bank and to this
effect it had executed on April 16, 1936 a document of
hypothecation, Exhibit 1, by the term 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 of
my/our account and whether originally deposited for safe
custody only or for any other purpose whatever or which may
hereinafter be deposited by me/us in lieu of or in addition to the
Stocks Shares and Securities now deposited or for any other
purposes whatsoever."
On March 11, 1937, as shown by Exhibit G. Certificate No. 517,
already indorsed by R.J. Campos Co. Inc. to the Hongkong &
Shanghai Banking Corporation, was sent by the latter to the
office of the Batangas Minerals, Inc. with the request that the
same be cancelled and a new certificate be issued in the name of
R.W. Taplin as trustee and nominee of the banking corporation.
Robert W. Taplin was an officer of this institution in charge of the
securities belonging to or claimed by the bank. As per this

request the Batangas Minerals, Inc. on March 12, 1937, issued

Certificate No. 715 in lieu of Certificate No. 517, in the name of
Robert W. Taplin as trustee and nominee of the Hongkong &
Shanghai Banking Corporation. (Exhibits G, H, I, J, 1, 4 and 5.)
According to Mrs. Santamaria, she made the claim to the bank
for her certificate, though she did not remember the exact date,
but it was most likely on the following day of that when she went
to Cosculluela for the purpose of paying her order for 10,000
shares of the Crown Mines, Inc., or else on March 13, 1937. In
her interview with Taplin, the bank's representative, she
informed him that the certificate belonged to her, and she
demanded that it be returned to her. Taplin then replied that the
bank did not know anything about the transaction had between
her and R.J. Campos & Co., Inc., and that he could not do
anything until the case of the bank with Campos shall have been
terminated. This declaration was not contradicted by the adverse
party.
"In Civil Case No. 51224, R.J. Campos & Co., Inc. was declared
insolvent, and on July 12, 1937, the Hongkong & Shanghai
Banking Corporation asked permission in the insolvency court to
sell the R.J. Campos & Co., Inc., securities listed in its motion by
virtue of the document of hypothecation Exhibit 1. In an order
dated July 15, 1937, the insolvency court granted this motion.
"On June 3, 1938, to 10,000 shares of Batangas Minerals, Inc.
represented by Certificate No. 715, were sold to the same bank by
the Sheriff for P300 at the foreclosure sale authorized by said
order. (Exhibits F, 2 and 3.)
R.J. Campos, the president of R.J. Campos & Co., Inc., was
prosecuted for estafa and found guilty of this crime and was
sentenced by the Manila Court of First Instance in Criminal Case
No. 54428, to an imprisonment and to indemnify the offended
party, Mrs. Josefa Santamaria, in the amount of P8,041.20
representing the value of the 10,000 shares of Batangas
Minerals, Inc. (Exhibits I and J.) The decision was later confirmed

41

by the Court of Appeals. (Exhibits J.) The offended party and R.

W. Taplin were among the witnesses for the prosecution in this
criminal case No. 54428. (Exhibits 4.).
When Mrs. Santamaria failed in her efforts to force the civil
judgment rendered in her favor in the criminal case because the
accused became insolvent, she filed her complaint in this case on
October 11, 1940. At the trial both parties agreed that the
10,000 Batangas Minerals shares formerly represented by
Certificate No. 517 and thereafter by Certificate No. 715, have no
actual market value.
The errors assigned by the defendants-appellants as committed by the
lower court are:
I
The trial court erred in finding that the plaintiff-appellee was not
chargeable with negligence in the transaction which gave rise to
this case.
II
The trial court erred in holding that it was the obligation of the
bank to have inquired into the ownership of the certificate when
it received it from R.J. Campos & Company and in concluding
that the bank was negligent for not having done so.
III
The trial court erred on ordering defendants-appellants to pay to
plaintiff the sum of P8,041.20.
1. Defendants-appellants contend in the first place that the trial court
erred in finding that the plaintiff-appellee was not chargeable with
negligence in the transaction which gave rise to this case.
A careful analysis of the facts seems to justify this contention. Certificate

of stock No. 517 was made out in the name of Wo, Uy-Tioco & Naftaly,
brokers, and was duly indorsed in bank by said brokers. This certificate
of stock was delivered by plaintiff to R.J. Campos & Co., Inc. to comply
with a requirement that she deposit something on account if she wanted
to buy 10,000 shares of Crown Mines Inc. In making said deposit,
plaintiff did not take any precaution to protect herself against the
possible misuse of the shares represented by the certificate of stock.
Plaintiff could have asked the corporation that had issued said
certificate to cancel it and issue another in lieu thereof in her name to
apprise the holder that she was the owner of said certificate. This she
failed to do, and instead she delivered said certificate, as it was, to R.J.
Campos & Co., Inc., thereby clothing the latter with apparent title to the
shares represented by said certificate including apparent authority to
negotiate it by delivering it to said company while it was indorsed in
blank by the person or firm appearing on its face as the owner thereof.
The defendant Bank had no knowledge of the circumstances under
which the certificate of stock was delivered to R.J. Campos & Co., Inc.,
and had a perfect right to assume that R.J. Campos & Co., Inc. was
lawfully in possession of the certificate in view of the fact that it was a
street certificate, and was in such form as would entitle any possessor
thereof to a transfer of the stock on the books of the corporation
concerned. There is no question that, in this case, plaintiff made the
negotiation of the certificate of stock to other parties possible and the
confidence she placed in R.J. Campos & Co., Inc. made the wrong done
possible. This was the proximate cause of the damage suffered by her.
She is, therefore, estopped from claiming further title to or interest
therein as against a bona fide pledge or transferee thereof, for it is a wellknown rule that a bona fide pledgee or transferee of a stock from the
apparent owner is not chargeable with knowledge of the limitations
placed on it by the real owner, or of any secret agreement relating to the
use which might be made of the stock by the holder (Fletcher, Cyclopedia
of Corporations, section 5562, Vol. 12, p. 521).
On the other hand, it appears that this certificate of stock, indorsed as it
was in blank by Woo, Uy-Tioco & Naftaly, stock brokers, was delivered to
The Hongkong and Shanghai Banking Corporation by R.J. Campos &
Co., Inc., duly indorsed by the latter, pursuant to a letter of
hypothecation executed by R.J. Campos & Co., Inc., in favor of said

42

Bank (Exhibit "1"). The said certificate was delivered to the Bank in the
ordinary course of business, together with many other securities, and at
the time it was delivered, the Bank had no Knowledge that the shares
represented by the certificate belonged to the plaintiff for, as already
said, it was in the form of street certificate which was transferable by
mere delivery. The rule is "where one of two innocent parties must suffer
by reason of a wrongful or unauthorized act, the loss must fall on the
one who first trusted the wrong doer and put in his hands the means of
inflicting such loss" (Fletcher Cyclopedia of Corporations, supra).
It is therefore clear that plaintiff, in failing to take the necessary
precautions upon delivering the certificate of stock to her broker, was
chargeable with negligence in the transaction which resulted to her own
prejudice, and as such, she is estopped from asserting title to it as
against the defendant Bank.
2. The next contention of the defendant is that the trial court erred in
holding that it was 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 in concluding 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.
Let us now see the material facts on this point. 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." On
March 13, 1937, plaintiff went to the office of the Bank to claim for her
certificate. In her interview with one Robert W. Taplin, the officer in
charge of the securities of that institution, she informed him that the
certificate belonged to her and she demanded that it be returned to her.

Taplin then replied that the Bank did not know anything about the
transaction had between her and that he could not do anything until the
case of the Bank with R.J. Campos & Co., Inc. had been terminated. It
further appears that when the certificate of stock was delivered by
plaintiff to R.J. Campos & Co., Inc., the manager thereof, Sebastian
Cosculluela, wrote in pencil on the right margin the name of Josefa T.
Santamaria, pursuant to the practice followed by said firm to write on
that part of the certificate the name of the owner for purposes of
identification. Upon the facts thus stated, the question that asserts itself
is: was the defendants Bank obligated to inquire who was the real owner
of the shares represented by the certificate of stock, and could it be
charged with negligence for having failed to do so?
It should be noted that the certificate of stock in question was issued in
the name of the brokerage firm-Woo, 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 (Heyman vs. Hamilton National Bank, 266 S.W.
1043; Fletcher, Cyclopedia of Corporations, Vol. 12, pp. 521-524, 525527; McNeil vs. Tenth National Bank, 7 Am. Rep. 341).
The only evidence in the record to show that the certificate of stock in
question may not have belonged to R.J. Campos & Co., Inc. is the
testimony of the plaintiff to the effect that she had approached Robert
W. Taplin on March 13, 1937, and informed him that she was the true
owner of said certificate and demanded the return thereof, or its value,
but even assuming for the sake of argument that what plaintiff has

43

stated is true, such an incident would merely show that plaintiff has an
adverse claim to the ownership of said certificate of stock, but that
would not necessarily place the Bank in the position to inquire as to the
real basis of her claim, nor would it place the Bank in the obligation to
recognize her claim and return to her the certificate outright. A mere
claim and of ownership does not establish the fact of ownership. The
right of the plaintiff in such a case would be against the transferor. In
fact, this is the attitude plaintiff has adopted when she filed a charge for
estafa against Rafael J. Campos, which culminated in his prosecution
and conviction, and it is only when she found him to be insolvent that
she decided to go against the Bank. The fact that on the right margin of
the said certificate the name of the plaintiff appeared written, granting it
to be true, can not be considered sufficient reason to indicate that its
owner was the plaintiff considering that said certificate was indorsed in
blank by her brokers Woo, Uy-Tioco & Naftaly, was guaranteed by
indorsement in blank by R.J. Campos & Co., Inc., and was transferred in
due course by the latter to the Bank under their letter of hypothecation.
Said indicium could at best give the impression that the plaintiff was the
original holder of the certificate.
The Court has noticed that the defendant Bank was willing from the very
beginning to compromise this case by delivering to the plaintiff
certificate of stock No. 715 that was issued to said Bank by the issuer
corporation in lieu of the original as alleged and prayed for in its
amended answer to the complaint dated April 2, 1941. Considering that
in the light of the law and precedents applicable in this case, the most
that plaintiff could claim is the return to her of the said certificate of
stock (Howson vs. Mechanics Sav. Bank, 183 Atl., p. 697), the Court,
regardless of the conclusions arrived at as above stated, is inclined to
grant the formal tender made by the defendant to the plaintiff of said
certificate.
Wherefore, the decision of the lower court is hereby modified in the
sense of ordering the defendant to deliver to the plaintiff certificate of
stock No. 715, without pronouncement as to costs.

44

EN BANC
[G.R. No. L-4818. February 28, 1955.]
APOLINARIO G. DE LOS SANTOS and ISABELO
ASTRAQUILLO, Plaintiffs-Appellees, v. J. HOWARD MCGRATH
ATTORNEY GENERAL OF THE UNITED STATES, SUCCESSOR TO
THE PHILIPPINE ALIEN PROPERTY ADMINISTRATION OF THE
UNITED STATES, defendant and appellant. REPUBLIC OF THE
PHILIPPINES, Intervenor-Appellant.
Jose P. Laurel, M. Almario, Adolfo A. Scheerer, Antonio Quirino, and
J. C. Orendain, forAppellees.
Harold I. Baynton, Stanley Gilbert, Juan T. Santos, and Lino M.
Patajo, and Perkins, Ponce Enrile & Associates, for Appellant.
Solicitor General Pompeyo Diaz and Solicitor Pacifico P. de Castro
for intervenor and appellant.

SYLLABUS

1. CORPORATION LAW; SHARES OF STOCK, NATURE AND TRANSFER

OF; EFFECT OF UNREGISTERED TRANSFER. Shares of stock are

45

personal property and may be transferred by endorsement of the

corresponding stock certificate, coupled with its delivery. However, the
transfer shall not be valid, except as between the parties, until it is
entered and noted upon the books of the corporation. (Section 35,
Corporation Law).
2. ID.; ID.; QUASI-NEGOTIABILITY AND NON-NEGOTIABILITY OF
SHARES OF STOCK. Although shares of stock are sometimes
regarded as quasi-negotiable, in the sense that they may be transferred
endorsement, coupled with delivery, they are non-negotiable, because
the holder thereof takes them without prejudice to such rights or
defenses as the registered owner or creditor may have under the law,
except insofar as such rights or defenses are subject to the limitations
imposed by the principles governing estoppel.
3. ID.; ID.; STOCKHOLDERS; RIGHTS OF REGISTERED
STOCKHOLDERS SUPERIOR TO THAT OF PURCHASER ON NOTICE OF
FACTS INDICATING NEED OF INQUIRING INTO REGULARLY OF
SALES. Where the plaintiffs were, at the time of the alleged sales in
their favor of the shares stock in question, aware of sufficient facts to put
them on notice of the need of inquiring into the regularity of the
transactions and the title of the opposed vendors, they can not validly
claim, against the registered stockholder, the statue of purchasers in
good faith.
4. ID.; ID.; ID.; PRINCIPAL OF REGISTERED OWNER ENJOYS SAME
RIGHTS OF REGISTERED STOCKHOLDER. The principal or
beneficiary of the registered owner of shares of stock is entitled to invoke
such rights as the registered stockholders may have under the law.

DECISION

CONCEPCION, J.:

This action involves the title to 1,600,000 shares of stock of the Lepanto
Consolidated Mining Co., Inc., a corporation duly organized and existing
under the laws of the Philippines, hereinafter referred to, for the sake of
brevity, as the Lepanto. Originally, one-half of said shares of stock were
claimed by plaintiff, Apolinario de los Santos, and the other half, by his
co-plaintiff Isabelo Astraquillo. During the pendency of this case, the
latter has allegedly conveyed and assigned his interest in and to said half
claimed by him to the former. The shares of stock in question are covered
by several stock certificates issued in favor of Vicente Madrigal, who is
registered in the books of the Lepanto as owner of said stocks and whose
indorsement in blank appears on the back of said certificates, all of
which, except certificates No. 2279 marked Exhibit 2 covering
55,000 shares, are in plaintiffs possession. So was said Exhibit 2, up to
sometime in 1945 or 1946 when said possession was lost under the
conditions set forth in subsequent pages.
Briefly stated, plaintiffs contend that De los Santos bought 500,000
shares from Juan Campos, in Manila, early in December 1942; that he
bought 300,000 shares from Carl Hess, in the same city, several days
later; and that, before Christmas of 1942, be bought 800,000 shares
from Carl Hess, this time for the account and benefit of Astraquillo. By
virtue of vesting order P-12, dated February 18, 1945, title to the
1,600,000 shares of stock in dispute was, however, vested in the Alien
Property Custodian of the U. S. (hereinafter referred to as the Property
Custodian) as Japanese property. Hence, plaintiffs filed their respective
claims with the Property Custodian. In due course, the Vested Property
Claims Committee of the Philippine Alien Property Administration made
a "determination," dated March 9, 1948, allowing said claims, which
were considered and heard jointly as Claim No. 535, but, upon personal
review, the Philippine Alien Property Administrator (hereinafter referred
to as "Administrator"), in an opinion dated November 26, 1948, reversed
the determination made by said Committee and decreed that "title to the
shares in question shall remain in the name of the Philippine Alien

46

Property Administrator." Consequently, plaintiffs instituted the present

action to establish title to the aforementioned shares of stock. In their
complaint, they pray that judgment be rendered declaring them lawful
owners of said shares of stock, with such dividends, profits and rights as
may have accrued thereto; requiring the defendant to render accounts
and to transfer said shares of stock to plaintiffs names; and sentencing
the former to pay the costs.
The defendant herein is the Attorney General of the U. S., successor to
the "Administrator." He contends, substantially, that, prior to the
outbreak of war in the Pacific, said shares of stock were bought by
Vicente Madrigal, in trust for, and for the benefit of, the Mitsui Bussan
Kaisha (hereinafter referred to as the "Mitsuis"), a corporation organized
in accordance with the laws of Japan, the true owner thereof, with
branch office in the Philippines; that on or before March, 1942, Madrigal
delivered the corresponding stock certificates, with his blank
indorsement thereon, to the Mitsuis, which kept said certificates, in the
files of its office in Manila, until the liberation of the latter by the
American forces early in 1945; that the Mitsuis had never sold, or
otherwise disposed of, said shares of stock; and that the stock
certificates aforementioned must have been stolen or looted, therefore,
during the emergency resulting from said liberation.
Inasmuch as, pursuant to the Philippine Property Act, all property
vested in the United States, or any of its officials, under the Trading with
the Enemy Act, as amended, located in the Philippines at the time of
such vesting, or the proceeds thereof, shall be transferred to the
Republic of the Philippines, the latter sought permission, and was
allowed, to intervene in this case and filed an answer adopting in
substance the theory of the defendant.
After due hearing, the Court of First Instance of Manila, presided over by
Honorable Higinio B. Macadaeg, Judge, rendered a decision the
dispositive part of which reads, as follows:jgc:chanrobles.com.ph
"In view of the foregoing consideration, judgment is hereby rendered in
favor of the plaintiffs and against the defendant, declaring the former the
absolute owners of the shares of stock of the Lepanto Consolidated

Mining Company covered by the certificates of stock, respectively, in

their (plaintiffs) possession. The transfer of said shares of stock in favor
of the Alien Property Custodian of the U. S. of America, now Philippine
Alien Property Administration, is hereby declared null and void and of no
effect. Consequently, the Lepanto Consolidated Mining Company is
ordered to cancel the certificates of stock issued in the name of the
Philippine Alien Property Custodian or Philippine Alien Property
Administrator, as the case may be. Defendant shall pay the costs of the
proceeding." (p. 67, R.A.)
The defendant and the intervenor have appealed from this decision. The
main question for determination in this appeal is whether or not
plaintiffs had purchased the shares of stock in question. In support of
the negative answer, appellants have introduced the testimony of Vicente
Madrigal, Matsune Kitajima, Kingy Miwa, Miguel Simon, E. A. Perkins
and Victor E. Lednicky, as well as several pieces of documentary
evidence.
Mr. Madrigal, whose testimony before the claims Committee of the
Philippine Alien Property Administration was admitted with plaintiffs
consent, stated that he purchased the shares of stock in question,
among others, for the Mitsuis and at their request; that he paid with his
own funds the corresponding price, which was later reimbursed to him
by the Mitsuis; that he held the corresponding stock certificates, which
were issued in his name, with the understanding that he would effect
the necessary transfer, to the Mitsuis, upon demand; and that, shortly
before the outbreak of war, he delivered said stock certificates, with his
blank endorsement thereon, to the Mitsuis, to whom said stocks
belonged.
Matsune Kitajima declared that in June 1941 he relieved one Kobayashi,
as manager of the branch office of the Mitsuis in Manila; that he then
received from Kobayashi the stock certificates for about 1,900,000
shares of the Lepanto, belonging to the Mitsuis, but issued in favor of
Vicente Madrigal, except the certificates for 200,000 shares, which were
in the name of the Mitsuis; that all these certificates were kept in a steel
safe in said office of the Mitsuis; that, in July 1941, he returned the
stock certificates to Madrigal, with the request that he buy for the

47

Mitsuis, from time to time, some more shares of stock, in small lots; that
Madrigal bought 200,000 additional shares of the Lepanto for the
Mitsuis; that, late in November or early in December, 1941, the stock
certificates of the aforementioned 2,100,000 shares were returned to the
Mitsuis, which had decided to stop buying, in view of the strained
international situation then prevailing; that, as branch manager of the
Mitsuis, he was the only official authorized to dispose of the shares in
question, none of which was alienated by him; and that he had the
aforementioned stock certificates in his possession continuously until
early in April 1943, when he delivered the same to his successor in
office, Kingy Miwa.
Apart from corroborating Kitajimas testimony relative to said delivery of
stock certificates in April 1943, Kingy Miwa testified that he kept the
latter in his possession, as branch manager of the Mitsuis; that said
shares of stock were never sold or otherwise disposed of by the Mitsuis;
that, late in September 1944, he bade his assistant, one Miyazima, to
transfer all important documents to their residence and headquarters, at
Taft Avenue, Manila, although he did not know personally whether or not
the transfer was actually carried out; and that in January 1945, when
the Japanese were about to evacuate Manila, he told his Assistant
Manager, one Shinoda, to burn all important papers before leaving the
city.
Miguel Simon, brother of Carl Hess, from whom plaintiffs claim to have
purchased 1,100,000 shares of stock, affirmed that Hess lived in front of
his (Simons) house; that they were close to each other and had long
been associated in business; that he was the office manager of "Hess
and Zeitling" before the war; that Hess used to tell him his daily
transactions during the occupation; that at that time, Hess did not have
in his possession any certificate of stock of the Lepanto in the name of
Vicente Madrigal; that neither did Hess, during that period, operate as a
broker, for, being American, he was under Japanese surveillance; and
that Hess had made, during the occupation, no transaction involving
mining shares, except when he sold 12,000 shares of the Benguet
Consolidated, inherited from his mother, sometime in 1943.
E. A. Perkins, a member of the law firm DeWitt, Perkins & Ponce Enrile

testified substantially as follows: On October 27, 1945, Leonardo Recio

brought stock certificate No. 2279 (Exhibit 2) and offered the same for
sale to Clyde DeWitt, who, in turn, asked Perkins, whose room adjoined
that of DeWitt, to join them. Recio showed Exhibit 2 to DeWitt stating
that he (Recio) wanted P0.13 per share. DeWitt handed Exhibit 2 over to
Perkins, who, after examining the instrument, returned it to DeWitt. The
latter, thereafter, checked it with a communication of the Property
Custodian and then advised Recio that said Exhibit 2 was one of the
stock certificates looted from the Mitsuis and that he (DeWitt) would
have to report the matter to said official. As DeWitt, thereupon,
telephoned one Mr. Erickson, of the Property Custodians office, Recio
stepped out of the room without Exhibit 2, which neither he or plaintiffs
had ever tried to recover.
Victor E. Lednicky, one of the organizers and pre-war directors of the
Lepanto, and present vice-president and member of its board of director,
asserted that, having learned from a soldier of the existence of mining
papers and securities of the Lepanto in the offices of the Mitsuis at the
Ayala Building, formerly known as the National City Bank Building, in
Manila, he went thereto in February 1945 and saw many documents
scattered on the desks and floor of said premises. Among said papers, he
noticed two stock certificates of the Lepanto, one, in the name of either a
Japanese or Chinese, and the other, in the name of Vicente Madrigal,
indorsed in blank. Soon, however, he heard voices coming from the
stairs, whereupon he departed hurriedly, for fear of being mistaken for a
looter.
After analyzing the foregoing evidence for the defense, the lower court
found the same "inherently improbable" and seemingly concluded that,
as a consequence, it should accept plaintiffs version, for which reason
judgment was rendered as above stated. It is well settled, in this
jurisdiction, that the findings of fact particularly those relating to the
credibility of the opposing witnesses made by the Judge a quo, should
not be disturbed on appeal, in the absence of strong and cogent reasons
therefor. This policy is predicated upon the circumstance that the trial
court has had an opportunity, denied to the appellate court, to observe
the behaviour of the witnesses during the hearing, a potent factor in
gauging their bias and veracity. In the case at bar, however, we notice

48

that, rejecting the theory of the defense, the court of origin was guided,
not by the conduct of the witnesses in the course of their testimony, but
by what His Honor, the trial Judge, regarded as the inherent weakness
thereof, in the evaluation of which said court does not enjoy the
advantage already adverted to.
Moreover, the decision appealed from appears to have assumed that
plaintiffs pretense must necessarily be relied upon, owing to the
infirmities said to have been found in the theory of the defense. This
view suffers from a fatal defect. It overlooks the fact that the burden of
proof is upon the plaintiffs, and that, accordingly, a decision in their
favor is not in order unless a preponderance of the evidence supports
their claim. To put it differently, the alleged improbabilities in the
testimony of the witnesses for the defense will not justify a judgment
against the latter, if the evidence for the plaintiffs is more improbable
than, or, at least, as improbable as, that of the defense. Such is the
situation obtaining in the case at bar. Indeed, upon careful examination
of the record before us, we find it impossible to share the conclusions,
made in the decision appealed from, relative to the alleged flaws in the
version of the defense.
Let us, first, examine the evidence for the plaintiffs, consisting, mainly,
of their own testimony and that of Primitivo Javier and Leonardo Recio.
According to De los Santos, on or about December 8, 1942, he
purchased from Juan Campos, in Manila, 500,000 shares of stock of the
Lepanto, for the aggregate sum of P30,000.00, or at P0.06 each share,
paid in cash, in exchange for the corresponding stock certificates, which
were delivered to him. Several days later, he bought from Carl Hess, in
Manila, 300,000 shares of the Lepanto, at the same rate. Soon after, he
visited his daughter in Baguio, where he, likewise, saw his co-plaintiff,
and former secretary, Isabelo Astraquillo. Before leaving Astraquillos
house, De los Santos happened to mention his aforesaid purchases of
Lepanto shares, at P0.06 each, whereupon, Astraquillo expressed the
wish to buy 800,000 shares at the same price, the amount of which he
delivered to De los Santos the next day. Upon his return to Manila, De
los Santos purchased from Hess said 800,000 shares, the certificates of
which were turned over by the former to Astraquillo, in Baguio, at about

Christmas time. Over 3 years later, or in January 1946, De los Santos

repaired to the offices of the Lepanto in Manila to ascertain whether it
accepted certificates of stock for registration. He then received a negative
answer. Upon further inquiry, he learned, in February 1946, that the
shares in the name of Madrigal were blocked. So he engaged the services
of Atty. A. Scheerer, who secured an order of release from the Freezing
Control Office of the United States Treasury Department. As he brought
a copy of this order to the offices of the Lepanto, on or about May 1,
1946, he was advised that no transfer could be effected without the
authority of Clyde DeWitt, the company president. Thereupon, De los
Santos caused to be filed, with the office of the Property Custodian, the
corresponding claim for the shares of stock in question, with the result
already adverted to.
Astraquillo tried to corroborate the testimony of De los Santos,
concerning the purchase of 800,000 shares of stock on behalf of the
former. Moreover, Astraquillo declared that, being in need of money, he
came to Manila in November or December 1945, and delivered to stock
broker Leonardo Recio stock certificate No. 2279 (Exhibit 2) for 55,000
shares, with a view to disposing of the same at a price ranging from
P0.13 to P0.15 each. He advised Recio that, in the absence of any buyer,
he could see Mr. DeWitt, who, probably, would be interested in
purchasing the shares. Sometime later, Astraquillo learned that,
according to Recio, upon seeing Exhibit 2, DeWitt retained it upon the
ground that the shares represented therein had been blocked by the
United States and that he (Recio) got therefor a receipt, which was
subsequently lost in a fire that destroyed his (Recios) dwelling. As
Astraquillo hurried to Manila, he was told that representatives of the CIC
would go to Baguio to investigate. So, he returned to Baguio, but he did
not wait for the investigation in that city. Late in February or early in
March, 1946, he came back to Manila and asked the assistance of De los
Santos, whereupon both contacted Atty. Scheerer for the purpose
already stated.
Primitivo Javier narrated that, late in 1945, he received Exhibit 2 from
his uncle, Astraquillo, who wanted to sell the 55,000 shares represented
by said stock certificate (No. 2279) at a price ranging from P0.12 to
P0.15 each share. He, in turn, delivered the certificate to Recio, a

49

licensed broker. Subsequently, Recio reported to him that he (Recio) had

brought Exhibit 2 to the office of Mr. DeWitt, whom he did not see on his
first visit; that he then left Exhibit 2 in the hands of a person who
worked in said office, one Atty. Orlina, who issued a receipt therefor;
that, when Recio came back, later on, DeWitt told him that Exhibit 2
was defective; and that, accordingly, Exhibit 2 was left in the possession
of Mr. DeWitt. Javier relayed this information to Astraquillo, who,
thereupon, came to Manila. Both went to the temporary residence of
Recio in Sampaloc, his house in San Juan del Monte, Rizal, having been
destroyed by fire late in December 1945. Recio then advised them that
said receipt had been burned with his house.
Leonardo Recio said that sometime in 1945, Javier gave him Exhibit 2,
stating that it belonged to his uncle, who wanted to alienate the
corresponding shares of stock at P0.15, more or less, each, and
suggesting that he offer the same to Mr. DeWitt: In the latters office,
Atty. Orlina told Recio that DeWitt was busy and bade him (Recio) to
return later. Recio delivered Exhibit 2 to Orlina, who gave him a receipt,
which, subsequently, he showed to Javier. When, soon after, he went
back to Orlina, the latter introduced him to Mr. DeWitt, who stated that
the shares of stock covered by Exhibit 2 were included in the list of
questioned shares. DeWitt, also, asked him whether he would leave the
certificate, to which Recio replied affirmatively. While he was away,
several months later, or shortly before Christmas, his house at
Blumentritt Street, San Juan del Monte, Rizal, and everything contained
therein, including the aforementioned receipt, which which was in his
wallet, were destroyed by fire.
It thus appears that the only evidence on the alleged sale of the shares
of stock in question to the plaintiffs the main issue in the case at bar
is the testimony of Apolinario de los Santos, who now claims to be the
sole owner thereof. Juan Campos and Carl Hess, the alleged vendors,
could not take the witness stand, for Hess was executed by the
Japanese, and Campos died during the liberation of Manila. Thus, death
has sealed the lips of the only persons who could have positively
corroborated or contradicted the aforementioned testimony of De los
Santos. Was this a mere accident of fate, as plaintiffs would have us
believe? Or were Campos and Hess named by the plaintiffs as their

immediate predecessors in interest precisely because, as contended by

appellants, said deceased persons could no longer impeach said
testimony?
For obvious reasons, the Court can not answer these questions with
absolute certainty. It can only explore the possibilities and probabilities
of the case, in the light of human experience. And, viewed from this
angle, it can not be denied that the demise of Campos and Hess before
the filing of plaintiffs claim seriously impairs the weight thereof. That
the Grim Reaper had chosen to strike at one of the alleged predecessors
of the plaintiffs is a matter that may be attributed to sheer
fortuitiousness. When, as in the case at bar, not one, but both have thus
been eliminated, it is clear, however, that this circumstances is most
unusual, and must place the Court on guard.
The need for caution becomes more imperative when we bear in mind
that an important piece of documentary evidence, which allegedly
existed after liberation, and could have effectively corroborated one
phase of the plaintiffs contention, had, according to their evidence,
disappeared through still another unfortunate turn of the wheel of fate.
It will be recalled that late in 1945, Leonardo Recio, allegedly acting on
behalf of Astraquillo, offered to sell to Atty. DeWitt the 55,000 shares
represented by stock certificate No. 2279 (Exhibit 2). Recio testified that,
having been unable to see DeWitt, when he (Recio) went to the latters
office, for the first time, said Exhibit 2 was left by him (Recio) in the
hands of Atty. Orlina, who worked therein and gave him a receipt
therefor. This receipt, if produced, would have surely afforded us tangible
proof of the veracity of, at least this part of plaintiffs story. Yet, we are
now told that, one day in December, 1945, Recios house accidentally
caught fire, and that the latter consumed, also, said receipt, kept in a
wallet, which, by accident, he had failed to bring with him. Arent there
too many accidents in plaintiffs version? At any rate, we have thus been
deprived of all means to check with reasonable certainty the truth of any
of the controverted portions of their pretense. In other words, the same
is based, and must stand or fall, therefore, upon the uncorroborated
testimony of plaintiff Apolinario de los Santos, and the credence and
weight that may be given thereto. Upon a review of the record, we find,
however, that said testimony is highly improbable and inherently weak,

50

for, among other things:chanrob1es virtual 1aw library

(1) De los Santos declared that, in December, 1942, he purchased
300,000 shares from Juan Campos and 1,300,000 shares from Carl
Hess, at P0.06 each share. As an enterprise controlled by Americans, the
Lepanto had been seized by the Japanese who, accordingly, were
operating it. At that time, there were no clear, or, even, substantial,
indications that changes would take place, either in the local or in the
international situation, in the near or foreseeable future. In deed, the
morale of the population in democratic countries, particularly in the
Philippines, was then at its lowest ebb. Both in Europe and in the
Pacific, the Axis powers had reached in enemy territories the highest
degree of penetration attained during the last war. Before the world had
recovered from the shock produced by the German blitzkrieg operations
in the low countries and in France, the Nazis were already knocking at
the gates of Stalingrad and the Caucasus, whereas the Japanese seemed
firmly entrenched in New Guinea and the Solomon Islands. The people
had a hazy notion about the facts pertinent to the Battle of Midway
(June 3-6, 1942) and the implications thereof were by and large
unknown. In other words, the conditions were such as to warrant the
general belief that the Lepanto would remain under the authority and
management of the Japanese Imperial forces for an indefinite period of
time. As a consequence, the Lepanto stock had not merely a doubtful
value, but - as admitted by Santos even, no market value at all (p.
132, t. s. n.) . Indeed, the stockholders could neither collect dividends
nor exercise their voting power, or otherwise participate in the operation
of the enterprise. Moreover, there was a possibility of its assets being
fully confiscated, for all practical purposes, should Japan emerge
victorious in the war in the Pacific, which it appeared to be winning
easily up to that time (December, 1942).
(2) Inasmuch as citizens of the United States held a majority of the
shares of stock of the Lepanto, the same had, from the view point of the
Japanese, an enemy character, and the purchase of said stocks was,
therefore, a hostile act. As a matter of fact, in the proceedings before the
Vested Property Claims Committee, the parties - including plaintiffs
herein - had stipulated "that such transfers and dealings in said stock
were prohibited by the Japanese during the occupation and hence were

dangerous." (Record on Appeal, p. 110). Said transactions could

jeopardize the life of the parties thereto and De los Santos was aware of
the "highly dangerous" or "very risky" nature even of the "mere
possession" of the stock certificates in question. (pp. 141, 143, t. s. n.)
(3) Astraquillo is merely a former employee of De los Santos, who had,
therefore, no reason to risk his neck, not only by allegedly buying
800,000 shares of stock for Astraquillo, but, also, by avowedly bringing
with him (De los Santos) the corresponding stock certificates from
Manila to Baguio, to make delivery thereof to Astraquillo, as the defense
would have us believe, notwithstanding the many Japanese check points
in the 250 kilometers highway connecting both cities and the absence of
any monetary or other gain he could have derived from the acts he
professes to have performed.
(4) According to the Ballantyne schedule the accuracy of which has
not been impugned by plaintiffs herein the Japanese war notes in the
Philippines had the same exchange of purchase value as the currency of
our legitimate government, in December, 1942 and this was conceded
by De los Santos (p. 136, t. s. n.) when they claim to have purchased
the Lepanto stocks. The P48,000 supposedly paid by De los Santos, and
the identical sum allegedly disbursed by Astraquillo, for their respective
stocks, represented, therefore, the same amount in legal tender of the
Commonwealth of the Philippines. In fact, according to the evidence for
the plaintiffs, part of the price allegedly paid by Astraquillo, or P6,000,
were in genuine Philippine money, representing his savings for 25 years.
Said sum of P6,000 being insufficient to cover the cost of 800,000 shares
of stock, Astraquillo, it is urged, alienated other properties to raise the
amount necessary therefor. It is very difficult to believe that the
plaintiffs would have parted with P48,000 each - precisely when, owing
to the abnormal conditions brought about by the occupation, said funds
might be needed, at any time, to meet unforeseen emergencies of the
gravest and most vital nature for shares of stock of dubious value
then and in the foreseeable future.
(5) We are not satisfied that either De los Santos or Astraquillo possessed
enough resources to have P48,000, in cash, each, in December 1942.
Their evidence on this point is too general apart from being based

51

exclusively upon their respective oral testimonies, which are absolutely

uncorroborated to support their contention. At any rate, De los
Santos admitted that he is "not yet" rich (p. 134, t. s. n.) , and his
testimony suggests that he did not even own the house in which he
lived.
(6) Campos offered to sell his stocks, according to De los Santos, at
P0.06 each (although its par value was P0.10), stating that "he (Campos)
needed money" (p. 43, t. s. n.) , and advised him that Hess was, also,
willing to dispose of his own stocks at the same price. Being, accordingly,
aware that Campos and Hess were in need of money and considering the
risks attending the transaction, it is but logical to expect De los Santos,
an experienced trader in stocks, to bargain for a lower price. Yet, the
evidence for the plaintiffs shows that neither he nor Astraquillo tried to
do so, contrary to the normal course of events.
(7) De los Santos could not have purchased 1,300,000 shares of stock,
from Hess, and received from him the corresponding stock certificates,
indorsed in blank by Vicente Madrigal, for Hess had never had such
stock certificates in his possession during the occupation. There is no
plausible reason to doubt the veracity of the testimony of Miguel Simon
to this effect, for the latter had no possible motive to commit perjury,
and was in a position to know what he was talking about. Apart from
being a brother-in-law of Hess, Simon was manager of the firm Hess &
Zeitling, of which Hess was the senior partner, who used to inform him
(Simon) of his (Hess) business transactions.
(8) Campos and Hess could not have delivered the stock certificates for
the 1,600,000 shares of stock in question, and, consequently, said
shares of stock could not have been sold by them, to De los Santos in
December 1942, inasmuch as from December 1941 to April 1943, said
stock certificates were continuously in the custody of Matsume Kitajima,
manager of the Mitsuis in Manila, whose testimony was corroborated by
his successor in office, Kingy Miwa, to whom Kitajima turned over the
stock certificates in April 1943. The sincerity of Matsume Kitajima and
Kingy Miwa can not be doubted, for neither appears to have any possible
reason to trifle with the facts. Indeed, their testimony, if accepted as
true, would ultimately result in the confiscation, by the Republic of the

Philippines, of the shares of stock in question and, thus, place the same
beyond the reach of the Mitsuis.
It has been intimated that Kitajima and Kingy may have testified as they
did, either to protect themselves, because they might have disposed of
the shares of stock in question for their personal benefit, or because
there had been undue influence or pressure from the authorities
presumably officers of the government of the United States. But these
are mere speculations, without sufficient actual basis. Besides, judicial
notice may be taken of the circumstance that, during the occupation,
even minor Japanese officials could easily make money, in the
Philippines, if they wanted to, without misappropriating Japanese
properties. Again, in December, 1942, the Japanese in the Philippines
appeared to have no doubts that, in effect, Japan had already won the
war. In short, Kitajima and Kingy must have thought that, sooner or
later, Japan would own the Lepanto and that, therefore, they would have
to account for the shares of stock under consideration. Consequently, it
is most unlikely that either would have misappropriated said shares of
stock as suggested by the plaintiffs.
The benefits which the Mitsuis and Japan may derive from a decision
against the plaintiffs inasmuch as the value of the shares of stock in
question would then be credited in payment of the reparations which
may be demanded by the Philippines and/or the United States has
been pointed out, in the dissenting opinion, as a possible motive for the
commission of perjury by Kitajima and Kingy. Besides being purely
conjectural in nature, this line of thought which not even the
plaintiffs have taken would have no leg to stand on, unless we assume
that the Mitsuis had sold or otherwise disposed of said stocks during the
year 1942, but before the alleged transactions between Campos and
Hess, on the one hand, and the plaintiffs on the other, in December of
that year. It is inconceivable, however, that the Mitsuis would part with
the stocks in question, precisely when Japan was at the crest of its
military and political victories. Indeed, even if its officers had already
foreseen, at that time, the eventual defeat of the axis powers and
everything then appeared to indicate the contrary the Mitsuis could
not have disposed of said stocks without thereby revealing their own lack
of faith in the ability of Japan to achieve final victory. Thus, the Mitsuis

52

would have caused a grave injury upon the Japanese propaganda and
thereby earned severe punishment from the Imperial Government.
Nothing, absolutely nothing, in the record, or in contemporary history,
warrants the belief that the Mitsuis, who were closely associated with
the Japanese Government, could be guilty of such folly.
Let us now turn our attention to the evidence for the defense, beginning
with the testimony of Victor E. Lednicky. It will be recalled that this
witness claimed to have gone to the premises of the Mitsuis, sometime in
February 1945, and to have seen many documents scattered about the
place, including two (2) Lepanto certificates of stock, one of which was in
the name of Vicente Madrigal, whose blank indorsement appeared
thereon. Thus, the defense sought to prove that the certificates of the
shares of stock involved in this case have probably been looted. The
lower court found Lednickys story inherently improbable and then
concluded that the theory of the looting must, consequently, be "ruled
out." To our mind, however, the testimony of Lednicky is not inherently
improbable. Besides, it is a matter of common knowledge, of which
judicial notice may be taken, that many offices and dwellings were looted
during the liberation of Manila. The possibility that possession of the
stock certificates in question may have been secured by looting should
not be "ruled out," therefore, irrespective of the credence and weight
given to the testimony of Lednicky. Actually, said certificates are included
in the list of stocks certificates of the Lepanto which, soon after
liberation, were reported and considered looted from the Mitsuis, and,
accordingly, "blocked" or "frozen" by the authorities. Irrespective of the
foregoing, De los Santos could not have obtained those certificates from
Campos and Hess in December 1942, inasmuch as, from December
1941 to April 1943, Kitajima had been continuously in possession of
said documents, none of which had been held by Hess during the
occupation.
The lower court considered against the defense the circumstance that
Lednicky, Simon and Perkins had not testified before the Vested Property
Claims Committee. There is no evidence, however, that any of them knew
of the proceedings before said committee. Furthermore, none of them
has any personal interest in the outcome of this action. Consequently,
they have no possible motive to distort the truth, unlike De los Santos,

who, as the present claimant of all the shares of stock in dispute, will be
directly affected by the outcome of the case at bar. His testimony,
therefore, cannot be more weighty than that of the aforementioned
witnesses for the defense.
The decision appealed from criticizes the testimony of Perkins upon the
following grounds:chanrob1es virtual 1aw library
(1) Having taken no part in the alleged looting of Exhibit 2, Recio had
nothing to fear in connection therewith and, so, he could not have left
the office of Mr. DeWitt, while the latter was talking over the telephone
with a representative of the Alien Property Custodian;
(2) Inasmuch as DeWitt had stated that Exhibit 2 was included in the
list of looted stock certificates, Perkins should have known that, as
holder of the certificate, Recio is presumed to be the one who stole the
same. Why then plaintiffs inquire did Perkins fail to prevent Recio
from leaving said office?
As regards the first observation, suffice it to say that, as bearer of the
Exhibit 2, Recio who, according to the lower court, is an intelligent
man must have realized the danger, probably unforeseen by him, of
being considered a privy to the looting of said stock certificate, of which
he might have been unaware before the conference with Mr. DeWitt.
Hence, Recios fright and virtual flight. Verily, the testimony of Perkins
on this point is borne out by the undisputed fact that Exhibit 2 was left
by Recio in the hands of DeWitt, and that neither Astraquillo, nor his
alleged successor in interest, De los Santos, has ever demanded from
DeWitt the return of said certificate, or even recriminated Recio for
having voluntarily parted with its possession, as he would have us
believe, without authority therefor, as a broker or agent who was
supposed merely to find a buyer.
As to the second observation, Perkins knew that Recio was acting solely
as a broker or agent. As such, he was not the real holder of Exhibit 2,
and, consequently, the presumption adverted to did not apply to him.
Even if it did, however, what could Perkins have done? Use force or
violence upon the person of Recio, or ask a policeman to detain him?

53

Neither step, however, could have been taken without some risks. To
begin with, Perkins could not have properly taken the law in his own
hands. Had he done so, Recio could have legally used force against force.
Moreover, said presumption is rebuttable and would have easily been
offset by the undeniable fact that Recio had acted merely in a
representative capacity. Again, why should Perkins take the initiative in
the matter? Was it not being handled by his associate in the law firm,
Mr. DeWitt, one of the most able members of the Philippine Bar? It may
not be amiss to add that the record before us discloses absolutely
nothing that may cast even a shadow of doubt upon the honesty of Mr.
Perkins.
The language of the lower court in commenting on the testimony of Miwa
was:chanrob1es virtual 1aw library
. . . In general, the testimony of Miwa is unreliable. His behaviour in
Court in denying first and then in accepting later his own signature
throws him to a position where the Court must look upon him with
suspicion and distrust. His prevarication before the Court as to the
genuineness of his own signature was probably due to the conscience of
a man who came to Court with a mental reservation, but who may have
been compelled under the circumstances to play the role of a willing
tool." (p. 54, R. A.)
The following portion of Miwas testimony illustrates the point referred to
in the decision appealed from:jgc:chanrobles.com.ph
"ATTY. QUIRINO:chanrob1es virtual 1aw library
Q. Will you please go over this paper which for purposes of identification
we request that it be marked as Exhibit M for the plaintiffs and which
was marked as Exhibit 6-b before the Vested Property Claims
Committee, and tell us if you know that document? A. No. I do not
remember this paper.
Q. Mr. Miwa, at the bottom of this certificate or Exhibit M, which was
Exhibit 6-b in the Committee and submitted by the Alien Property
Administration, there is a typewritten name, Kingy Miwa, and above it is

a signature. Will you kindly tell the Court if that is your signature or
not? Please look over it again. A. No. It is not mine.
Q. Please examine it carefully and tell the Court afterwards if you
recognize that signature. Examine it carefully. A. It looks very similar
to my signature.
Q. But would you want or are you willing to go on record and say that it
is not your signature? A. I can not say. I dont exactly remember that I
signed this, but it looks very similar to my signature.
Q. You will not testify under oath that this is your signature? A. Yes,
sir.
Q. What do you mean to say by yes, sir? Do you swear that this is your
signature or not your signature? A. I think this is my signature.
Q. So you are willing to go on record now that that signature appearing
in Exhibit M is your signature? A. Yes, I think so." (pp. 125-126, t. s.
n.)
We do not agree with its appraisal by the lower court. It is clear that, as
he did not remember the execution of Exhibit M several years before the
hearing of this case, Miwa had doubts about the genuineness of the
signature thereon, but the appearance thereof, similar or identical to
that of his own signature, prevented him from denying its authenticity.
This does not indicate lack of veracity on his part. At any rate, plaintiffs
claim to have bought the shares of stock in question in December, 1942,
or during the management of Kitajima, who held the corresponding
stock certificates continuously from December, 1941, to April, 1943,
when Miwa substituted him, so that neither Campos nor Hess could
have delivered those certificates to De los Santos in December 1942.
Apart from this, if there are flaws in the proof for the defense, those of
the evidence for the plaintiffs are much bigger and more substantial and
vital. Consequently, we hold that plaintiffs have not established their
pretense by a preponderance of the evidence.
Even, however, if Juan Campos and Carl Hess had sold the shares of

54

stock in question, as testified to by De los Santos, the result, insofar as

plaintiffs are concerned, would be the same. It is not disputed that said
shares of stock were registered, in the records of the Lepanto, in the
name of Vicente Madrigal. Neither is it denied that the latter was, as
regards said shares of stock, a mere trustee for the benefit of the
Mitsuis. The record shows - and there is no evidence to the contrary
that Madrigal had never disposed of said shares of stock in any manner
whatsoever, except by turning over the corresponding stock certificates,
late in 1941, to the Mitsuis, the beneficial and true owners thereof. It
has, moreover, been established, by the uncontradicted testimony of
Kitajima and Miwa, the managers of the Mitsuis in the Philippines, from
1941 to 1945, that the Mitsuis had neither sold, conveyed, or alienated
said shares of stock, nor delivered the aforementioned stock certificates,
to anybody during said period. Section 35 of the Corporation Law
reads:jgc:chanrobles.com.ph
"The capital stock of stock corporations shall be divided into shares for
which certificates signed by the president or the vice- president,
countersigned by the secretary or clerk and sealed with the seal of the
corporation, shall be issued in accordance with the by- laws. Shares of
stock so issued are personal property and may be transferred by delivery
of the certificate indorsed by the owner or his attorney in fact or other
person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is entered
and noted upon the books of the corporation so as to show the names of
the parties to the transaction, the date of the transfer, the number of the
certificate, and the number of shares transferred.
"No shares of stock against which the corporation holds any unpaid
claim shall be transferable on the books of the corporation." (Italics
supplied.)
Pursuant to this provision, a share of stock may be transferred by
endorsement of the corresponding stock certificate, coupled with its
delivery. However, the transfer shall "not be valid, except as between the
parties," until it is "entered and noted upon the books of the
corporation." No such entry in the name of the plaintiffs herein having
been made, it follows that the transfer allegedly effected by Juan

Campos and Carl Hess in their favor is "not valid, except as between"
themselves. It does not bind either Madrigal or the Mitsuis, who are not
parties to said alleged transaction. What is more, the same is "not valid,"
or, in the words of the Supreme Court of Wisconsin (Re Murphy, 51
Wisc. 519, 8 N. W. 419) which were quoted approval in Uson v.
Diosomito (61 Phil., 535) "absolutely void" and, hence, as good as
non-existent, insofar as Madrigal and the Mitsuis are concerned. For
this reason, although a stock certificate is sometimes regarded as quasinegotiable, in the sense that it may be transferred by endorsement,
coupled with delivery, it is well settled that the instrument is nonnegotiable, because the holder thereof takes it without prejudice to such
rights or defenses as the registered owner or creditor may have under
the law, except insofar as such rights or defenses are subject to the
limitations imposed by the principles governing estoppel.
"Certificates of stock are not negotiable instruments (post, Par. 102),
consequently, a transferee under a forged assignment acquires no title
which can be asserted against the true owner, unless his own negligence
has been such as to create an estoppel against him (Clarke on
Corporations, Sec. Ed. p. 415). If the owner of the certificate has
endorsed it in blank, and it is stolen from him, no title is acquired by on
innocent purchaser for value (East Birmingham Land Co. v. Dennis, 85
Ala. 565, 2 L.R.A. 836; Sherwood v. Mining Co., 50 Calif. 412). As was
said by the Supreme Court of the United States in a leading case
(Western Union Telegraph Co. v. Davenfort, 97 U. S. 369; 24 L. Ed. 1047)

Neither the absence of blame on the part of the officers of the company
in allowing an unauthorized transfer of stock, nor the good faith of the
purchaser of stolen property, will avail as an answer to the demand of
the true owner. The great principle that no one can be deprived of his
property without his assent, except by processes of the law, requires, in
the case mentioned, that the property wrongfully transferred or stolen
should be restored to its rightful owner." (The Philippine Law of Stock
Corporations by Fisher, p. 132.) (Italics ours.) .
In the language of Fletchers Cyclopedia Corporations (Vol. 12, pp. 521534):jgc:chanrobles.com.ph

55

"The doctrine that a bona fide purchaser of shares under a forged or

unauthorized transfer acquires no title as against the true owner does
not apply where the circumstances are such as to estop the latter from
asserting his title. . . .
x

"A reason often given for the rule is that it is a case for the application of
the maxim that where one of two innocent parties must suffer by reason
of a wrongful or unauthorized act, the loss must fell on the one who first
trusted the wrongdoer and put in his hands the means of inflicting such
loss. But negligence which will work an estoppel of this kind must be a
proximate cause of the purchase or advancement of money by the holder
of the property, and must enter into the transaction itself; the
negligence must be in or immediately connected with the transfer itself.
Furthermore, to establish this estoppel it must appear that the true
owner had conferred upon the person who has diverted the security the
indicia of ownership, or an apparent title or authority to transfer the
title. So the owner is not guilty of negligence in merely intrusting
another with the possession of his certificate of stock, if he does not, by
assignment or otherwise, clothe him with the apparent title. Nor is he
deprived of his title or his remedy against the corporation because he
intrusts a third person with the key of a box in which the certificate are
kept, where the latter takes them from the box and by forging the
owners name to a power of attorney procures their transfer on the
corporate books. Nor is the mere indorsement of an assignment and
power of attorney in blank on a certificate of stock, which is afterwards
lost or stolen, such negligence as will estop the owner from asserting his
title as against a bona fide purchaser from the finder or thief, or from
holding the corporation liable for allowing a transfer on its books, where
the loss or theft of the certificate was not due to any negligence on the
part of the owner, although there is some dangerous and wholly
unjustifiable dictum to the contrary. So it has been held that the fact
that stock pledged to a bank is indorsed in blank by the owner does not
estop him from asserting title thereto as against a bona fide purchaser

for value who derives his title from one who stole the certificate from the
pledges. And this has also been held to be true though the thief was on
officer of the pledges, since his act in wrongfully appropriating the
certificate cannot be regarded as a misappropriation by the bank to
whose custody the certificate was intrusted by the owner, even though
the bank may be liable to the pledgor. . . . A person is not guilty of
negligence in leaving a certificate of stock indorsed in blank in a safe
deposit box used by himself and another jointly, so as to be estopped
from asserting his title after the certificate has been stolen by the other,
and sold or pledged to a bona fide purchaser or pledgee. Nor is he
negligent in putting a certificate so indorsed in a place to which an
employee had access, where he has no reason to doubt the latters
honesty, . . ." (Italics ours.)
In the leading case of Knox v. Eden Muscee American Co. (42 N. E. 988,
992-993), the rule has been forcefully stated as
follows:jgc:chanrobles.com.ph
"The courts have been frequently importuned to extend the qualities of
negotiability of stock certificates beyond the limits mentioned, and clothe
them with the same character of complete negotiability as attaches to
commercial paper, so as to make a transfer to a purchaser in good faith
for value equivalent to actual title, although there was no agency in the
transferror, and the certificate had been lost without the fault of the true
owner, or had been obtained by theft or robbery. But the courts have
refused to accede to this view, and we have found no case entitled to be
regarded as authority which denies to the owner of a stock certificate
which has been lost without his negligence, or stolen, the right to
reclaim it from the hands of any person in whose possession it
subsequently comes, although the holder may have taken it in good faith
and for value. The precise question has not often been presented to the
courts, for the reason, probably, that they have with greet uniformity
held that stock certificates were not negotiable instruments in the broad
meaning of that phrase; but whenever the question has arisen it has
been held that the title of the the owner of a lost or stolen certificate may
be asserted against any one subsequently obtaining its possession
although the holder may be a bona fide purchaser. Anderson v. Nicholas,
28 N. Y. 600; Power Co. v. Robinson, 52 Fed. 520; Biddle v. Bayard, 13

56

Pa. St. 150; Barstow v. Mining Co., 64 Cal. 388, 1 Pac. 349. See Shaw v.
Railroad Co., 101 U. S. 557. . . It is plain, we think, that the argument in
support of the judgment in this case, based on the complete negotiability
of stock certificates, is not supported by, but is contrary to, the
decisions. If public policy requires that a further advance should be
made in more completely assimilating them to commercial paper in the
qualities of negotiability, the legislature, and not the courts, should so
declare. Under the law as it has hitherto prevailed there does not seem
to have been any serious hindrance in dealing with property of this
character. It may, perhaps, be doubted, taking into consideration the
interests of investors as well as dealers, whether it would be wise to
remove the protection which the true owner of a stock certificate now
has against accident, theft, or robbery. The system of registry of
negotiable bonds, which prevails to a considerable extent, authorized by
statutes of some of the states and of the United States, seems to indicate
a tendency to restrict, rather than to extend, the range of negotiable
instruments." (Italics ours.)
The status of quasi-negotiability generally accorded to, and at present
enjoyed by, certificates of stock, under the Philippine law, is in itself a
recognition of the fact that the certificates are non-negotiable. Instead of
sustaining appellees claim, section 5 of the Uniform Stock Transfer Act,
which "gives full negotiability to certificates of stock," refutes said claim
and confirms the non-negotiable character of stock certificates in the
absence of said Uniform Act, for, obviously, the same could not have
given, negotiability to an instrument already possessing this attribute
prior thereto. Again, apart from being distinct from the general
Corporation Law, the aforementioned Uniform Act is not in force in the
Philippines. In this connection, it should be noted that this special piece
of legislation was adopted in some states of the union as early as the
year 1910. The failure of the Philippine government to incorporate its
provisions in our statute books, for a period of almost 45 years, is, to our
mind, clear proof of the unwillingness of our legislative department to
change the policy set forth in section 35 of Act No. 1459. Needless to say,
this fact negates our authority which is limited to the interpretation of
the law, and its application, with all its imperfections to abandon
what the dissenting opinion characterizes as the "civil law standpoint,"
and substitute, in lieu thereof, the commercial viewpoint, by applying

said section 6 of the Uniform Stock Transfer Act, although not a part of
the law of the land. Indeed, even in matters generally considered as
falling within "commercial territory", the Roman Law concept has not
given way in the Philippines to the Common Law approach, except when
there is explicit statutory provision to the contrary.
In the case at bar, neither Madrigal nor the Mitsuis had alienated the
shares of stock in question. It is not even claimed that either had,
through negligence, given occasion for an improper or irregular
disposition of the corresponding stock certificates. Plaintiffs merely
argue without any evidence whatsoever thereon that Kitajima might
have, or must have, assigned the certificates on or before December
1942, although, as above stated, this is, not only, improbable, under the
conditions, then obtaining, but, also, impossible, considering that, in
April 1943, Kitajima delivered the instruments to Miwa, who kept them
in its possession until 1945. At any rate, such assignment by Miwa
granting for the sake of argument the accuracy of the surmise of
plaintiffs herein was unauthorized by the Mitsuis, who, in the light of
the precedents cited above, are not chargeable with negligence. In other
words, assuming that Kitajima had been guilty of embezzlement, by
negotiating the stock certificates in question for his personal benefit, as
claimed by the plaintiffs, the title of his assignees and successors in
interest would still be subject to the rights of the registered owner,
namely, Madrigal, and, consequently, of the party for whose benefit and
account the latter held the corresponding shares of stock, that is to say,
the Mitsuis.
At any rate, at the time of the alleged sales in their favor, plaintiffs were
aware of sufficient facts to put them on notice of the need of inquiring
into the regularity of the transactions and the title of the supposed
vendors. Indeed, the certificates of stock in question were in the name of
Madrigal. Obviously, therefore, the alleged sellers (Campos and Hess)
were not registered owners of the corresponding shares of stock. Being
presumed to know the law particularly the provisions of section 35 of
Act No. 1459 and, also, as experienced traders in shares of stock,
plaintiffs must have, accordingly, been conscious of the consequent
infirmities in the title of the supposed vendors, or of the handicaps
thereof. Moreover, the aforementioned sales were admittedly hostile to

57

the Japanese, who had prohibited it and plaintiffs had actual knowledge
of these facts and of the risks attendant to the alleged transaction. In
other words, plaintiffs advisely assumed those risks and, hence, they
can not validly claim, against the registered stockholder, the status of
purchasers in good faith.
The lower court held, and plaintiffs maintain that, not being the
registered owners of the shares of stock in question, the Mitsuis can not
assert a better right than said plaintiffs. This pretense is untenable.
Inasmuch as Madrigal, the registered owner of said shares of stock, has
always acknowledged that he held the same merely as an agent of, or
trustee for, the Mitsuis and this is not denied it follows that the
latter are entitled to invoke such rights as Madrigal had as registered
stockholder. Upon the other hand, even the alleged sale by Juan Campos
and Carl Hess to plaintiffs herein is contested by the defense and, to our
mind, has not been established by a preponderance of the evidence.

Hence, as the undisputed principal or beneficiary of the registered owner

(Madrigal), the Mitsuis may claim his rights, which cannot be exercised
by the plaintiffs, not only because their alleged title is not derived either
from Madrigal or from the Mitsuis, but, also, because it is in derogation,
of said rights. Madrigal and the Mitsuis are not privies to the alleged
sales by Campos and Hess to the plaintiffs, contrary to the latters
pretense.
In conclusion, when the Property Custodian issued the Vesting Order
complained of, the shares of stock in question belonged to the Mitsuis,
admittedly an enemy corporation, so that said Vesting Order is in
conformity with law and should be upheld. Wherefore, the decision
appealed from is hereby reversed, and the complaint, accordingly,
dismissed, with costs against the plaintiffs-appellees. It is so ordered.

58