8th meeting - delinquecy subscription

7/24/2019 8th Meeting - Delinquecy Subscription

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1. Issuance of Shares

f. Delinquency Subscription

Section 68. Delinquency sale. - The board of directors may, by resolution, order the sale of delinquent stock and shall specically state theamount due on each subscription plus all accrued

interest, and the date, time and place of the salewhich shall not be less than thirty (30) days normore than sity (!0) days from the date thestocks become delinquent.

"otice of said sale, with a copy of the resolution,shall be sent to e#ery delinquent stockholdereither personally or by re$istered mail. The sameshall furthermore be published once a week fortwo (%) consecuti#e weeks in a newspaper of $eneral circulation in the pro#ince or city wherethe principal o&ce of the corporation is located.

'nless the delinquent stockholder pays to thecorporation, on or before the date specied forthe sale of the delinquent stock, the balance dueon his subscription, plus accrued interest, costs of ad#ertisement and epenses of sale, or unlessthe board of directors otherwise orders, saiddelinquent stock shall be sold at public auction tosuch bidder who shall oer to pay the full amountof the balance on the subscription to$ether withaccrued interest, costs of ad#ertisement andepenses of sale, for the smallest number of shares or fraction of a share. The stock sopurchased shall be transferred to such purchaser

in the books of the corporation and a certicatefor such stock shall be issued in his fa#or. Theremainin$ shares, if any, shall be credited in fa#orof the delinquent stockholder who shall likewisebe entitled to the issuance of a certicate of stockco#erin$ such shares.

hould there be no bidder at the public auctionwho oers to pay the full amount of the balanceon the subscription to$ether with accruedinterest, costs of ad#ertisement and epenses of sale, for the smallest number of shares or fractionof a share, the corporation may, sub*ect to thepro#isions of this +ode, bid for the same, and thetotal amount due shall be credited as paid in fullin the books of the corporation. Title to all theshares of stock co#ered by the subscription shallbe #ested in the corporation as treasury sharesand may be disposed of by said corporation inaccordance with the pro#isions of this +ode. (3a-!a)

Section 69. When sale may be questioned. - "oaction to reco#er delinquent stock sold can besustained upon the $round of irre$ularity odefect in the notice of sale, or in the sale itself ofthe delinquent stock, unless the party seekin$ tomaintain such action rst pays or tenders to theparty holdin$ the stock the sum for which thesame was sold, with interest from the date of sale

at the le$al rate and no such action shall bemaintained unless it is commenced by the lin$of a complaint within si (!) months from thedate of sale. (/a)

Section 70. Court action to recover unpaidsubscription. - "othin$ in this +ode shall pre#entthe corporation from collectin$ by action in acourt of proper *urisdiction the amount due onany unpaid subscription, with accrued interestcosts and epenses. (a)

Section 71. Efect o delinquency. - "o

delinquent stock shall be #oted for or be entitledto #ote or to representation at any stockholdersmeetin$, nor shall the holder thereof be entitledto any of the ri$hts of a stockholder ecept theri$ht to di#idends in accordance with thepro#isions of this +ode, until and unless he paysthe amount due on his subscription with accruedinterest, and the costs and epenses ofad#ertisement, if any. (10a)

Phil. Trust Co. v. Rivera (Delinquency

Subscription)

2hil. ! anuary %, 4%3 treet, .

FACTS: This action was instituted on "o#embe

%4, 4%4, in the +56 of 7anila, by the 2hilippine

Trust +ompany, as assi$nee in insol#ency of 8a

+ooperati#a "a#al 5ilipina, a$ainst 7arciano

9i#era, to reco#er a balance of 2%%,100, alle$ed

to be due upon defendant:s subscription to the

capital stock of said insol#ent corporation. 'pon

*ud$ment in fa#or of plainti, the defendant

appealed.

ISS!: ;hether or not the defendant was stil

liable for the unpaid subscription.

"!#$: The reason $i#en for defendant:s failure to

pay the entire subscription is that after the

+ooperati#e "a#al 5ilipina had been incorporated

a meetin$ of its stockholders occurred, at which a

resolution was adopted to the eect that the

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capital should be reduced by 10 per centum and

the subscribers released from the obli$ation to

pay any unpaid balance of their subscription in

ecess of 10 per centum of the same.

+onsequently, the subscriptions of the #arious

shareholders had been cancelled to the etent

stated and fully paid certicates were issued to

each shareholder for one half of his subscription.

6t does not appear that the formalities prescribed

in ection 4/ of the +orporation 8aw (=ct "o.

41), as amended, relati#e to the reduction of

capital stock in corporations were obser#ed, and

in particular it does not appear that any

certicate was at any time led in the >ureau of

+ommerce and 6ndustry, showin$ such reduction.

The trial *ud$e therefore held that the resolution

relied upon by the defendant was without eect

and that the defendant was still liable for theunpaid balance of his subscription. 6n this we

think his <onor was clearly ri$ht.

6t is established doctrine that subscriptions to the

capital of a corporation constitute a fund to which

creditors ha#e a ri$ht to look for satisfaction of

their claims and that the assi$nee in insol#ency

can maintain an action upon any unpaid stock

subscription in order to reali?e assets for the

payment of its debts. (@elasco #s. 2oi?at, 3/ 2hil.,

A0%).

= corporation has no power to release an ori$inal

subscriber to its capital stock from the obli$ation

of payin$ for his shares, without a #aluable

consideration for such release and as a$ainst

creditors, a reduction of the capital stock can take

place only in the manner and under the

conditions prescribed by the statute or the

charter or the articles of incorporation. 7oreo#er,

strict compliance with the statutory re$ulations is

necessary (4 +.., A, !%0).

6n the case before us, the resolution releasin$ theshareholders from their obli$ation to pay 10 per

centum of their respecti#e subscriptions was an

attempted withdrawal of so much capital from the

fund upon which the company:s creditors were

entitled ultimately to rely and, ha#in$ been

eected without compliance with the statutory

requirements, was wholly ineectual.

ud$ment a&rmed.

%. 9eduction of capital stock to camouBa$e

protability to *ustify a pur$e of union members is

in#alid.

%IRA&$A 'S. TAR#AC RIC! %I##

FACTS: 6t appears from the e#idence that on uneA, 4%! =lberto 7iranda eecuted a writtencontract whereby he subscribed for 400 shares ofthe capital stock of a corporation to be or$ani?edunder the laws of the 2hilippine 6slands for thepurpose of operatin$ a rice mill in Tarlac, saidcorporation to be known as Tarlac 9ice 7il+ompany, 6nc., that the par #alue of each sharewas 2400 and that =lberto 7iranda obli$atedhimself to pay to the treasurer of the corporationor its assi$n the sum of 240,000 as followsC

Dn or before eptember %4, 4%! 24,000.0

Dn or before anuary %4, 4%/ %,000.00

Dn or before anuary %4, 4%A %,000.00

Dn or before anuary %4, 4% %,100.00

Dn or before anuary %4, 430 %,100.00

Dn uly 40, 4%! =lberto 7iranda by means of apublic document Eassi$nedE mort$a$ed, otransferred in lieu of cash for the benet and tothe credit of the Tarlac 9ice 7ill +ompany, 6nc., acorporation to be or$ani?ed and to eist underand by #irtue of the laws of the 2hilippine6slandsE, the parcel of land described in certicate

"o. /14 in the land records of the 2ro#ince of Tarlac and Eto carry out the true intent, meanin$and purposes thereof 6 ha#e hereby further#oluntarily made, constituted, and appointed andby these presents do make, constitute andappoint, either *ointly, F#aristo 7a$ba$, dulyelected 2resident and Treasurer of said +ompany,Fusebio 9. +abrera and 7arcos 2. 2uno, dulyelected @ice-2residents of the same company, oranyone of the three named elected o&cers of the

Tarlac 9ice 7ill +ompany, 6nc., *ointly with +. 7Gi?on to be my true and lawful attorney-in-fact,for me and in my name, in my behalf to transfer

mort$a$e, con#ey or conrm or in any waycon#enient to them to any local or forei$n bankrm or indi#idual in order to obtain, secure orsolicit credit a$ainst my abo#e described propertyin an amount not to eceed ten thousand pesos(240,000), 2hilippine currency, in accordance withthe subscription contract #oluntary eecuted byme, for or to increase the capital of the said

Tarlac 9ice 7ill +ompany, 6nc., in order to carryout the purposes for which such rm is to beor$ani?ed.

7ontaos <eidi ean 6. 2a$e %



Dn 5ebruary 4, 4%/ the president and #ice-president of the Tarlac 9ice 7ill +ompany, 6nc.,and +. 7. Gi?on, actin$ on behalf of saidcorporation and =lberto 7iranda, borrowed240,000 from 7ariano Tablante, and a$reed torepay said sum on or before 5ebruary 4, 4%A,with interest at 4% per cent per annum, and topay a further sum of %1 per cent of the principal

for attorneys fees and epenses of collection incase the promissory note should not be paid atmaturity. 7arcos 2uno, F#aristo 7a$ba$, andGi?on H +o., 6nc., *ointly and se#erally $uaranteedthe payment of this sum and the president and#ice-president of the Tarlac 9ice 7ill +ompany,6nc., and +. 7. Gi?on as attorneys-in-fact of =lberto 7iranda mort$a$ed to 7ariano Tablantethe aforementioned parcel of land to secure thepayment of said promissory note.

The sum of 240,000 obtained from 7ariano Tablante was retained by the corporation. ;hen

the promissory note became due, =lberto7iranda arran$ed for an etension of time inwhich to pay it, and on uly 4, 4% he sold theaforementioned parcel of land under pacto deretro to @icente 2anlilio for 240,000, and paid7ariano Tablante.

=ccordin$ to an alle$ation in the complaint,=lberto 7iranda died on 7ay %, 430.

6t is a$reed that the defendant corporationceased to do business from the year 4%A, andthat the other stockholders ha#e not paid for their

shares in accordance with their subscriptiona$reement, and that no action has been taken bythe corporation to require them to do so.

The principal contention of the appellant is that

the o&cers of the corporation #iolated the terms

of the power of attorney in mort$a$in$ the land

on 5ebruary 4, 4%/ for 240,000, because the

only sum then due and payable by =lberto

7iranda to the corporation was 23,000, and that

when the remainin$ instalments of the stock

subscription became due, =lberto 7iranda was

under no obli$ation to pay them, because the

corporation had already ceased to do business,

and it had taken no steps to compel the other

stockholders to pay for the shares for which they

had subscribed.

"o question as to the #alidity of subscription

a$reement is raised, and no fraud on the part of

the o&cers of the corporation is alle$ed or

pro#ed. ;e shall therefore conne oursel#es to

the issues raised by the pleadin$.

"!#$: 6t is true that when the property was

mort$a$ed on 5ebruary 4, 4%/ the amount due

from =lberto 7iranda in accordance with the

subscription a$reement was only 23,000, and it is

likewise true that it does not appear from the

e#idence that any call was issued by the directors

for the payment of any subscriptions.

ection 3A of the +orporation 8aw pro#ides thatthe board of directors of e#ery corporation may atany time declare due and payable to thecorporation unpaid subscriptions to the capitastock and may collect the same with interestaccrued thereon or such percenta$e of saidunpaid subscriptions as it may deem necessary6n his work, EThe 2hilippine 8aw of tock+orporationsE, pa$e /, ustice 5isher epresses

the opinion that this power of the directors isabsolute and cannot be limited by thesubscription contract, but this does not mean thatthe directors may not rely on the subscriptioncontract if they see t to do so.

"o call is necessary when a subscription ispayable, not upon call or demand by thedirectors or stockholders, but immediatelyor on specied day, or on or before aspecied day, or when it is payable ininstallments at specied times. 6n suchcases it is the duty of the subscriber to

pay the subscription or instalment thereofas soon as it is due, without any call ordemand, and, if he fails to do so, an actionmay be brou$ht at any time. (5letcher+yclopedia of the 8aw of 2ri#ate+orporations, #ol. %, pa$e 410.)

;hen this action was led on eptember %, 430the last of the instalments had already becomepayable in accordance with the subscriptiona$reement. it must be borne in mind that this isnot an action by the corporation to reco#er on asubscription a$reement, but an action by the

administratri of a stockholder to reco#er whatwas paid in to the corporation by the stockholder6t does not appear from the e#idence whether ornot the corporation has any debts. "either thefact that the corporation has ceased to dobusiness nor the fact that the other stockholdersha#e not been required to pay for their shares inaccordance with their subscription a$reemen

*usties us in orderin$ the corporation to return tothe plainti the amount paid in by =lberto7iranda. 6f the directors ha#e failed to perform




their duty with respect to the other stockholders,the law pro#ides a remedy therefor.

6n the case at bar it is not contended that =lberto7iranda cancelled his subscription a$reement, orthat the corporation attempted to release himtherefrom.

5or the fore$oin$ reasons, the decision appealedfrom is a&rmed, with the costs a$ainst theappellant.

AR&A#$( F. $! SI#'A #s. A)(ITI* +C(%PA&,- I&C. /.R. &o. #1989 %arch 1-192

FACTS: The plainti subscribed for !10 shares of stock of the defendant corporation of the #alue of

2100 each, of which he has paid only the total#alue of %00 shares, there remainin$ 10 sharesunpaid, for which he was indebted to thecorporation in the sum of 2%%1,000, the #aluethereof. The +orporation on =pril %%, 4%%,notied him of a resolution adopted by the boardof directors of the corporation on the precedin$day, declarin$ the unpaid subscriptions to thecapital stock of the corporation to ha#e becomedue and payable on the followin$ 7ay 34st at theo&ce thereof. 'npaid shares shall be declareddelinquent. 5or failure to pay, his unpaid shareswas sold by the corporation.

The plainti led a preliminary in*unction alle$in$as the $rounds of his petitionC (4) That, accordin$to aforesaid article ! of the by-law of thecorporation, which was inserted in the complaint,all the shares subscribed to by the incorporationthat were not paid for at the time of theincorporation, shall be paid out of the /0 per centof the prot obtained, the same to be distributedamon$ the subscribers, who shall not recei#e anydi#idend until said shares were paid in full (%)that in declarin$ the plaintis unpaidsubscription to the capital stock to ha#e become

due and payable on 7ay 34st, and in publishin$the aforesaid notice declarin$ his unpaid sharesdelinquent, the defendant corporation has#iolated the aforesaid article, which prescribes anoperati#e method of payin$ for the sharescontinuously until their full amorti?ation, thus#iolatin$ and disre$ardin$ a ri$ht of the plainti #ested under the said by-laws (3) that theaforesaid acts of the defendant corporation werein ecess of its powers and eecuti#e authorityand the plainti had no other plain, speedy and

adequate remedy in the ordinary course of lawthan that prayed for in the said complaint, topre#ent the defendant from takin$ any furtheraction in connection with the sale and alienationof the said shares.

ISS!: ;hether or not, under the pro#ision of

article ! of the by-laws of the defendantcorporation, the latter may declare the unpaidshares delinquent, or collect their #alue byanother method dierent from that prescribed inthe aforecited article.

"!#$: Ies. =ccordin$ to ART. 36. The net protresultin$ from the annual liquidation shall bedistributed as followsC

First

4) (40J) for the >oard of Girectors and in themanner prescribed in article (%!) of theseby-laws

%) (40J) for the $eneral mana$er

3) (40J) for the reser#e fund, and

) (/0J) for the shareholders in equal parts.

Provided, however, That from this se#enty percent di#idend the >oard of Girectors may deductsuch amount as it may deem t for the payment

of the unpaid subscription to the capital stockand not pay any di#idend to the holders of thesaid unpaid shares until they are fully paid and

Provided, urther, That when all the shares ha#ebeen paid in full as provided in the preceding

paragraph, the >oard of Girectors may alsodeduct such amount as it may deem t for thecreation of an emer$ency special fund, oetraordinary reser#e fund when in its *ud$mentthe same may con#enient for the de#elopment ofthe business of the corporation or for meetin$any such contin$encies as may arise from its

operation, whene#er the distributable di#idend isfound, after the fore$oin$ deduction, to be notless than ten per cent (40J) of the paid upcapital stock.

Second; "o di#idend shall be declared or paid,ecept when there remains a net prot after thepayment of all the epenses incurred, oallowances made, by the corporation to carry outthe operation of its business so that no such

7ontaos <eidi ean 6. 2a$e



di#idend may be declared as may aect thecapital of the corporation.

6n the instant case the board of directors of thedefendant corporation made use of thediscretionary power $ranted to it by that law anddeclared that payment of plaintis subscriptionto 10 shares which had not been paid by him

was due, and that said shares were delinquent.

The words E2ro#ided, howe#er, that from thisse#enty per cent di#idend the board of directorsmay deduct such amount as it may deem t forthe payment, etcK - means that the board of directors is also authori?ed to create a specialemer$ency fund or etraordinary reser#e fund,when, in its *ud$ment, and in case all the sharessubscribed to ha#e been fully paid, the same iscon#enient for the de#elopment of the businessof the corporation or for meetin$ any suchcontin$encies as may arise from its operation,

applyin$ said /0 per cent of the prot on thepayment of the shares that may ha#e not beenfully paid, pro#ided that the distributable di#idendremainin$ after the deduction to be made for thecreation of the said special emer$ency fund oretraordinary reser#e fund is not less than 40 percent of the capital actually paid.

o that it is discretionary on the part of the boardof directors to do whate#er is pro#ided in the saidarticle relati#e to the application of a part of the/0 per cent of the prot distributable in equalparts on the payment of the shares subscribed to

and not fully paid, and to the creation of a specialemer$ency fund or etraordinary reser#e fund. 6tlies therefore, within the discretion of the board of directors to make use of such authority.

5or the fore$oin$, the orders appealed from area&rmed, with the costs of both instances a$ainstthe appellant.

FA C& 'S. S%%!RS A&$ C"I&A)A&4I&/ C(RP(RATI(&

FACTS: Dn =u$ust %!, 4%0, one +hua ocosubscribed for #e hundred shares of stock of thedefendant >ankin$ +orporation at a par #alue of 2400 per share, payin$ the sum of 2%1,000, one-half of the subscription price, in cash. Dn 7ay 4A,4%4, +hua oco eecuted a promissory note infa#or of the plainti 5ua +un for the sum of 2%1,000 payable in ninety days and drawin$interest at the rate of 4 per cent per month,securin$ the note with a chattel mort$a$e on theshares of stock subscribed for by +hua oco, who

also endorsed the receipt abo#e mentioned anddeli#ered it to the mort$a$ee. The plaintithereupon took the receipt to the mana$er of thedefendant >ank and informed him of thetransaction with +hua oco, but was told to awaitaction upon the matter by the >oard of Girectors6n the meantime +hua oco appears to ha#ebecome indebted to the +hina >ankin$

+orporation in the sum of 23/,/34.!A fodishonored acceptances of commercial paper andin an action brou$ht a$ainst him to reco#er thisamount, +hua ocos interest in the #e hundredshares subscribed for was attached and thereceipt sei?ed by the sheri. The attachment wasle#ied after the defendant bank had recei#ednotice of the facts that the receipt had beenendorsed o#er to the plainti. 5ua +un thereuponbrou$ht the present action maintainin$ that by#irtue of the payment of the one-half of thesubscription price of #e hundred shares +huaoco in eect became the owner of two hundred

and fty shares and prayin$ that his, theplaintis, lien on said shares, by #irtue of thechattel mort$a$e, be declared to hold priorityo#er the claim of the defendant >ankin$+orporation that the defendants be ordered todeli#er the receipt in question to him and that hebe awarded the sum of 21,000 in dama$es forwron$ful attachment.

ISS!: ;hether or not petitioner has the ri$hto#er the sub*ect shares of stockL

R#I&/: Thou$h the court below erred in holdin$that +hua oco, by payin$ one-half of thesubscription price of #e hundred shares, in eectbecame the owner of two hundred and ftyshares, the *ud$ment appealed from is in themain correct. The claim of the defendant >ankin$+orporation upon which it brou$ht the action inwhich the writ of attachment was issued, was forthe non-payment of drafts accepted by +huaoco and had no direct connection with theshares of stock in question. There can be nodoubt that an equity in shares of stock may be

assi$ned and that the assi$nment is #alid asbetween the parties and as to persons to whomnotice is brou$ht home. uch an assi$nmenteists here, thou$h it was made for the purposeof securin$ a debt. The endorsement to theplainti of the receipt abo#e mentioned readsC

or value received, ! assign all my rightsin these shares in avor o "r. #ua Cun.




"anila, P. !., "ay $%, $&'$.

()gd.* C+- )C

This endorsement was accompanied by thedeli#ery of the receipt to the plainti and furtherstren$thened by the eecution of the chattelmort$a$e, which mort$a$e, at least, operated asa conditional equitable assi$nment. =s a$ainstthe ri$hts of the plainti the defendant bank had,as we ha#e seen, no lien unless by #irtue of theattachment. >ut the attachment was le#ied afterthe bank had recei#ed notice of the assi$nmentof +hua ocos interests to the plainti and wastherefore sub*ect to the ri$hts of the latter. 6tfollows that as a$ainst these ri$hts the defendantbank holds no lien whate#er. =s we ha#e alreadystated, the court erred in holdin$ the plainti asthe owner of two hundred and fty shares of

stock Ethe plaintis ri$hts consist in an equity in#e hundred shares and upon payment of theunpaid portion of the subscription price hebecomes entitled to the issuance of certicate forsaid #e hundred shares in his fa#or.E

The *ud$ment appealed from is modiedaccordin$ly, and in all other respects it isa&rmed, with the costs a$ainst the appellants>ankin$ +orporation. o ordered.

NAVA VS. PEERS MARE!"N# $%RP%RA!"%N

F&cts' Teolo 2o as an incorporator subscribed toA0 shares of 2eers 7arketin$ +orporation at 2400a share or a total par #alue of 2A,000. 2o paid2%,000 or %1J of the amount of his subscription."o certicate of stock was issued to him or, forthat matter, to any incorporator, subscriber orstockholder. Dn % =pril 4!! 2o sold to 9icardo =."a#a for 2%,000 %0 of his A0 shares. 6n the deedof sale 2o represented that he was Ethe absoluteand re$istered owner of twenty sharesE of 2eers7arketin$ +orp. "a#a requested the o&cers of the corporation to re$ister the sale in the books

of the corporation. The request was deniedbecause 2o has not paid fully the amount of hissubscription. "a#a was informed that 2o wasdelinquent in the payment of the balance due onhis subscription and that the corporation had aclaim on his entire subscription of A0 shareswhich included the %0 shares that had been soldto "a#a. Dn %4 Gecember 4!! "a#a led amandamus action in the +ourt of 5irst 6nstance of "e$ros Dccidental, >acolod +ity >ranch tocompel the corporation and 9enato 9. +usi and

=mparo +usi, its eecuti#e #ice-president andsecretary respecti#ely, to re$ister the said %0shares in "a#as name in the corporationstransfer book. The corporation and the +usispleaded the defense that no shares of stocka$ainst which the corporation holds an unpaidclaim are transferable in the books of thecorporation. =fter hearin$, the trial court

dismissed the petition. "a#a appealed.

"ssue' ;hether the o&cers of 2eers 7arketin$+orporation can be compelled by mandamus toenter in its stock and transfer book the sale madeby 2o to "a#a of the %0 shares formin$ part of2os subscription of A0 shares, with a total par#alue of 2A,000 and for which 2o had paid only2%,000, it bein$ admitted that the corporationhas an unpaid claim of 2!,000 as the balance dueon 2os subscription and that the %0 shares arenot co#ered by any stock certicate.

eld' The transfer made by 2o to "a#a is not theEalienation, sale, or transfer of stockE that issupposed to be recorded in the stock and transfebook, as contemplated in section 1% of the+orporation 8aw. =s a rule, the shares which maybe alienated are those which are co#ered bycerticates of stock. The twenty shares inquestion, howe#er, are not co#ered by anycerticate of stock in 2os name. 7oreo#er, thecorporation has a claim on the said shares for theunpaid balance of 2os subscription. = stock

subscription is a subsistin$ liability from the timethe subscription is made. The subscriber is asmuch bound to pay his subscription as he wouldbe to pay any other debt. The ri$ht of thecorporation to demand payment is no lessincontestable. = corporation cannot release anori$inal subscriber from payin$ for his shareswithout a #aluable consideration or without theunanimous consent of the stockholders. Thusherein, there is no clear le$al duty on the part ofthe o&cers of the corporation to re$ister the %0shares in "a#as name. =s no stock certicatewas issued to 2o and without the stock

certicate, which is the e#idence of ownership ofcorporate stock, the assi$nment of corporateshares is eecti#e only between the parties to thetransaction. The deli#ery of the stock certicatewhich represents the shares to be alienated, isessential for the protection of both thecorporation and its stockholders.

. !rust Fund Doctrine

7ontaos <eidi ean 6. 2a$e !



The subscribed capital stock of the corporation isa trust fund for the payment of debts of thecorporation which the creditors ha#e the ri$ht tolook up to satisfy their credits, and which thecorporation may not dissipate. The creditors maysue the stockholders directly for the latter:sunpaid subscription.

Applic&tion of t*e !FD'

4. ;here the corporation has distributed itscapital amon$ the stockholders withoutpro#idin$ for the payment of creditors

%. ;here it had released the subscribers to thecapital stock from their subscriptions

3. ;here it has transferred the corporate propertyin fraud of its creditors and

. ;here the corporation is insol#ent.

$o+er&e of t*e !FD'

4. 6f the corporation is sol#ent, the T5G etendsto the capital stock represented by thecorporation:s le$al capital.

%. 6f the corporation is insol#ent, the T5G etendsto the capital stock of the corporation as well asall of its property and assets.

E,ceptions to t*e !FD'

4. 9edemption of redeemable shares (ec. A)%. 6n close corporation, when there should be a

deadlock and the F+ orders the payment of the

appraised #alue of the stockholder:s share. (ec.

40)

Section 3. Power to declare dividends. - Theboard of directors of a stock corporation maydeclare di#idends out of the unrestricted retainedearnin$s which shall be payable in cash, inproperty, or in stock to all stockholders on thebasis of outstandin$ stock held by themC2ro#ided, That any cash di#idends due on

delinquent stock shall rst be applied to theunpaid balance on the subscription plus costs andepenses, while stock di#idends shall be withheldfrom the delinquent stockholder until his unpaidsubscription is fully paidC 2ro#ided, further, Thatno stock di#idend shall be issued without theappro#al of stockholders representin$ not lessthan two-thirds (%M3) of the outstandin$ capitalstock at a re$ular or special meetin$ duly calledfor the purpose. (4!a)

tock corporations are prohibited from retainin$surplus prots in ecess of one hundred (400J)percent of their paid-in capital stock, eceptC (4)when *ustied by denite corporate epansionpro*ects or pro$rams appro#ed by the board ofdirectors or (%) when the corporation isprohibited under any loan a$reement with anynancial institution or creditor, whether local or

forei$n, from declarin$ di#idends without itsMhisconsent, and such consent has not yet beensecured or (3) when it can be clearly shown thatsuch retention is necessary under speciacircumstances obtainin$ in the corporation, suchas when there is need for special reser#e forprobable contin$encies. (n)

Section 122. Corporate liquidation. - F#erycorporation whose charter epires by its ownlimitation or is annulled by forfeiture ootherwise, or whose corporate eistence for otherpurposes is terminated in any other manner, shal

ne#ertheless be continued as a body corporatefor three (3) years after the time when it wouldha#e been so dissol#ed, for the purpose oprosecutin$ and defendin$ suits by or a$ainst itand enablin$ it to settle and close its aairs, todispose of and con#ey its property and todistribute its assets, but not for the purpose ofcontinuin$ the business for which it wasestablished.

=t any time durin$ said three (3) years, thecorporation is authori?ed and empowered tocon#ey all of its property to trustees for the

benet of stockholders, members, creditors, andother persons in interest. 5rom and after any suchcon#eyance by the corporation of its property intrust for the benet of its stockholders, memberscreditors and others in interest, all interest whichthe corporation had in the property terminatesthe le$al interest #ests in the trustees, and thebenecial interest in the stockholders, memberscreditors or other persons in interest.

'pon the windin$ up of the corporate aairs, anyasset distributable to any creditor or stockholderor member who is unknown or cannot be found

shall be escheated to the city or municipalitywhere such assets are located.

Fcept by decrease of capital stock and asotherwise allowed by this +ode, no corporationshall distribute any of its assets or propertyecept upon lawful dissolution and after paymentof all its debts and liabilities. (//a, Aa, 4!a)

C#ASS!S (F S"AR!S

7ontaos <eidi ean 6. 2a$e /



Section 6. Classi/cation o shares. - The sharesof stock of stock corporations may be di#ided intoclasses or series of shares, or both, any of whichclasses or series of shares may ha#e such ri$hts,pri#ile$es or restrictions as may be stated in thearticles of incorporationC 2ro#ided, That no sharemay be depri#ed of #otin$ ri$hts ecept thoseclassied and issued as EpreferredE or

EredeemableE shares, unless otherwise pro#idedin this +odeC 2ro#ided, further, That there shallalways be a class or series of shares which ha#ecomplete #otin$ ri$hts. =ny or all of the shares orseries of shares may ha#e a par #alue or ha#e nopar #alue as may be pro#ided for in the articles of incorporationC 2ro#ided, howe#er, That banks,trust companies, insurance companies, publicutilities, and buildin$ and loan associations shallnot be permitted to issue no-par #alue shares of stock.

2referred shares of stock issued by any

corporation may be $i#en preference in thedistribution of the assets of the corporation incase of liquidation and in the distribution of di#idends, or such other preferences as may bestated in the articles of incorporation which arenot #iolati#e of the pro#isions of this +odeC2ro#ided, That preferred shares of stock may beissued only with a stated par #alue. The board of directors, where authori?ed in the articles of incorporation, may the terms and conditions of preferred shares of stock or any series thereofC2ro#ided, That such terms and conditions shall beeecti#e upon the lin$ of a certicate thereof

with the ecurities and Fchan$e +ommission.

hares of capital stock issued without par #alueshall be deemed fully paid and non-assessableand the holder of such shares shall not be liableto the corporation or to its creditors in respecttheretoC 2ro#ided That shares without par #aluemay not be issued for a consideration less thanthe #alue of #e (21.00) pesos per shareC2ro#ided, further, That the entire considerationrecei#ed by the corporation for its no-par #alueshares shall be treated as capital and shall not bea#ailable for distribution as di#idends.

= corporation may, furthermore, classify itsshares for the purpose of insurin$ compliancewith constitutional or le$al requirements.

Fcept as otherwise pro#ided in the articles of incorporation and stated in the certicate of stock, each share shall be equal in all respects toe#ery other share.

;here the articles of incorporation pro#ide fonon-#otin$ shares in the cases allowed by this+ode, the holders of such shares shalne#ertheless be entitled to #ote on the followin$mattersC

4. =mendment of the articles ofincorporation

%. =doption and amendment of by-laws

3. ale, lease, echan$e, mort$a$epled$e or other disposition of all osubstantially all of the corporate property

. 6ncurrin$, creatin$ or increasin$ bondedindebtedness

1. 6ncrease or decrease of capital stock

!. 7er$er or consolidation of thecorporation with another corporation oother corporations

/. 6n#estment of corporate funds inanother corporation or business inaccordance with this +ode and

A. Gissolution of the corporation.

Fcept as pro#ided in the immediately precedin$para$raph, the #ote necessary to appro#e aparticular corporate act as pro#ided in this +ode

shall be deemed to refer only to stocks with#otin$ ri$hts. (1a)

$-ASS"F"$A!"%N %F SARES

1. PR!F!RR!$ S"AR!S Those issued with par #alue, and preferences

either with respect to (a) assets after dissolution

(b) distribution of di#idends, or both, and other

preferences.

-iit&tions'

a. 6f depri#ed of #otin$ ri$hts, it shall still be

entitled to #ote on matters enumerated in

ection ! para$raph !.

b. 2reference must not be #iolati#e of the +ode.

c. 7ay be issued only with a stated par #alue.

d. The board of directors may the terms and

conditions only when so authori?ed by the articles

7ontaos <eidi ean 6. 2a$e A



of incorporation and such terms and conditions

shall be eecti#e upon lin$ a certicate thereof

with the F+.

&. $uul&ti+e Preferred S*&res entitlethe holders thereof of payment not only of

current di#idends but also of backdi#idends not pre#iously paid, when and if di#idends are declared, to the etenta$reed upon, before holders of commonshares are paid

b. Non $uul&ti+e Preferred S*&resentitle the holders merely to the paymentof current di#idends that are paid, to theetent a$reed upon before the holders of common shares are paid.

c. P&rticip&tin Preferred S*&res entitlethe holders to participate with the holdersof common shares in the retained earnin$safter the amount stipulated di#idend hasbeen paid to the preferred shares.

d. Non/P&rticip&tin Preferred S*&resentitle holders of preferred shares only tothe stipulated preferred di#idends and nomore.

2. F(&$!RS5 S"AR! hares issued to or$ani?ers and promoters of a

corporation in consideration of some supposed

ri$ht or property.

hares classied as such in the articles of

incorporation which may be $i#en special

preference in #otin$ ri$hts and di#idend

payments. >ut if an eclusi#e ri$ht to #ote and be

#oted for as director is $ranted, this pri#ile$e issub*ect to appro#al by the F+, and cannot

eceed 1 years from the date of appro#al.

Section 7. ounders0 shares. - 5ounders sharesclassied as such in the articles of incorporationmay be $i#en certain ri$hts and pri#ile$es noten*oyed by the owners of other stocks, pro#idedthat where the eclusi#e ri$ht to #ote and be#oted for in the election of directors is $ranted, itmust be for a limited period not to eceed #e (1)

years sub*ect to the appro#al of the ecuritiesand Fchan$e +ommission. The #e-year periodshall commence from the date of the aforesaidappro#al by the ecurities and Fchan$e+ommission. (n)

. R!$!!%A)#! S"AR!S Those which permit the issuin$ corporation to

redeem or purchase its own shares.

-iit&tions'

a. 9edeemable shares may be issued only

when epressly pro#ided for in the articles of

incorporation

b. The terms and conditions aectin$ said

shares must be stated both in the articles of

incorporation and in the certicates of stock

representin$ such shares

c. 9edeemable shares may be depri#ed of

#otin$ ri$hts in the articles of incorporation

unless otherwise pro#ided in the +ode.

9edeemable shares may be redeemed

re$ardless of the eistence of unrestricted

retained earnin$s (ec. A), pro#ided that the

corporation has, after such redemption, su&cient

assets in its books to co#er debts and liabilities

inclusi#e of capital stock.

Section 8. 1edeemable shares. - 9edeemableshares may be issued by the corporation whenepressly so pro#ided in the articles ofincorporation. They may be purchased or takenup by the corporation upon the epiration of aed period, re$ardless of the eistence ounrestricted retained earnin$s in the books of thecorporation, and upon such other terms andconditions as may be stated in the articles of

incorporation, which terms and conditions mustalso be stated in the certicate of stockrepresentin$ said shares. (n)

R!P)#IC P#A&T!RS )A&4 vs. "(&. A/A&A

FACTS: 2ri#ate respondent +orporation secured a

loan from petitioner >="N in the amount o

24%0,000. =s part of the proceeds of the loan

preferred shares of stocks were issued to pri#ate

7ontaos <eidi ean 6. 2a$e



respondent +orporation. 6nstead of $i#in$ the

le$al tender totalin$ to the full amount of the

loan, petitioner lent such amount partially in the

form of money and partially in the form of stock

certicates for A00 shares with a par #alue of

240.00 per share for a total of 2A,000. said stock

certicates were in the name of pri#ate

respondent =dalia and +arlos 9obes.

The stock certicates bear the term and condition

- Othat such preferred shares may be redeemed,

by the system of drawin$ lots, at any time after %

years from the date of issue at the option of the

corporationPK

Thereafter, pri#ate respondents proceeded

a$ainst the petitioner and led a complaint

anchored on pri#ate respondents: alle$ed ri$hts

to collect di#idends under the preferred shares in

question and to ha#e petitioner redeem the sameunder the terms and conditions of the stock

certicates.

The trial court rendered the assailed decision in

fa#or of pri#ate respondents and ordered the

petitioner to pay the face #alue of the stock

certicates as redemption price plus interest.

ISS!: ;hether or not petitioner can be

compelled to redeem the preferred shares issuedto the pri#ate respondents.

"!#$: "D, because the #ery wordin$s of the

terms and conditions in the stock certicates

clearly allows redemption of the preferred shares.

;hile the stock certicate does allow redemption,

the option to do so was clearly #ested in the

petitioner bank. The redemption is OoptionalK

Thus, ecept as otherwise pro#ided in the stock

certicate, the redemption rests entirely with the

corporation and the stockholder is without ri$htto either compel or refuse the redemption of its

stock.

The use of the word O7=IK in the terms and

conditions denotes discretion and cannot be

mandatory.

5urthermore, redemption of the said sharescannot be allowed because it would reduce the

assets of the >ank to pre*udice its depositors andcreditors. =s pointed out by the petitioner, the+entral >ank made a ndin$ that said petitionerhas been suerin$ from chronic reser#edeciency. Thus, redemption of preferred shareswas prohibited for a *ust and #alid reason.

3. TR!ASR, S"AR!S

hares that ha#e been earlier issued as fullypaid and ha#e thereafter been acquired by the

corporation by purchase, donation, and

redemption or throu$h some lawful means. (ec

)

! purchased rom stoc2holders3 The transaction

in eect is a return to the stockholders of the

#alue of their in#estment in the company and a

re#ersion of the shares to the corporation. The

corporation must ha#e surplus prots with which

to buy the shares so that the transaction will not

cause an impairment of the capital.

! acquired by donation rom the stoc2holders

The act would amount to a surrender of their

stock without $ettin$ back their in#estments that

are instead, #oluntarily $i#en to the corporation.

Treasury shares need not be sold at par o

issued #alue but may be sold at the best price

obtainable, pro#ided it is reasonable. ;hen

treasury shares are sold below its par or issued

#alue, there can be no waterin$ of stock because

such waterin$ contemplates an ori$inal issuance

of shares.

Treasury shares ha#e no #otin$ ri$hts as lon$ as

they remain in treasury (uncalled and sub*ect to

reissue). 1eason3 = corporation cannot in any

proper sense be a stockholder in itself and equa

distribution of #otin$ ri$hts will be eecti#ely lost

"either are treasury shares entitled to di#idends

or assets because di#idends cannot be declared

by a corporation to itself.




Section 9. #reasury shares. - Treasury shares areshares of stock which ha#e been issued and fullypaid for, but subsequently reacquired by theissuin$ corporation by purchase, redemption,donation or throu$h some other lawful means.uch shares may a$ain be disposed of for areasonable price ed by the board of directors.

C(%%ISSI(&!R vs. %A&&I&/

FACTS: 7="T9=+D had an authori?ed capital

stock of 2%,100 di#ided into %1,000 common

shares %,/00 of these were owned by ulius .

9eese, and the rest, at 400 shares each, by the 3

respondents.

6n #iew of 9eeses: desire that upon his death

7="T9=+D and its % subsidiaries Q 7="T9=+D

(Ruam), 6nc. and 2ort 7otors, 6nc. would continue

under the mana$ement of the respondents, a

trust a$reement on his and the respondents:interests in 7="T9=+D was eecuted by and

amon$ 9eese (D;"F9), 7="T9=+D (+D72="I),

the law rm of 9oss, elph, +arrascoso and anda

(T9'TFF) and the respondents (7="=RF9).

9eese died but the transfer could not be

immediately eected due to insu&cient funds.

ubsequently, the entire purchase price of

9eese:s interest in 7="T9=+D was nally paid

and the trust a$reement was terminated and the

trustees deli#ered to 7="T9=+D all shareswhich they were holdin$ in trust.

7eanwhile, 7="T9=+D:s books were bein$

eamined by the >69 and they found out the

respondents failed to declare stock di#idends as

part of their taable income. >69 eaminers

concluded that the distribution of 9eeses: shares

as stock di#idends was in eect a distribution of

the Oasset or property of the corporation as may

be $leaned from the payment of cash for the

redemption of said stock and distributin$ the

same as stock di#idend.K

ISS!: ;hether or not the distributed shares

should be considered as treasury shares.

"!#$: "D. The manifest intention of the parties

to the trust a$reement was to treat the %,/00

shares of 9eese as absolutely outstandin$ shares

of 9eese:s estate until they were fully paid. uch

bein$ the true nature of the %,/00 shares, their

declaration as treasury stock was a complete

nullity and plainly #iolati#e of public policy. =

stock di#idend, bein$ one payable in capita

stock, cannot be declared out of outstandin$

corporate stock, but only from retained earnin$s.

;here corporate earnin$s are used to purchase

outstandin$ stock treated as treasury stock as a

technical, but prohibited de#ice, to a#oid eects

of income taation, distribution of said corporate

earnin$s in the form of stock di#idends wil

sub*ect stockholders recei#in$ them to income

ta.

Treasur shares are issue shares- utein in the treasur- the o not have thestatus of outstanin shares.

AT!R!$ ST(C4S

Section 6;. 4iability o directors or wateredstoc2s. - =ny director or o&cer of a corporationconsentin$ to the issuance of stocks for aconsideration less than its par or issued #alue orfor a consideration in any form other than cash,#alued in ecess of its fair #alue, or who, ha#in$knowled$e thereof, does not forthwith epress hisob*ection in writin$ and le the same with thecorporate secretary, shall be solidarily, liable withthe stockholder concerned to the corporation andits creditors for the dierence between the fair#alue recei#ed at the time of issuance of the

stock and the par or issued #alue of the same. (n)

<ASIR!(R/A&I*ATI(&

Section 8. Power to increase or decreasecapital stoc25 incur, create or increase bondedindebtedness. - "o corporation shall increase ordecrease its capital stock or incur, create oincrease any bonded indebtedness unlessappro#ed by a ma*ority #ote of the board odirectors and, at a stockholders meetin$ dulycalled for the purpose, two-thirds (%M3) of theoutstandin$ capital stock shall fa#or the increase

or diminution of the capital stock, or theincurrin$, creatin$ or increasin$ of any bondedindebtedness. ;ritten notice of the proposedincrease or diminution of the capital stock or ofthe incurrin$, creatin$, or increasin$ of anybonded indebtedness and of the time and placeof the stockholders meetin$ at which theproposed increase or diminution of the capitastock or the incurrin$ or increasin$ of any bondedindebtedness is to be considered, must beaddressed to each stockholder at his place of




residence as shown on the books of thecorporation and deposited to the addressee in thepost o&ce with posta$e prepaid, or ser#edpersonally.

= certicate in duplicate must be si$ned by ama*ority of the directors of the corporation andcountersi$ned by the chairman and the secretary

of the stockholders meetin$, settin$ forthC

(4) That the requirements of this section ha#ebeen complied with

(%) The amount of the increase or diminutionof the capital stock

(3) 6f an increase of the capital stock, theamount of capital stock or number of sharesof no-par stock thereof actually subscribed,the names, nationalities and residences of thepersons subscribin$, the amount of capitalstock or number of no-par stock subscribed byeach, and the amount paid by each on hissubscription in cash or property, or theamount of capital stock or number of sharesof no-par stock allotted to each stock-holder if such increase is for the purpose of makin$eecti#e stock di#idend therefor authori?ed

() =ny bonded indebtedness to be incurred,created or increased

(1) The actual indebtedness of the corporation

on the day of the meetin$

(!) The amount of stock represented at themeetin$ and

(/) The #ote authori?in$ the increase ordiminution of the capital stock, or theincurrin$, creatin$ or increasin$ of anybonded indebtedness.

=ny increase or decrease in the capital stock orthe incurrin$, creatin$ or increasin$ of anybonded indebtedness shall require prior appro#al

of the ecurities and Fchan$e +ommission.

Dne of the duplicate certicates shall be kept onle in the o&ce of the corporation and the othershall be led with the ecurities and Fchan$e+ommission and attached to the ori$inal articlesof incorporation. 5rom and after appro#al by theecurities and Fchan$e +ommission and theissuance by the +ommission of its certicate of lin$, the capital stock shall stand increased ordecreased and the incurrin$, creatin$ or

increasin$ of any bonded indebtednessauthori?ed, as the certicate of lin$ maydeclareC 2ro#ided, That the ecurities andFchan$e +ommission shall not accept for lin$any certicate of increase of capital stock unlessaccompanied by the sworn statement of thetreasurer of the corporation lawfully holdin$ o&ceat the time of the lin$ of the certicate, showin$

that at least twenty-#e (%1J) percent of suchincreased capital stock has been subscribed andthat at least twenty-#e (%1J) percent of theamount subscribed has been paid either in actuacash to the corporation or that there has beentransferred to the corporation property the#aluation of which is equal to twenty-#e (%1J)percent of the subscriptionC 2ro#ided, further

That no decrease of the capital stock shall beappro#ed by the +ommission if its eect shalpre*udice the ri$hts of corporate creditors.

"on-stock corporations may incur or create

bonded indebtedness, or increase the same, withthe appro#al by a ma*ority #ote of the board oftrustees and of at least two-thirds (%M3) of themembers in a meetin$ duly called for thepurpose.

>onds issued by a corporation shall be re$isteredwith the ecurities and Fchan$e +ommissionwhich shall ha#e the authority to determine thesu&ciency of the terms thereof. (4/a)

$I'I$!&$S A&$ (T"!R $ISTRI)TI(&S

0 Ri*t to Di+idends

Section 3. Power to declare dividends. - Theboard of directors of a stock corporation maydeclare di#idends out of the unrestricted retainedearnin$s which shall be payable in cash, inproperty, or in stock to all stockholders on thebasis of outstandin$ stock held by them2ro#ided, That any cash di#idends due ondelinquent stock shall rst be applied to theunpaid balance on the subscription plus costs andepenses, while stock di#idends shall be withheldfrom the delinquent stockholder until his unpaidsubscription is fully paidC 2ro#ided, further, Thatno stock di#idend shall be issued without theappro#al of stockholders representin$ not lessthan two-thirds (%M3) of the outstandin$ capitastock at a re$ular or special meetin$ duly calledfor the purpose. (4!a)

tock corporations are prohibited from retainin$surplus prots in ecess of one hundred (400J)percent of their paid-in capital stock, eceptC (4)

7ontaos <eidi ean 6. 2a$e 4%



when *ustied by denite corporate epansionpro*ects or pro$rams appro#ed by the board of directors or (%) when the corporation isprohibited under any loan a$reement with anynancial institution or creditor, whether local orforei$n, from declarin$ di#idends without itsMhisconsent, and such consent has not yet beensecured or (3) when it can be clearly shown that

such retention is necessary under specialcircumstances obtainin$ in the corporation, suchas when there is need for special reser#e forprobable contin$encies. (n)

1. !ypes of Di+idends &nd %t*er

Distributions

$I'I$!&$S

+orporate prots set aside, declared, and

ordered to be paid by the directors for distribution

amon$ shareholders at a ed time.

orms3

a. +ashb. 2ropertyc. tock

;hile cash di#idends due on delinquent shares

can be applied to the payment of the unpaid

balance, stock di#idends cannot be applied as

payment for unpaid subscription.

The ri$ht to di#idends is based on duly recorded

stockholdin$s accordin$ly, the corporation isprohibited from entitlin$ thereto anyone else.

6eneral 1ule3 tock corporations are prohibited

from retainin$ surplus prots in ecess of 400J

of their paid-in capital stock

E,cept'

a. ;hen *ustied by denite corporateepansion pro*ects appro#ed by the board of

directors

b. ;hen the corporation is prohibited under

any loan a$reement with any nancial

institution or creditor from declarin$

di#idends without itsMhis consent and such

consent has not yet been secured

c. ;hen it can be clearly shown that such

retention is necessary under specia

circumstances obtainin$ in the corporation

such as when there is a need for specia

reser#e for probable contin$encies.

ources of di#idendsC 6E7E1-4 14E3 Gi#idends can only be declared

and paid out of actual and bona de unrestricted

retained earnin$s.

)PEC!-4 14E)3

a. ;here a corporation sold its real property

which is not bein$ used for business, at a $ain,

the income deri#ed therefrom may be a#ailed of

for di#idend distribution.

b. 6ncrease in the #alue of a ed asset as a

result of its re#aluation is not retained earnin$<owe#er, increase in the #alue of ed assets

as a result of re#aluation (81evaluation

surplus9* may be declared as cash or stock

di#idends pro#ided that the companyC

(i) <as su&cient income from operations

from which the depreciation on the appraisa

increase was char$ed

(ii) <as no decit at the time the depreciation

on the appraisal increase was char$ed to

operations and

(iii) uch depreciation on appraisal increase

pre#iously char$ed to operations has not been

impaired by losses.

c. Gi#idends can be declared out of the amount

recei#ed in ecess of the par #alue of shares

(8paid:in surplus9* whenC

(i) That they be declared only as stock

di#idends and not cash

(ii) "o creditors are pre*udiced and

(iii) There is no impairment of capital.

"ote that unlike par #alue shares, when no

par #alue shares are sold at a premium, the

entire consideration paid is considered

capital hence the same cannot be declared

as di#idends.




d. 9eduction surplus can be a source of

di#idends. 9ule on paid-in surplus is applicable.

e. "o di#idends can be declared out of capital

ecept only in two instancesC 4) liquidatin$

di#idends and %) di#idends from in#estments in

wastin$ asset corporation.

!t permits corporations solely or principally

engaged in the e;ploitation o 8wasting assets9

to distribute the net proceeds derived rom

e;ploitation o their holdings such as mines, oil

wells, patents and leaseholds, without

allowance or deduction or depletion.

f. 2rots reali?ed from sale of treasury shares are

part of capital and cannot be declared as cash

or stock di#idend as purchase and sale of such

shares are re$arded as contractions and

epansions of paid-in capital.

$. 7oney cannot be borrowed for the payment of

di#idends because indebtedness is not a

retained earnin$ of the corporation.

h. +orporate earnin$s which ha#e not yet been

recei#ed e#en thou$h they consist in moneywhich is due, cannot be included in the prots

out of which di#idends may be paid.

CAS"$I'I$!&$S

ST(C4 $I'I$!&$S

4. 6n#ol#es a

disbursement to

the stockholders

of accumulatedearnin$s

4. Goes not

in#ol#e any

disbursement

%. ;hen declared

and paid becomes

the absolute

property of the

stockholder and

cannot be

reached by

%. ince it is

still part of

corporate

property, may

be reached by

corporate

creditors

creditors of the

corporation in the

absence of fraud

3. Geclared only

by the board of

directors at its

discretion

3. Geclared by

the board with

the

concurrence of

the

stockholders

representin$ at

least %M3 of the

outstandin$

capital stock at

a

re$ularMspecial

meetin$

. Goes not

increase thecorporate capital

. +orporate

capital isincreased

1. 6ts declaration

creates a debt

from the

corporation to

each of its

stockholders

1. "o debt is

created by its

declaration

&I!#S(& '. #!PA&T( C(&S(#I$AT!$

FACTS: =ppellant "ielson H +o. 6nc. and =ppellee

8epanto +onsolidated 7inin$ +o. entered a

contract whereby appellant "ielson a$reed for a

period of #e years, with the ri$ht to renew for a

like period, to eplore, de#elop and operate the

minin$ claims of 8epanto and to mine, or mine or

mill, such pay ore as may be found therein and to

market the metallic products reco#ered therefrom

which may pro#e to be marketable, as well as to

render for 8epanto other ser#ices specied in the

contact. 6t thus appear that the principal andparamount undertakin$ of "ielson under the

mana$ement contract was the operation and

de#elopment of the mine and operation of the

mill. "ielson would recei#e 40J of any di#idends

declared and paid, when and as paid, "ielson

should be paid 40J of the stock di#idends

declared by 8epanto durin$ the period of the

etension of contract.




ISS!: ;D" the +ourt erred in orderin$

8epanto to issue and deli#er to "ielson shares of

stock to$ether with fruits thereof.

R#I&/: The term Odi#idendK both in the

technical sense and its ordinary acceptation, is

that part or portion of the prots, of the

enterprise which he corporation, by its $o#ernin$

a$ents, sets apart for ratable di#ision amon$ the

holders of the capital stock. 6t means the fund

actually set aside, and declared by the directors

of the corporation as a di#idends, and duly

ordered by the director, or by the stockholders at

a corporate meetin$, to be di#ided or distributed

amon$ the stockholders accordin$ to their

respecti#e interests.

6t is Dur considered #iew, therefore, that under

ec. 4! of the +orporation 8aw stock di#idends

cannot be issued to a person who is not astockholder in payment of ser#ices rendered. =nd

so, in the case at bar "ielson can not be paid in

shares of stock which form part of the stock

di#idends of 8epanto for ser#ices rendered under

the mana$ement contract. ;e sustain the

contention of 8epanto that the understandin$

between 8epanto and "ielson was simply to make

the cash #alue of the stock di#idends declared as

the basis for determinin$ the amount of

compensation that should be paid to "ielson, in

the proportion of 40J of the cash #alue of the

stock di#idends declared.

The consideration for which shares of stock may

be issued areC (4) cash (%) property and (3)

undistributed prots.

2. -e&l Restrictions on Di+idends &nd

%t*er Distributions

Retention of !=cess Pro>ts

'nder ection 3 of the +orporation +ode, it is

now epressly pro#ided that stock corporationsare prohibited from retainin$ surplus prots in

ecess of 400J of their paid-in capital stock,

ecept in the followin$ casesC

;hen *ustied by denite corporation

epansion pro*ects or pro$rams appro#ed

by >oard of Girectors ;hen the corporation is prohibited under

any loan a$reement with any nancial

institution or creditor, whether local o

forei$n declarin$ di#idends without itsMhis

consent, and such consent has not yet

been secured ;hen it can be clearly shown that such

retention is necessary under specia

circumstances obtainin$ in the

corporation, such as when there is a needfor special reser#e for probable

contin$encies.

ection 3 now epressly $rants a cause o

action for stockholders to compel the >oard of

Girectors to declare di#idends but the eceptions

epressly pro#ided in the section actually $rants

a lot of leeway for the >oard of Girectors to be

able to retain funds within the corporate coers

such as by adoptin$ formally epansion plans for

the corporate enterprise.

S!C Rules /overnin the $istriution of!=cess Pro>ts

The F+ =mended 9ules Ro#ernin$ the

Gistribution of Fcess 2rots of +orporation

pro#ide that all domestic stock corporations

which ha#e surplus prots in ecess of necessary

requirements for capital epansion and reser#es

shall declare and distribute the ecess prots as

di#idends to stockholders, pursuant to the

pro#isions of ection 3 which prohibits the

corporation from retainin$ surplus prots inecess of 400J of its paid-up capital, ecept in

the instances enumerated therein.

The F+ =mended 9ules pro#ide that the F+

would consider it su&cient *ustication for non-

distribution of di#idends when such is consistent

with the policy or requirement of a $o#ernment

o&ce like the >an$ko entral, 6nsurance

+ommission, etc includin$ the policy of the F+

re$ardin$ the restriction on declaration o

di#idends where there are share held by a

corporation to co#er the costs of said shares, unti

the same are re-issued or retired.

=ny appropriation of surplus prots, i.e

restriction of retained earnin$s, can be done by

the corporation only upon prior appro#al of the

>oard of Girectors and such appropriation and

*ustication therefore shall be duly disclosed in

notes to the corporation:s nancial statements.




= corporation that fails or ne$lects toC (a) declare

di#idends to its stockholders (b) disclose any

appropriationsMreser#e appro#ed by the >oard of

Girectors or (c) disclose the *ustication for non-

distribution of di#idends may be imposed a

penalty of 4M40 of 4J of the ecess amount o#er

the paid-in capital but in no case less than 2%00

nor more than 240,000 for that $i#en scal year,or be punished by suspension or re#ocation of the

license or permit to sell securities issued to the

corporation

3. Decl&r&tion &nd P&yent of Di+idends

#ener&l rule' The declaration of di#idends is

essentially within the business *ud$ment of the

>oard of Girectors of a stock corporation. The fact

the prots ha#e accrued in the prosecution of the

corporate business does not necessarily impose

upon the directors the duty to declare them asdi#idends. 6f in their business *ud$ment, they

reasonably determine that the prots should be

kept in the business, $enerally the courts ha#e no

power to compel them to make the distribution in

the absence of bad faith or clear abuse of

discretion.

tockholders may sue the directors to compel

them to declare and pay a di#idend if they

unreasonably accumulate prots of the

corporation but they ha#e the burden of pro#in$

the *ustication of declarin$ di#idends."andamus is not a proper remedy in this case

since a stockholder has no indi#idual interest in

the prots of a corporation until a di#idend has

been declared.

C(%%ISSI(&!R (F I&T!R&A# R!'!&! 'S.C(RT (F APP!A#S

Facts: ="+D9 started out with

24,000,000.00 capitali?ation di#ided to 40,000

shares. Gon =ndres subscribed to ,!3 shares of

1,000 ori$inal shares issued. eptember 41,="+D9 increased its =uthori?ed capital stock to

2%.17 di#ided to %1,000 shares, and don =ndres

subscribed to 40,000 shares makin$ his shares

4,!%. = month later he $a#e his two sons 4,%10

shares each. ;hen don =ndres died he left

4A0,000(plus) shares. <alf of which was $i#en to

his wife and half went to his estate. 5eb 4!A,

"=+D9 increased it capital stock to /17 di#ided

into 410,000.00 shares wherein it was di#ided to

common and preferred shares. The wife of Gon

=ndres wants to echan$e her common shares to

preferred shares which was $ranted by ="+D9

="+D9 then repurchase on two occasions

+ommon shares of Gon =ndres. 'pon

eamination of books of ="+D9 the >69 sou$ht

for reco#ery of income ta on the redeemed orrepurchase common shares.

Issue: ;hether ="+D9s redemption of

stocks from its stockholder as well as the

echan$e of common with preferred shares can

be considered as Eessentially equi#alent to the

distribution of taable di#idendE makin$ the

proceeds thereof taable under the pro#isions of

the abo#e-quoted law.

"el: =s a $eneral rule O= stock di#idend

representin$ the transfer of surplus to capitaaccount shall not be sub*ect to ta.K Fcept in

cases of redemption or cancellation of stock

di#idends which is essentially equi#alent to a

distribution of taable di#idends makin$ the

proceed thereof taable income. 6f the source is

the ori$inal capital subscription upon

establishment of the corporation or from initia

capital in#estment in an eistin$ enterprise, its

redemption to the concurrent #alue of acquisition

may not be considered as income but a mere

return of capital. Dn the contrary, if the redeemed

shares are from stock di#idend declaration other

than as initial capital in#estment, the proceeds of

the redemption is =GG6T6D"=8 ;F=8T<, for it is

not merely a return of capital but a $ain thereon

=pplyin$ the rule in the case, the ori$ina

common shares owned by the estate were only

%1,%/.1. ince there was subsequent increased

in the capital stocks, the redeemed shares to the

etent of A0T plus by ="+D9 was made out of

corporate prots such as stock di#idend

Therefore it will be sub*ected to income ta.

4. -i&bility for "proper Di+idends &nd

Distributions

in case di#idends are wron$fully or ille$ally

declared and paid, the stockholders who recei#ed

them can be held liable to refund them to the

corporation or its creditors.

7ontaos <eidi ean 6. 2a$e 4!



if directors acted in $ood faith Q not liable but

if found $uilty of fraud and $ross ne$li$ence, they

are person&lly li&ble to the creditors.

ST!I&)!R/ 'S '!#ASC(

Facts: teinber$ is the 9ecei#er of the ibu$uey

Tradin$ +ompany, 6ncorporated, he seekin$ to

make R9FRD96D @F8=+D, FT =8 (as o&cers of

the said corporation i.e board of directors) for the

amount they appro#ed to be paid for the

acquisition of the corporations own shares that

came from their retired stockholders where in fact

there is an eistin$ debt by the corporations to its

creditors. Rre$orio et al. alle$ed that the

purchase of the shares was for the purpose of

increasin$ the recie#ables of the corporation.

<owe#er, there was a ndin$ that, Rre$orio et al,

appro#e or made a resolution for such acquisition

when they know that their recie#ables will notco#er the amount of debt and yet they still

continue to use the money of the corporation to

repurchase the stocks of the corporation released

to its retired stockholders.

Issue: what is the responsibility of the directors

when they know that there is an outstandin$ debt

eistin$ between the corporation and its

creditorsL

"el: +reditors of a corporation ha#e the ri$ht to

assume that so lon$ as there are outstandin$debts and liabilities, the board of directors will not

use the assets of the corporation to purchase its

own stock, and that it will not declare di#idends

to stockholders when the corporation is insol#ent.

Therefore Rre$orio Ft al is required to pay.

$. TRA&SF!R (F I&'!ST%!&T S!CRITI!S

'nder ection !3, the capital of the stock

corporation shall be di#ided into shares for which

certicates si$ned by the president or #ice-

president, countersi$ned by the secretary orassistant secretary, and sealed with the seal of

the corporation and be issued in accordance with

the by-laws. hares of stock so issued are

personal property and may be transferred by

deli#ery of the certicate or certicates indorsed

by the owner or his attorney-in-fact or other

person le$ally authori?ed to make the transfer.

1. (&!RS"IP (F S!CRITI!S

a. Riht to Issuance

Sec. 63. Issuance of stoc? certi>cates. &ocerti>cate of stoc? shall e issue to asuscrier until the full a@ount of hissuscrition toether Bith interest ane=enses in case of elinDuent sharesE- ifan is ue- has een ai. = subscriber must

rst fully pay his subscription before a certicate

of stock co#erin$ shares subscribed and paid for

could be issued to him. >ut an unpaid

subscription (not declared delinquent) can b

#oted upon in corporate meetin$s. uch

delinquent shares are also entitled to di#idends,

sub*ect to the rules set forth in ection 3 of the

+orporation +ode on delinquent shares.

;hile in the issuance of a stock certicate is not

a condition precedent to render one a

stockholder, under section !3, e#ery stockholderhas a ri$ht to ha#e a proper certicate issued to

him by the corporation upon demand, as soon as

he has complied with the conditions under

ection ! of the +orporation +ode, which

required full payment of the subscription.

)altaar 's. #inaen ulf

5actsC 6reneo >alta?ar subscribed !00 shares from

8in$ayen Rulf Flectric 2ower +orporation (now referred

to as corporation). 6t has been a practice of the

corporation to issue a certicate of stock e#en if the

unpaid balance in subscription contract is not yet fully

paid. 6rineo was able to pay 300 shares out of !00

;hen the new >oard of directors were elected, they

adopted a resolution, as stated in the said resolution

those subscribers which has outstandin$ balance, wil

not be able to eercise their ri$ht to #ote until they

fully pay was is due. <ence this petition.

6ssueC 6f a stockholder who subscribed and pays only

partially, for which he was issued a certicate of stock

is he entitled to #oteL

<eldC 6f a stockholder, in a stock corporation subscribes

to a certain number of shares of stock, and makes

partial payments for which he is issued certicates of

stock, he is entitled to #ote the latter, notwithstandin$

the fact that he has not paid the balance of his

subscription which has been called for payment o

declared delinquent. 6f the entire subscribed shares of

stock are not paid, the paid shares of stock may not be

depri#ed of the ri$ht to #ote, until the entire subscribed

shares of stock are fully paid, includin$ interest.

7ontaos <eidi ean 6. 2a$e 4/



. Goint (Bnershi

ec. 1!. @otin$ in case of *oint ownership of stock. - 6n

case of shares of stock owned *ointly by two or more

persons, in order to #ote the same, the consent of all

the co-owners shall be necessary, unless there is a

written proy, si$ned by all the co-owners, authori?in$

one or some of them or any other person to #ote such

share or sharesC 2ro#ided, That when the shares areowned in an EandMorE capacity by the holders thereof,

any one of the *oint owners can #ote said shares or

appoint a proy therefor.

c. Pleor- %ortaor an A@inistrators

Sec. ;;. Riht to vote of leors- @ortaors-an a@inistrators. In case of lee or@ortae shares in stoc? cororations- theleor or @ortaor shall have the riht toatten an vote at @eetins of stoc?holers-unless the leee or @ortaee is e=ressl

iven the leor or @ortaor such riht inBritin Bhich is recore on the aroriatecororate oo?s. nE

!=ecutors- a@inistrators- receivers- an otherleal reresentatives ul aointe thecourt @a atten an vote in ehalf of thestoc?holers or @e@ers Bithout nee of anBritten ro=.

The F+ reco$ni?es the well-settled principle that

shares of stock in a corporation are personal

property and the owner thereof has an inherent

ri$ht, as an incident of his ownership, to transferthe same at will, which would include the power

to encumber said shares.

The F+ has, howe#er, as a matter of policy,

allowed reasonable restrictions on the ri$ht of

shareholders to incumber their shares if the

restrictions comply with the pro#isions of =rticle

A of the +orp. +ode, namely, that the restriction

must appear in the articles of incorporation, by-

laws, and the certicates of stock, and that said

restrictions shall not be more onerous than

$rantin$ the eistin$ stockholders or the

corporation the option to purchase the shares of

the transferrin$ stockholder with such reasonable

terms, conditions or period stated therein.

Therefore, if the restriction on the ri$ht to pled$e

or mort$a$e shares of stock absolutely prohibits

the stockholders from pled$in$ or mort$a$in$

their shares without the consent of the >oard of

Girectors, it would be in #iolation of the statutory

ri$ht of the stockholders to encumber shares of

stock as allowed in ection 11 of the +orporation

+ode.

<owe#er, when the restriction merely allows the

corporation or eistin$ stockholders to accept the

oer within the option period, and thereafter, if

no one accepts the oer, the stockholder is free

to pled$e or mort$a$e his shares in fa#our of any

third party, such pro#ision is reasonable, #alid

and bindin$.

. Poolin Aree@ents

ec. 400. =$reements by stockholders. -

4. =$reements by and amon$ stockholders

eecuted before the formation and or$ani?ation

of a close corporation, si$ned by all stockholders

shall sur#i#e the incorporation of such

corporation and shall continue to be #alid and

bindin$ between and amon$ such stockholders, if

such be their intent, to the etent that such

a$reements are not inconsistent with the articles

of incorporation, irrespecti#e of where the

pro#isions of such a$reements are contained

ecept those required by this Title to be

embodied in said articles of incorporation.

%. =n a$reement between two or more

stockholders, if in writin$ and si$ned by theparties thereto, may pro#ide that in eercisin$

any #otin$ ri$hts, the shares held by them shal

be #oted as therein pro#ided, or as they may

a$ree, or as determined in accordance with a

procedure a$reed upon by them.

3. "o pro#ision in any written a$reement si$ned

by the stockholders, relatin$ to any phase of the

corporate aairs, shall be in#alidated as between

the parties on the $round that its eect is to

make them partners amon$ themsel#es.

. = written a$reement amon$ some or all of the

stockholders in a close corporation shall not be

in#alidated on the $round that it so relates to the

conduct of the business and aairs of the

corporation as to restrict or interfere with the

discretion or powers of the board of directors

2ro#ided, That such a$reement shall impose on

the stockholders who are parties thereto the

7ontaos <eidi ean 6. 2a$e 4A



liabilities for mana$erial acts imposed by this

+ode on directors.

1. To the etent that the stockholders are acti#ely

en$a$ed in the mana$ement or operation of the

business and aairs of a close corporation, the

stockholders shall be held to strict duciary

duties to each other and amon$ themsel#es. aid

stockholders shall be personally liable for

corporate torts unless the corporation has

obtained reasonably adequate liability insurance.

e. Stoc? an Transfer of )oo?

ec. /. >ooks to be kept stock transfer a$ent. -

F#ery corporation shall keep and carefully

preser#e at its principal o&ce a record of all

business transactions and minutes of all meetin$s

of stockholders or members, or of the board of

directors or trustees, in which shall be set forth in

detail the time and place of holdin$ the meetin$,

how authori?ed, the notice $i#en, whether the

meetin$ was re$ular or special, if special its

ob*ect, those present and absent, and e#ery act

done or ordered done at the meetin$. 'pon the

demand of any director, trustee, stockholder or

member, the time when any director, trustee,

stockholder or member entered or left the

meetin$ must be noted in the minutes and on a

similar demand, the yeas and nays must be taken

on any motion or proposition, and a record

thereof carefully made. The protest of anydirector, trustee, stockholder or member on any

action or proposed action must be recorded in full

on his demand.

The records of all business transactions of the

corporation and the minutes of any meetin$s

shall be open to inspection by any director,

trustee, stockholder or member of the

corporation at reasonable hours on business days

and he may demand, writin$, for a copy of

ecerpts from said records or minutes, at his

epense.

=ny o&cer or a$ent of the corporation who shall

refuse to allow any director, trustees, stockholder

or member of the corporation to eamine and

copy ecerpts from its records or minutes, in

accordance with the pro#isions of this +ode, shall

be liable to such director, trustee, stockholder or

member for dama$es, and in addition, shall be

$uilty of an oense which shall be punishable

under ection 4 of this +odeC 2ro#ided, That if

such refusal is made pursuant to a resolution or

order of the board of directors or trustees, the

liability under this section for such action shall be

imposed upon the directors or trustees who #oted

for such refusalC and 2ro#ided, further, That it

shall be a defense to any action under thissection that the person demandin$ to eamine

and copy ecerpts from the corporations records

and minutes has improperly used any information

secured throu$h any prior eamination of the

records or minutes of such corporation or of any

other corporation, or was not actin$ in $ood faith

or for a le$itimate purpose in makin$ his demand

tock corporations must also keep a book to be

known as the Estock and transfer bookE, in which

must be kept a record of all stocks in the names

of the stockholders alphabetically arran$ed theinstallments paid and unpaid on all stock for

which subscription has been made, and the date

of payment of any installment a statement of

e#ery 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 kept in the

principal o&ce of the corporation or in the o&ce

of its stock transfer a$ent and shall be open for

inspection by any director or stockholder of the

corporation at reasonable hours on businessdays.

"o stock transfer a$ent or one en$a$ed

principally in the business of re$isterin$ transfers

of stocks in behalf of a stock corporation shall be

allowed to operate in the 2hilippines unless he

secures a license from the ecurities and

Fchan$e +ommission and pays a fee as may be

ed by the +ommission, which shall be

renewable annuallyC 2ro#ided, That a stock

corporation is not precluded from performin$ or

makin$ transfer of its own stocks, in which caseall the rules and re$ulations imposed on stock

transfer a$ents, ecept the payment of a license

fee herein pro#ided, shall be applicable.

Chua /uan v. Sa@ahan %asasa?a

F&cts' Ron?alo <. +o Toco, is the owner of 1,A

shares of the capital stock of amahan$ 7a$sasaka




6nc. represented by certicates ha#in$ a par #alue of

21 per share mort$a$ed said shares to +hua +hiu to

$uarantee the payment of a debt. The said certicates

of stock were deli#ered with the mort$a$e to the

mort$a$ee, +hua +hiu. The said mort$a$e was duly

re$istered in the o&ce of the re$istered of deeds of

7anila and in the o&ce of the said corporation. +hua

+hiu assi$ned all his ri$ht and interest in said

mort$a$e to the +hua Ruan and the assi$nment in theo&ce of the re$ister of deeds in the +ity of 7anila and

in the o&ce of the said corporation.

+o Toco defaulted in the payment of said debt at

maturity and +hua Ruan foreclosed said mort$a$e and

deli#ered the certicates of stock and copies of the

mort$a$e and assi$nment to the sheri of the +ity of

7anila in order to sell the said shares at public auction.

The plainti ha#in$ been the hi$hest bidder, the sheri

eecuted in his fa#or a certicate of sale of said shares.

The plainti tendered the certicates of stock standin$

in the name of +o Toco to the proper o&cers of the

corporation for cancellation and demanded that theyissue new certicates in the name of +hua Ruan but

the o&cers refused to issue.

=n action for writ of mandamus was led, prayin$ that

the defendants transfer the said 1,A shares of stock

to the plainti by cancelin$ the old certicates and

issuin$ new ones in their stead. =s special defense, the

defendants refused to cancel said certicates and to

issue new ones in the name of +hua Ruan because

prior to the date of the latter:s demand, attachments

had been issued and ser#ed and noted on the books of

the corporation a$ainst +o Toco:s shares and +hua

Ruan ob*ected to ha#in$ these attachments noted onthe new certicates which he demanded.

Issue: ;hether or not the mort$a$e takes priority o#er

the writs of attachmentL

"el: The upreme +ourt a&rmed the *ud$ment

appealed from, holdin$ that the attachin$ creditors are

entitled to priority o#er the defecti#ely re$istered

mort$a$e of the appellant.

The re$istration of the said chattel mort$a$e in the

o&ce of the corporation was not necessary and had no

le$al eect. The practical application of the +hattel7ort$a$e 8aw to shares of stock of a corporation

presents considerable di&culty, as an equity in shares

of stock is of such an intan$ible character, and the

+ourt has obtained little aid from the decisions of other

*urisdictions because that form of mort$a$e is ill suited

to the hypothecation of shares of stock and has been

rarely used elsewhere. ection of =ct 410A pro#ides

two ways for eecutin$ a #alid chattel mort$a$e which

shall be eecti#e a$ainst third persons. 5irst, the

possession of the property mort$a$ed must be

deli#ered to and retained by the mort$a$ee and

second, without such deli#ery the mort$a$e must be

recorded in the proper o&ce.

$o@icile of cororation ecisive for uroses ofe=ecution- attach@ent an arnish@ent ofshares of stoc? 6t is a common but not accurate $enerali?ation that the

situs of shares of stock is at the domicile of the owner. The term situs is not one of ed or in#ariable meanin$

or usa$e. "or should one lose si$ht of the dierence

between the situs of the shares and the situs of the

certicate of shares. The situs of shares of stock for

some purposes may be at the domicile of the owner

and for others at the domicile of the corporation and

e#en elsewhere. 6t is a $eneral rule that for purposes of

eecution, attachment and $arnishment, it is not the

domicile of the owner of a certicate but the domicile

of the corporation which is decisi#e.

>y analo$y with the fore$oin$ and considerin$ the

ownership of shares in a corporation as propertydistinct from the certicates which are merely the

e#idence of such ownership, it seems to be a

reasonable construction of section of =ct 410A to

hold that the property in the shares may be deemed to

be situated in the pro#ince in which the corporation

has its principal o&ce or place of business. 6f this

pro#ince is also the pro#ince of the owners domicile, a

sin$le re$istration is su&cient. 6f not, the chatte

mort$a$e should be re$istered both at the owners

domicile and in the pro#ince where the corporation has

its principal o&ce or place of business. 6n this sense

the property mort$a$ed is not the certicate but the

participation and share of the owner in the assets ofthe corporation.

=part from the cumbersome and unusual method of

hypothecatin$ shares of stock by chattel mort$a$e, it

appears that in the present state of our law, the only

safe way to accomplish the hypothecation of share of

stock of a 2hilippine corporation is for the creditor to

insist on the assi$nment and deli#ery of the certicate

and to obtain the transfer of the le$al title to him on

the books of the corporation by the cancellation of the

certicate and the issuance of a new one to him. 5rom

the standpoint of the debtor this may be unsatisfactory

because it lea#es the creditor as the ostensible owner

of the shares and the debtor is forced to rely upon the

honesty and sol#ency of the creditor. Df course, the

mere possession and retention of the debtors

certicate by the creditor $i#es some security to the

creditor a$ainst an attempted #oluntary transfer by the

debtor, pro#ided by- laws of the corporation epressly

enact that transfers may be made only upon the

surrender of the certicate. 6t is to be noted, howe#er,

that section 31 of the +orporation 8aw enacts that

7ontaos <eidi ean 6. 2a$e %0



shares of stock Emay be transferred by deli#ery of the

certicate endorsed by the owner or his attorney in

fact or other person le$ally authori?ed to make the

transfer.E The use of the #erb EmayE does not eclude

the possibility that a transfer may be made in a

dierent manner, thus lea#in$ the creditor in an

insecure position e#en thou$h he has the certicate in

his possession. 7oreo#er, the shares still standin$ in

the name of the debtor on the books of the corporationwill be liable to sei?ure by attachment or le#y on

eecution at the instance of other creditors.

The transfer by endorsement and deli#ery of a

certicate with intention to pled$e the shares co#ered

thereby should be su&cient to $i#e le$al eect to that

intention and to consummate the *uristic act without

necessity for re$istration.

%(&S!RRAT laintiHaelleeE 'S C!R(&resonentaellantE Stoc5 &nd tr&nsfer boo5 J

FACTS:

2lainti-appellee as president and mana$er of 7anila

Iellowcab Tai +o. assi$ned to defendant-appellant the

usufruct to half of his shares of stock in the company.

=lthou$h he had the ri$ht to en*oy, durin$ his lifetime,

the prots that may be deri#ed from the shares that

was assi$ned to him, he was prohibited from sellin$,

mort$a$in$, encumberin$, or otherwise alienatin$ the

same, the transferor ha#in$ reser#ed the ri$ht to #ote

from the shares and to reco#er the ownership of the

shares at the termination of the usufruct. Gefendant-

appellant later on mort$a$ed the shares of stock to

Fduardo 7atute. 2lainti questioned the #alidity of themort$a$e on the $round that to be #alid, the mort$a$e

constituted on the shares must ha#e been entered into

the books of the corporation to ha#e force and eect

a$ainst third persons. Trial court ruled in fa#or of

plainti-appellee.

ISS!:

6s a mort$a$e constituted on shares of stock a transfer

that must be recorded in the books to be #alidL

R#I&/:

= chattel mort$a$e is not the transfer referred to in the

law which is required to be entered and noted n the

books of a corporation in order to be #alid. The transfer

contemplated is the absolute and unconditional

con#eyance of the title and ownership of the shares of

stock. = chattel mort$a$e is not an absolute transfer

since it is a mere security for a debt. The transfer in a

mort$a$e becomes null and #oid when the mort$a$e

debtor complies with his obli$ation to pay. = transfer

bein$ an act which the owner of the thin$ deli#ers it to

another with the intent of passin$ all the ri$hts that he

has in it, a chattel mort$a$e is not within the meanin$

of the term. Therefore, the notation upon the books of

a corporation of a chattel mort$a$e constituted on the

shares of stock is not necessary to its #alidity.

f. #ost or $estroe Certi>cates

ec. /3. 8ost or destroyed certicates. - The followin$procedure shall be followed for the issuance by a

corporation of new certicates of stock in lieu of those

which ha#e been lost, stolen or destroyedC

4. The re$istered owner of a certicate of stock in a

corporation or his le$al representati#e shall le with

the corporation an a&da#it in triplicate settin$ forth, if

possible, the circumstances as to how the certicate

was lost, stolen or destroyed, the number of shares

represented by such certicate, the serial number of

the certicate and the name of the corporation which

issued the same. <e shall also submit such othe

information and e#idence which he may deemnecessary

%. =fter #erifyin$ the a&da#it and other information

and e#idence with the books of the corporation, said

corporation shall publish a notice in a newspaper of

$eneral circulation published in the place where the

corporation has its principal o&ce, once a week fo

three (3) consecuti#e weeks at the epense of the

re$istered owner of the certicate of stock which has

been lost, stolen or destroyed. The notice shall state

the name of said corporation, the name of the

re$istered owner and the serial number of said

certicate, and the number of shares represented bysuch certicate, and that after the epiration of one (4)

year from the date of the last publication, if no contest

has been presented to said corporation re$ardin$ said

certicate of stock, the ri$ht to make such contest shal

be barred and said corporation shall cancel in its books

the certicate of stock which has been lost, stolen or

destroyed and issue in lieu thereof new certicate of

stock, unless the re$istered owner les a bond or other

security in lieu thereof as may be required, eecti#e fo

a period of one (4) year, for such amount and in such

form and with such sureties as may be satisfactory to

the board of directors, in which case a new certicate

may be issued e#en before the epiration of the one(4) year period pro#ided hereinC 2ro#ided, That if a

contest has been presented to said corporation or if an

action is pendin$ in court re$ardin$ the ownership of

said certicate of stock which has been lost, stolen o

destroyed, the issuance of the new certicate of stock

in lieu thereof shall be suspended until the na

decision by the court re$ardin$ the ownership of said

certicate of stock which has been lost, stolen or

destroyed.




Fcept in case of fraud, bad faith, or ne$li$ence on the

part of the corporation and its o&cers, no action may

be brou$ht a$ainst any corporation which shall ha#e

issued certicate of stock in lieu of those lost, stolen or

destroyed pursuant to the procedure abo#e-described.

2. TRA&SF!R (F S!CRITI!S

a. Transfer of Shareholin

ec. !3. +erticate of stock and transfer of

shares. - The capital stock of stock corporations

shall be di#ided into shares for which certicates

si$ned by the president or #ice president,

countersi$ned by the secretary or assistant

secretary, and sealed with the seal of the

corporation shall be issued in accordance with the

by-laws. hares of stock so issued are personal

property and may be transferred by deli#ery of

the certicate or certicates endorsed by the

owner or his attorney-in-fact or other personle$ally authori?ed to make the transfer. "o

transfer, howe#er, shall be #alid, ecept as

between the parties, until the transfer is recorded

in the books of the corporation showin$ the

names of the parties to the transaction, the date

of the transfer, the number of the certicate or

certicates and the number of shares transferred.

"o shares of stock a$ainst which the corporation

holds any unpaid claim shall be transferable in

the books of the corporation.

son vs. $ioso@ito (#ranser o )hareholding*

!4 2hil. 131 une 4/, 431 >utte, .

FACTS:

Toribia 'son had led a ci#il action for collection of a

debt in the +56 of +a#ite, a$ainst @icente Giosomito

and that upon institution of said action an attachment

was duly issued and le#ied upon the property of

Giosomito, includin$ se#enty-#e shares of the "orth

Flectric +ompany, 6nc., which stood in his name of the

books of the company when the attachment was le#iedon anuary 4A, 43%.

ubsequently, on une %3, 43%, 'son obtained

*ud$ment a$ainst the defendant Giosomito for the sum

of 2%,300 with interest and costs. To satisfy said

*ud$ment, the sheri sold said shares at public auction

in accordance with law on 7arch %0, 433. 'son was

the hi$hest bidder and said shares were ad*udicated to

her.

6n the present action, <.2.8. ollye claims to the owner

of said /1 shares and presents a certicate of stock

issued to him by the company on 5ebruary 43, 433.

There is no dispute that Giosomito was the ori$ina

owner of said shares ha#in$ a par #alue of 2/,100, and

that on 5ebruary 3, 434, he sold said shares to

Fmetrio >arcelon and deli#ered to the latter the

correspondin$ certicates "os. % and 4. >ut >arcelondid not present these certicates to the corporation fo

re$istration until the 4!th of eptember, 43%, when

they were cancelled and a new certicate, "o. %, was

issued in fa#or of >arcelon who transferred the same to

the defendant <.2.8. ollye to whom a new certicate

"o. %1 was issued on 5ebruary 43, 433.

ISS!:

;hether a bona de transfer of the shares of a

corporation, not re$istered or noted on the books of

the corporation, is #alid as a$ainst a subsequent lawfu

attachment of said shares, re$ardless of whether theattachin$ creditor had actual notice of said transfer or

not.

"!#$:

;e prefer to admit the line followed by the upreme

+ourts of 7assachusetts and ;isconsin.

6n the latter case, the court had under consideration a

statute identical with our own section 31, +orporation

8aw, and the court saidC

O;e think the true meanin$ of the lan$ua$e is, and the

ob#ious intention of the le$islature in usin$ it was, that

all transfers of shares should be entered, as here

required, on the books of the corporation. =nd it is

equally clear to us that all transfers of shares not so

entered are in#alid as to attachin$ or eecution

creditors of the assi$nors, as well as to the corporation

and the subsequent purchasers in $ood faith, and

indeed, as to all persons interested, ecept the parties

to such transfers. =ll transfers not so entered on the

books of the corporation are absolutely #oid no

because they are made without notice or fraudulently

in law or fact, but because they are made so #oid by

statute.K

To us the lan$ua$e of the le$islature is plain to the

eect that the ri$ht of the owner of the shares of stock

of a 2hilippine corporation to transfer the same by

deli#ery of the certicate, whether it be re$arded as

statutory or common ri$ht, is limited and restricted by

the epress pro#ision that Ono transfer, howe#er, shal

be #alid, ecept as between the parties, until the

transfer is entered and noted upon the books of the

corporation.K

7ontaos <eidi ean 6. 2a$e %%



Therefore, the transfer of the /1 shares in the "orth

Flectric +ompany, 6nc., made by the defendant

Giosomito to >arcelon was not #alid as to 'son, on

anuary 4A, 43%, the date on which she obtained her

attachment lien on said shares of stock which still

stood in the name of Giosomito on the books of the

corporation.

ud$ment a&rmed.

. a) = by-law pro#ision creatin$ in fa#or of a

corporation a preferential ri$ht to buy the shares of a

retirin$ shareholder #iolates the property ri$hts of

shareholders as pro#ided by the +orporation 8aw.

A&T(&I( !SCAK(- laintiH -appellee,

#s.

FI#IPI&AS %I&I&/ C(RP(RATI(&- !T Al.- defendants.

STA&$AR$ I&'!ST%!&T (F T"! P"I#IPPI&!S- appellant.

5=+TC

Dn 7arch A, 43/, the plainti-appellee obtained

*ud$ment in the +ourt of 5irst 6nstance of 7anila

a$ainst il#erio al#osa whereby the latter was ordered

to transfer and deli#er to the former 44! acti#e shares

and an undetermined number of shares in escrow of

the 5ilipinas 7inin$ +orporation and to pay the sum of

2100 as dama$es, with the pro#iso that the escrowshares shall be transferred and deli#ered to the plainti

only after they shall ha#e been released by the

company. Dn une %1, 43/, a writ of $arnishment was

ser#ed by the sheri of 7anila upon the 5ilipinas

7inin$ +orporation to satisfy the said *ud$ment and on

uly %, 43/, the 5ilipinas 7inin$ +orporation ad#ised

the sheri of 7anila that accordin$ to its books the

*ud$ment debtor il#erio al#osa was the re$istered

owner of 4,000 acti#e shares and about %4,33

unissued shares held in escrow by the said corporation.

The sheri sold the 4,000 acti#e shares at public

auction, reali?in$ therefrom only the sum of 240, which

was applied in partial satisfaction of the *ud$ment fordama$es in the sum of 2100.

6'FC ;hether the issuance by the 5ilipinas 7inin$

+orporation of the said 4A,1A0 shares of its stock to the

tandard 6n#estment of the 2hilippines was #alid as

a$ainst the attachin$ *ud$ment creditor of the ori$inal

owner, il#erio al#osa, namely, the present plainti-

appellee =ntonio FscaSo.

9'86"RC

hares of stock so issued are personal property and

may be transferred by deli#ery of the certicate

indorsed by the owner or his attorney in fact or other

person le$ally authori?ed to make the transfer. "o

transfer, howe#er, shall be #alid, ecept as between

the parties, until the transfer is entered and noted

upon the books of the corporation so as to show thenames of the parties to the transaction, the date of the

transfer, the number of the certicate, and the number

of shares transferred.

6t is admitted that under this le$al pro#ision and the

decision of this +ourt in son vs. Diosomito, !4 2hil

131, the transfer of duly issued shares of stock is not

#alid as a$ainst third parties and the corporation unti

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 #alid a$ainst the whole world

althou$h not notied to the corporation and not noted

upon its books. ince the sale, transfer, or assi$nment

of unissued shares of stock held in escrow is not

specically pro#ided for by law, the question has to be

resol#ed by resortin$ to analo$y. ;hat is the reason of

the law for requirin$ the recordin$ upon the books o

the corporation of transfers of shares of stock as a

condition precedent to their #alidity a$ainst the

corporation, and third partiesL ;e ima$ine that it is (4)

to enable the corporation to know at all times who its

actual stockholders are, because mutual ri$hts and

obli$ations eist between the corporation and its

stockholders (%) to aord to the corporation an

opportunity to ob*ect or refuse its consent to thetransfer in case it has any claim a$ainst the stock

sou$ht to be transferred, or for any other #alid reason

and (3) to a#oid ctitious or fraudulent transfers. Go

these reasons hold as to the transfer of unissued

shares held in escrowL To sustain appellants

contention is to declare that they do not. >ut we see no

#alid reason for treatin$ unissued shares held in escrow

dierently from issued shares insofar as their sale and

transfer is concerned. 6n both cases the corporation is

entitled to know who the actual owners of the shares

are, and to ob*ect to the transfer upon any #alid

$round. 8ikewise, in both cases the possibility o

ctitious or fraudulent transfers eists. The only reasonad#anced by the appellant for eemptin$ the transfer

of unissued shares from recordin$ is that in case of

unissued shares there is no certicate number to be

recorded. >ut that is a mere detail which does no

aect 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. =s a

matter of fact, the defendant 5ilipinas 7inin$

+orporation was able to take not of the transfer of the

escrow shares in question to the tandard 6n#estment

of the 2hilippines on Gecember /, 40, without

knowin$ the certicate number that would correspond

to said shares.

7oreo#er, it seems illo$ical and unreasonable to holdthat inactive or unissued shares still held by the

corporation in escrow pendin$ receipt of authori?ation

from the Ro#ernment to issue them, may be

ne$otiated or transferred unrestrictedly and more

freely than acti#e or issued shares e#idenced by

certicates of stock.

;e are, therefore, of the opinion and so hold that

section 31 of the +orporation 8aw, which requires the

re$istration of transfers of shares stock upon the books

of the corporation as a condition precedent to their

#alidity a$ainst the corporation and third parties, is

also applicable to unissued shares held by the

corporation in escrow.

Ponce vs alsons ce@ent

5actsC @icente +. 2once led a complaint for mandamus

and dama$es a$ainst =lsons +ement +orporation

(5ormerly named as @ictory +ement +orporation and

5loro +ement +orporation) for its failure to transfer in

his name the subscription of 5austo Raid (an

incorporator and owner of the subscribed and fully paid

%3100 shares) as e#idenced by the deed of

undertakin$ and indorsement of 7r. Raid.

The +ompany =++ refused to transfer the

subscribed and paid shares of 7r. Raid to 2once

because it was not re$istered in its stock and transfer

book and from the time of @++ to present no certicate

of stock correspondin$ to the %3100 subscribed and

paid shares were issued in the name of 5austo Raid.

6ssueC ;hether or not =++ should issue 2once a

certicate of stock in his nameL

;hether or not the complaint for 7andamus shouldpre#ailL

<eldC

5austo Raid was an ori$inal subscriber of

respondent corporation:s %3,100 shares. 6t is

undisputed that petitioner had not made a pre#ious

request upon the corporate secretary of =8D",

respondent 5rancisco 7. Riron r., to record the alle$ed

transfer of stocks.

2ursuant to ection !3 of the +orporation +ode

a transfer of shares of stock not recorded in the stock

and transfer book of the corporation is non-eistent as

far as the corporation is concerned. =s 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 determinin$ who its

shareholders are. 6t is only when the transfer has been

recorded in the stock and transfer book that acorporation may ri$htfully re$ard the transferee as one

of its stockholders. 5rom this time, the consequent

obli$ation on the part of the corporation to reco$ni?e

such ri$hts as it is mandated by law to reco$ni?e

arises.

The situation would be dierent if the

petitioner was himself the re$istered owner of the

stock which he sou$ht to transfer to a third party, fo

then he would be entitled to the remedy of mandamus

the transfer is not eecti#e until it is recorded. 'nless

and until such recordin$ is made the demand for the

issuance of stock certicates to the alle$ed transfereehas no le$al basis. the stock and transfer book is the

basis for ascertainin$ the persons entitled to the ri$hts

and sub*ect to the liabilities of a stockholder. ;here a

transferee is not yet reco$ni?ed as a stockholder, the

corporation is under no specic le$al duty to issue

stock certicates in the transferee:s name.

The deed of undertakin$ with indorsemen

presented by petitioner does not establish, on its face

his ri$ht to demand for the re$istration of the transfer

and the issuance of certicates of stocks. the mere

indorsement of stock certicates does not in itself $i#e

to the indorsee such a ri$ht to ha#e a transfer of theshares of stock on the books of the company as wil

entitle him to the writ of mandamus to compel the

company and its o&cers to make such transfer at his

demand, because, under such circumstances the duty

the le$al obli$ation, is not so clear and indisputable as

to *ustify the issuance of the writ. , the corporation

looks only to its books for the purpose of determinin$

who its shareholders are, so that a mere indorsee of a

stock certicate, claimin$ to be the owner, will no

necessarily be reco$ni?ed as such by the corporation

and its o&cers, in the absence of epress instructions

of the re$istered owner to make such transfer to the

indorsee, or a power of attorney authori?in$ such

transfer. >efore a transferee may ask for the issuance

of stock certicates, he must rst cause the

re$istration of the transfer and thereby en*oy the

status of a stockholder insofar as the corporation is

concerned. = corporate secretary may not be

compelled to re$ister transfers of shares on the basis

merely of an indorsement of stock certicates.

7ontaos <eidi ean 6. 2a$e %



/.R. &o. 9;696 %arch - 1992

A#F(&S( S. TA&- 2etitioner,

#s.

S!CRITI!S A&$ !LC"A&/! C(%%ISSI(&-'ISA,A& !$CATI(&A# SPP#, C(RP.- TA& SC"I&/- A#FR!$( ). ,- A&/!# S. TA& anPATRICIA A/I#AR- 9espondents.

5actsC

2etitioner was elected as 2resident of the @isayan

Fducational upply +orp and subsequently reelected to

such position but remained in the >oard of Girectors as

director.

;hile petitioner was still the president of the

respondent corporation, two other incorporators

assi$ned to the corporation their shares., represented

by certicate of stock "o. and 1 after which, they

were paid the correspondin$ 0J corporate stock-in-

trade.

2etitioners certicate of stock "o. % was cancelled by

#irtue of 9esolution "o. 4A4 which was passed and

appro#ed while petitioner was still a member of the

>oard of Girectors of the respondent corporation.

Gue to the withdrawal of the aforesaid incorporators

and in order to complete the membership of the #e

(1) directors of the board, petitioner sold fty (10)

shares out of his 00 shares of capital stock to his

brother =n$el . Tan. =nother incorporator, =lfredo >.

'y, also sold fty (10) of his 00 shares of capital stock

to Teodora . Tan and both new stockholders attended

the special meetin$. =n$el Tan was elected director.

=ccordin$ly, as a result of the sale by petitioner of his

fty (10) shares of stock to =n$el . Tan, +erticate of

tock "o. % was cancelled and the correspondin$

+erticates "o. ! in the name of =n$el . Tan and for

the remainin$ 310 shares, tock +erticate "o. A was

issued in the name of petitioner =lfonso . Tan.

tock "o. % and A were deli#ered for his endorsement

and cancellation but 7r. =lfonso Tan did not make

proper endorsement of the cancelled +erticate of

tock "o. % instead he kept the cancelled +erticate of

tock "o. %.

;hen petitioner was dislod$ed from his position as

president, he withdrew from the corporation on

condition that he be paid with stocks-in-trade. =fter the

withdrawal of the stocks, the board of the respondent

corporation held a meetin$ eectin$ the cancellation of

tock +erticate "os. % and A in the corporate stock

and transfer book and submitted the minutes thereof

to the F+.

5i#e (1) years and nine () months after the transfer of

10 shares to =n$el . Tan, brother of petitioner =lfonso

. Tan, and three (3) years and se#en (/) months after

eectin$ the transfer of tock +erticate "os. % and A

from the ori$inal owner (=lfonso . Tan) in the stockand transfer book of the corporation, the latter led the

case before the F+ questionin$ for the rst time, the

cancellation of his aforesaid tock +erticates "os. %

and A.

The bone of contention raised by the petitioner is that

the depri#ation of his shares despite the non

endorsement or surrender of his tock +erticate "os

% and A, was without the process contrary to the

pro#ision of ection !3 of the +orporation +ode (>atas

2ambansa >l$. !A) which requires thatC

. . . "o transfer, howe#er, shall be #alid, ecept 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 certicate or certicates

and the number of shares transferred.

Issue: ;hether or not deli#ery of certicate of stock is

essential in order to eect the transfer thereof in the

books of the corporation

RulinC "o.

4. There is no doubt that there was deli#ery of tock

+erticate "o. % made by the petitioner to the

+orporation before its replacement with the tock

+erticate "o. ! for fty (10) shares to =n$el . Tan

and tock +erticate "o. A for 310 shares to the

petitioner. The problem arose when petitioner was

$i#en back tock +erticate "o. % for him to endorse

and he deliberately witheld it for reasons of his own.

6t was #ery ob#ious that petitioner de#ised the scheme

of not returnin$ the cancelled tock +erticate "o. %

which was returned to him for his endorsement, to

skim o the lar$esse of the corporation as shown by

the tradin$ of his tock +erticate "o. A. <e also used

this scheme to rene$e on his indebtedness to

respondent Tan u +hin$ in the amount of 24 million. 6t

is not remote that if petitioner could ha#e cashed in on

tock +erticate "o. % with the remainder of the $oods

that he padlocked, he would ha#e done so, until the

respondent corporation was bled entirely.

%. 2etitioner further claims that E(T)he cancellation and

transfer of petitioners shares and +erticate of tock

"o. % as well as the issuance and cancellation of




+erticate of tock "o. A was patently and palpably

unlawful, null and #oid, in#alid and fraudulent.E =nd,

that ection !3 of the +orporation +ode of the

2hilippines is Emandatory in natureE, meanin$ that

without the actual deli#ery and endorsement of the

certicate in question, there can be no transfer, or that

such transfer is null and #oid.

#he word <may<is an au;illiary verb showing amongothers, opportunity or possibility. nder ordinary

circumstances, the phrase <may be< implies the

possible e;istence o something. 6n this case, the

Esomethin$E is a law $o#ernin$ sectoral representation.

The phrase in question should, therefore, be

understood to mean as prescribed by such law that

$o#erns the matter at the time . . . #he phrase does

not and cannot, by its very wording, restrict itsel to

the uncertainly o uture legislation.

The +ourt held in Chua v. )amahang "agsasa2a, that

Ethe word EmayE indicates that the transfer may be

eected in a manner dierent from that pro#ided for inthe law.E

5or all intents and purposes, howe#er, since this was

already cancelled which cancellation was also reported

to the respondent +ommission, there was no necessity

for the same certicate to be endorsed by the

petitioner. =ll the acts required for the transferee to

eercise its ri$hts o#er the acquired stocks were

attendant and e#en the corporation was protected from

other parties, considerin$ that said transfer was earlier

recorded or re$istered in the corporate stock and

transfer book.

5ollowin$ the doctrine enunciated in the case of

#ua=on v. 4a Provisora ilipina, where this +ourt held,

thatC

4. deli#ery is not essential where it appears that the

persons sou$ht to be held as stockholders are o&cers

of the corporation, and ha#e the custody of the stock

book . .

%. necessary to delineate the function of the stock

itself from the actual deli#ery or endorsement of the

certicate of stock itself as is the question in the

instant case. = certicate of stock is not necessary torender one a stockholder in corporation.

"e#ertheless, a certicate of stock is the paper

representati#e or tan$ible e#idence of the stock itself

and of the #arious interests therein. The certicate is

not stock in the corporation but is merely e#idence of

the holders interest and status in the corporation, his

ownership of the share represented thereby, but is not

in law the equi#alent of such ownership. 6t epresses

the contract between the corporation and the

stockholder, but is not essential to the eistence of a

share in stock or the nation of the relation of

shareholder to the corporation.

'nder the instant case, the fact of the matter is, the

new holder, =n$el . Tan has already eercised his

ri$hts and prero$ati#es as stockholder and was e#en

elected as member of the board of directors in the

respondent corporation with the full knowled$e andacquiescence of petitioner. Gue to the transfer of fty

(10) shares, =n$el . Tan was clothed with ri$hts and

responsibilities in the board of the respondent

corporation when he was elected as o&cer thereof.

6n 2hilippine *urisprudence, a certicate of stock is not

a ne$otiable instrument. E=lthou$h it is sometime

re$arded as quasi-ne$otiable, in the sense that it may

be transferred by endorsement, coupled with deli#ery

it is well-settled that it is non-ne$otiable, because the

holder thereof takes it without pre*udice to such ri$hts

or defenses as the re$istered ownerMs or transferrors

creditor may ha#e under the law, ecept insofar assuch ri$hts or defenses are sub*ect to the limitations

imposed by the principles $o#ernin$ estoppel.E

+onsiderin$ the circumstances of the case, it appearin$

that petitioner is $uilty of manipulation, and hi$h

handedness, circum#entin$ the clear pro#isions of law

in shieldin$ himself from his wron$doin$ contrary to

the protecti#e mantle that the law intended fo

innocent parties, the +ourt nds the ecuses of the

petitioner as unworthy of belief.

. Re@e if Transfer is Refuse

A.R. "aer vs. )ran 1911E

Facts:

>ryan 8ondon H +o. endorsed to =.9. <a$er its

%1 shares of the @isayan Flectric +ompany. =.9 <a$er

and a certain 8e#erin$ entered into an a$reemen

whereby the former will sell his shares in the @isayan

Flectric +ompany includin$ the shares endorsed to him

by >ryan 8ondon +o. to the latter. =.9. <a$er then led

an action for mandamus compellin$ >ryan the

secretary of the @isayan Flectric +ompany to re$ister

unto his name the said %1 shares endorsed to him inorder for him to sell it to le#erin$.

Issue:

;hether or not a writ of mandamus may be

issue in order to compel the secretary of @isayan

Flectric +ompany to re$isterMtransfer the %1 shares in

the name of =.9. <a$er.

"el:

7ontaos <eidi ean 6. 2a$e %!



The <onorable =rthur 8. anborn, *ud$e of the

'nited tates district court for the western district of

;isconsin, in his article entitled E"andamusE (%! +y. of

8aw and 2rocedure (+yc), at p. 3/), saidC

>y the wei$ht of authority mandamus will not lie in

ordinary cases to compel a corporation of its o&cers to

transfer stock on its books and issue new certicates to

the transferee, since the writ (in such a case) is apurely pri#ate one, and there is $enerally an adequate

remedy by an action a$ainst the corporation for

dama$es.

ection 31, =ct "o. 41, pro#ides amon$

other thin$s, thatC

"o share of stock a$ainst which the corporation holds

any unpaid claim, shall be transferable on the books of

the corporation.

To permit the writ of mandamus to issue for the

purpose of compellin$ the o&cers of a corporation, in

cases like the present one, to transfer stock upon the

books of the corporation, mi$ht, under certain

circumstances, require such o&cers to transfer stock

a$ainst which the corporation holds unpaid claims.

These claims mi$ht easily arise between the time of

the issuance of the writ and the ser#ice of the same

upon such o&cers. 6f the court should issue the writ, it

mi$ht require an o&cer to transfer stock under

conditions where the law epressly prohibited such

transfer. The writ of mandamus will ne#er issue to

compel a person to #iolate an epress pro#ision of the

law. The act required to be performed must be one

which the law specially en*oin as a duty resultin$ froman o&ce, trust, or station or unlawfully ecludes the

plainti from the used and en*oyment of a ri$ht or

o&ce to which he is entitled and from which he is

unlawfully precluded.

)aton )uha /ol %ines Inc. vs Court of Aeals

5actsC

5rancisco =$uac and his wife 2aula =$uac own

!%,1 shares of baton$ >uhay Rold 7ines 6nc (>>R7).

5rancisco sold the shares to 6nco 7inin$ +orporation(6"+D) without the knowled$e of 2aula. ;hen 6"+D

sou$ht the transfer of the shares unto its name, >>R7

refuses to do so on the fact that the share of 2aula was

not $i#en when 5rancisco sold the shares to 6"+D. 6"+D

led a case in the court for the transfer of the shares

unto its name plus dama$es for the alle$ed unreali?ed

income co#ered by the said shares. >>R7 on the other

hand applied for writ of in*unction with T9D. the writ

was appro#ed.

6ssueC

7ay the court order the transfer of share to

6"+DL

7ay the court $rant the award for the alle$ed

unreali?ed incomeL

<eldC

Dn the rst issue, the lower court was ri$ht to

order the transfer of shares in the name of 6"+D.

Dn the second issueC

The petitioner alle$es that the appellate court $ra#ely

and cate$orically erred in awardin$ dama$es by way of

unreali?ed prot (or lucro cesante) to pri#ate

respondent. 2etitioner company also alle$es that the

claim for unreali?ed prot must be duly and su&ciently

established, that is, that the claimant must submi

proof that it was in fact dama$ed because of

petitioners act or omission.

The stipulation of facts of the parties does not at al

show that pri#ate respondent intended to sell, or would

sell or would ha#e sold the stocks in question on

specied dates. ;hile it is true that shares of stock

may $o up or down in #alue (as in fact the concerned

shares here really rose from fteen (41) centa#os to

twenty three or twenty four (%3M%) centa#os per share

and then fell to about two (%) centa#os per share, still

whate#er prots could ha#e been made are purely

2F+'8=T6@F, for it was di&cult to predict with any

decree of certainty the rise and fall in the #alue of the

shares. Thus this +ourt has ruled that speculati#e

dama$es cannot be reco#ered.

(& vs. AC4 AC4

FACTS: Gefendant (a non-stock corporation) issued to

6wao Teruyama 7embership +erticate "o. %04 which

was assi$ned to 7. T. 9eyes. ubsequently in the same

year 4, 7. T. 9eyes transferred and assi$ned said

certicate to the plainti, ;on. =lmost 44 years after

the plainti led an action a$ainst the defendant

alle$in$ that shortly after the rehabilitation of thedefendant after the war, the plainti asked the

defendant to re$ister in its books the assi$nment in

fa#or of the plainti and to issue to the latter a new

certicate, but that the defendant had refused and stil

refuses to do so unlawfully and prayin$ that the

plainti be declared the owner of one share of stock of

the defendant and that the latter be ordered to issue a

correspondent new certicate. Gefendant led a

motion to dismiss, alle$in$ that from 4, when the

7ontaos <eidi ean 6. 2a$e %/



plaintis ri$ht of action had accrued, 411, when the

complaint was led, ele#en years ha#e elapsed, and

that therefore the complaint was led beyond the 1-

year period ed in =rticle 44 of the +i#il +ode. The

+ourt dismissed the complaint.

ISS!: ;hether or not the plainti was bound, undercondition and >y-8aws of the defendant or any

statutory rule for that matter, to present and re$ister

the certicate assi$ned to him in 4 within any

denite or ed period.

"!#$: The certicate in question contains a condition

to the eect that no assi$nment thereof Eshall be

eecti#e with respect to the club until such assi$nment

is re$istered in the books of the club, as pro#ided in the

>y-8aws.E

The defendant has not made herein any

pretense to that eect but it contends that from the

moment the certicate was assi$ned to the plainti,

the latters ri$ht to ha#e the assi$nment re$istered

commenced to eist. This contention is correct, but it

would not follow that said ri$ht should be eercised

immediately or within a denite period. The eistence

of a ri$ht is one thin$, and the duration of said ri$ht is

another.

Dn the other hand, it is stated in the appealed order of

dismissal that the plainti sou$ht to re$ister the

assi$nment on =pril 43, 411 whereas in plaintis

brief it is alle$ed that it was only in 5ebruary, 411,

when the defendant refused to reco$ni?e the plainti.

6f, as already obser#ed, there is no ed period for

re$isterin$ an assi$nment, how can the complaint be

considered as already barred by the tatute of

8imitations when it was led on =pril %!, 411, or

barely a few days (accordin$ to the lower court) andtwo months (accordin$ to the plainti), after the

demand for re$istration and its denial by the

defendant. 2laintis ri$ht was #iolated only sometime

in 411, and it could not accordin$ly ha#e asserted any

cause of action a$ainst the defendant before that.

The defendant seems to belie#e that the plainti was

compelled immediately to re$ister his assi$nment. =ny

such compulsion is ob#iously for the benet of the

plainti, because it is only after re$istration that the

transfer would be bindin$ a$ainst the defendant.

Drder re#ersed.

8th meeting - delinquecy subscription

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