2. Classes of Shares

Classification of Shares

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

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

Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without par value may not be issued for a consideration less than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;2. Adoption and amendment of by-laws;3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;4. Incurring, creating or increasing bonded indebtedness;5. Increase or decrease of capital stock;6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code; and8. Dissolution of the corporation.

Republic Planters Bank vs. Agana[GR 51765, 3 March 1997]

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

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

Issue:1. Whether the bank can be compelled to redeem the preferred shares issued to RFRDC and Robes.2. Whether RFRDC and Robes are entitled to the payment of certain rate of interest on the stocks as a matter of right without necessity of a prior declaration of dividend.

Held:

1. While the stock certificate does allow redemption, the option to do so was clearly vested in the bank. The redemption therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock certificate, the redemption rests entirely with

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the corporation and the stockholder is without right to either compel or refuse the redemption of its stock. Furthermore, the terms and conditions set forth therein use the word "may". It is a settled doctrine in statutory construction that the word "may" denotes discretion, and cannot be construed as having a mandatory effect. The redemption of said shares cannot be allowed. The Central Bank made a finding that the Bank has been suffering from chronic reserve deficiency, and that such finding resulted in a directive, issued on 31 January 1973 by then Gov. G. S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of the bank prohibiting the latter from redeeming any preferred share, on the ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred shares was prohibited for a just and valid reason. The directive issued by the Central Bank Governor was obviously meant to preserve the status quo, and to prevent the financial ruin of a banking institution that would have resulted in adverse repercussions, not only to its depositors and creditors, but also to the banking industry as a whole. The directive, in limiting the exercise of a right granted by law to a corporate entity, may thus be considered as an exercise of police power.

2. Both Section 16 of the Corporation Law and Section 43 of the present Corporation Code prohibit the issuance of any stock dividend without the approval of stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. These provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus. Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay interest before dividends are paid to common stockholders, is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only. In compelling the bank to redeem the shares and to pay the corresponding dividends, the Trial committed grave abuse of discretion amounting to lack or excess of jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as well as the clear mandate of the law.

NIELSON V. LEPANTO CONSOLIDATED

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

ISSUE: WON the Court erred in ordering Lepanto to issue and deliver to Nielson shares of stock together with fruits thereof.

RULING: The term “dividend” both in the technical sense and its ordinary acceptation, is that part or portion of the profits, of the

enterprise which he corporation, by its governing agents, sets apart for ratable division among the holders of the capital stock. It means the fund actually set aside, and declared by the directors of the corporation as a dividends, and duly ordered by the director, or by the stockholders at a corporate meeting, to be divided or distributed among the stockholders according to their respective interests.

It is Our considered view, therefore, that under Sec. 16 of the Corporation Law stock dividends cannot be issued to a person who is not a stockholder in payment of services rendered. And so, in the case at bar Nielson can not be paid in shares of stock which form part of the stock dividends of Lepanto for services rendered under the management contract. We sustain the contention of Lepanto that the understanding between Lepanto and Nielson was simply to make the cash value of the stock dividends declared as the basis for determining the amount of compensation that should be paid to Nielson, in the proportion of 10% of the cash value of the stock dividends declared.

The consideration for which shares of stock may be issued are: (1) cash; (2) property; and (3) undistributed profits.

Commissioner of internal revenue vs. court of appeals

Facts: ANSCOR started out with P1,000,000.00 capitalization

dived to 10,000 shares. Don Andres subscribed to 4,963 shares of 5,000 original shares issued. September 1945, ANSCOR increased its Authorized capital stock to P2.5M divided to 25,000 shares, and don Andres subscribed to 10,000 shares making his shares 14,962. A month later he gave his two sons 1,250 shares each. When don Andres died he left 180,000(plus) shares. Half of which was given to his wife and half went to his estate. Feb 1968, NASCOR increased it capital stock to 75M divided into 150,000.00 shares wherein it was divided to common and preferred shares. The wife of Don Andres wants to exchange her common shares to preferred shares which was granted by ANSCOR. ANSCOR then repurchase on two occasions Common shares of Don Andres. Upon examination of books of ANSCOR the BIR sought for recovery of income tax on the redeemed or repurchase common shares.

Issue:Whether ANSCOR's redemption of stocks from its

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

Held:As a general rule “A stock dividend representing the

transfer of surplus to capital account shall not be subject to tax.” Except in cases of redemption or cancellation of stock dividends which is essentially equivalent to a distribution of taxable dividends making the proceed thereof taxable income. If the source is the original capital subscription upon establishment of the corporation or from initial capital investment in an existing enterprise, its redemption to the concurrent value of acquisition may not be considered as income but a mere return of capital. On the contrary, if the redeemed shares are from stock dividend declaration other than as initial capital investment, the proceeds of the redemption is ADDITIONAL WEALTH, for it is not merely a return of capital but a gain thereon. Applying the rule in the case, the original common

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shares owned by the estate were only 25,4247.5. Since there was subsequent increased in the capital stocks, the redeemed shares to the extent of 80T plus by ANSCOR was made out of corporate profits such as stock dividend. Therefore it will be subjected to income tax.

Steinberg vs Velasco

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

Issue:what is the responsibility of the directors when they know

that there is an outstanding debt existing between the corporation and its creditors?

Held:Creditors of a corporation have the right to assume that so

long as there are outstanding debts and liabilities, the board of directors will not use the assets of the corporation to purchase its own stock, and that it will not declare dividends to stockholders when the corporation is insolvent. Therefore Gregorio Et al is required to pay.

Baltazar Vs. Lingayen gulf

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

Issue:If a stockholder who subscribed and pays only partially, for

which he was issued a certificate of stock, is he entitled to vote?

Held:If a stockholder, in a stock corporation subscribes to a

certain number of shares of stock, and makes partial payments for which he is issued certificates of stock, he is entitled to vote the latter, notwithstanding the fact that he has not paid the balance of his subscription which has been called for payment or declared delinquent. If the entire subscribed shares of stock are not paid, the paid shares of stock may not be deprived of the right to vote, until the entire subscribed shares of stock are fully paid, including interest.

Chua Guan v. Samahang Magsasaka

Facts: Gonzalo H. Co Toco, is the owner of 5,894 shares of the capital stock of Samahang Magsasaka Inc. represented by 9 certificates having a par value of P5 per share mortgaged said shares to Chua Chiu to guarantee the payment of a debt. The said certificates of stock were delivered with the mortgage to the mortgagee, Chua Chiu. The said mortgage was duly registered in the office of the registered of deeds of Manila and in the office of the said corporation. Chua Chiu assigned all his right and interest in said mortgage to the Chua Guan and the assignment in the office of the register of deeds in the City of Manila and in the office of the said corporation. Co Toco defaulted in the payment of said debt at maturity and Chua Guan foreclosed said mortgage and delivered the certificates of stock and copies of the mortgage and assignment to the sheriff of the City of Manila in order to sell the said shares at public auction. The plaintiff having been the highest bidder, the sheriff executed in his favor a certificate of sale of said shares. The plaintiff tendered the certificates of stock standing in the name of Co Toco to the proper officers of the corporation for cancellation and demanded that they issue new certificates in the name of Chua Guan but the officers refused to issue.An action for writ of mandamus was filed, praying that the defendants transfer the said 5,894 shares of stock to the plaintiff by canceling the old certificates and issuing new ones in their stead. As special defense, the defendants refused to cancel said certificates and to issue new ones in the name of Chua Guan because prior to the date of the latter’s demand, 9 attachments had been issued and served and noted on the books of the corporation against Co Toco’s shares and Chua Guan objected to having these attachments noted on the new certificates which he demanded.Issue: Whether or not the mortgage takes priority over the writs of attachment?The Supreme Court affirmed the judgment appealed from, holding that the attaching creditors are entitled to priority over the defectively registered mortgage of the appellant. The registration of the said chattel mortgage in the office of the corporation was not necessary and had no legal effect. The practical application of the Chattel Mortgage Law to shares of stock of a corporation presents considerable difficulty, as an equity in shares of stock is of such an intangible character, and the Court has obtained little aid from the decisions of other jurisdictions because that form of mortgage is ill suited to the hypothecation of shares of stock and has been rarely used elsewhere. Section 4 of Act 1508 provides two ways for executing a valid chattel mortgage which shall be effective against third persons. First, the possession of the property mortgaged must be delivered to and retained by the mortgagee; and, second, without such delivery the mortgage must be recorded in the proper office.5. Domicile of corporation decisive for purposes of execution, attachment and garnishment of shares of stockIt is a common but not accurate generalization that the situs of shares of stock is at the domicile of the owner. The term situs is not one of fixed or invariable meaning or usage. Nor should one lose sight of the difference between the situs of the shares and the situs of the certificate of shares. The situs of shares of stock for some purposes may be at the domicile of the owner and for others at the domicile of the corporation; and even elsewhere. It is a general rule that for purposes of execution, attachment and garnishment, it is not the domicile of the owner of a certificate but the domicile of the corporation which is decisive.

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By analogy with the foregoing and considering the ownership of shares in a corporation as property distinct from the certificates which are merely the evidence of such ownership, it seems to be a reasonable construction of section 4 of Act 1508 to hold that the property in the shares may be deemed to be situated in the province in which the corporation has its principal office or place of business. If this province is also the province of the owner's domicile, a single registration is sufficient. If not, the chattel mortgage should be registered both at the owner's domicile and in the province where the corporation has its principal office or place of business. In this sense the property mortgaged is not the certificate but the participation and share of the owner in the assets of the corporation.Apart from the cumbersome and unusual method of hypothecating shares of stock by chattel mortgage, it appears that in the present state of our law, the only safe way to accomplish the hypothecation of share of stock of a Philippine corporation is for the creditor to insist on the assignment and delivery of the certificate and to obtain the transfer of the legal title to him on the books of the corporation by the cancellation of the certificate and the issuance of a new one to him. From the standpoint of the debtor this may be unsatisfactory because it leaves the creditor as the ostensible owner of the shares and the debtor is forced to rely upon the honesty and solvency of the creditor. Of course, the mere possession and retention of the debtor's certificate by the creditor gives some security to the creditor against an attempted voluntary transfer by the debtor, provided by- laws of the corporation expressly enact that transfers may be made only upon the surrender of the certificate. It is to be noted, however, that section 35 of the Corporation Law enacts that shares of stock "may be transferred by delivery of the certificate endorsed by the owner or his attorney in fact or other person legally authorized to make the transfer." The use of the verb "may" does not exclude the possibility that a transfer may be made in a different manner, thus leaving the creditor in an insecure position even though he has the certificate in his possession. Moreover, the shares still standing in the name of the debtor on the books of the corporation will be liable to seizure by attachment or levy on execution at the instance of other creditors. The transfer by endorsement and delivery of a certificate with intention to pledge the shares covered thereby should be sufficient to give legal effect to that intention and to consummate the juristic act without necessity for registration.

MONSERRAT (plaintiff-appellee) VS CERON (respondent-appellant) [Stock and transfer book]

FACTS:

Plaintiff-appellee as president and manager of Manila Yellowcab Taxi Co. assigned to defendant-appellant the usufruct to half of his shares of stock in the company. Although he had the right to enjoy, during his lifetime, the profits that may be derived from the shares that was assigned to him, he was prohibited from selling, mortgaging, encumbering, or otherwise alienating the same, the transferor having reserved the right to vote from the shares and to recover the ownership of the shares at the termination of the usufruct. Defendant-appellant later on mortgaged the shares of stock to Eduardo Matute. Plaintiff questioned the validity of the mortgage on the ground that to be valid, the mortgage constituted on the shares must have been entered into the books of the

corporation to have force and effect against third persons. Trial court ruled in favor of plaintiff-appellee.

ISSUE:

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

RULING:

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

Uson vs. Diosomito (Transfer of Shareholding)

61 Phil. 535 June 17, 1935 Butte, J.

FACTS:

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

Subsequently, on June 23, 1932, Uson obtained judgment against the defendant Diosomito for the sum of P2,300 with interest and costs. To satisfy said judgment, the sheriff sold said shares at public auction in accordance with law on March 20, 1933. Uson was the highest bidder and said shares were adjudicated to her.

In the present action, H.P.L. Jollye claims to the owner of said 75 shares and presents a certificate of stock issued to him by the company on February 13, 1933.

There is no dispute that Diosomito was the original owner of said shares having a par value of P7,500, and that on February 3, 1931, he sold said shares to Emetrio Barcelon and delivered to the latter the corresponding certificates Nos. 2 and 19. But Barcelon did not present these certificates to the corporation for registration until the 16th of September, 1932, when they were cancelled and a new certificate, No. 29, was issued in favor of Barcelon who transferred the same to the defendant H.P.L. Jollye to whom a new certificate No. 25 was issued on February 13, 1933.

ISSUE:

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

HELD:

We prefer to admit the line followed by the Supreme Courts of Massachusetts and Wisconsin.

In the latter case, the court had under consideration a statute identical with our own section 35, Corporation Law, and the court said:

“We think the true meaning of the language is, and the obvious intention of the legislature in using it was, that all transfers of shares should be entered, as here required, on the books of the corporation. And it is equally clear to us that all transfers of shares not so entered are invalid as to attaching or execution creditors of the assignors, as well as to the corporation and the subsequent purchasers in good faith, and, indeed, as to all persons interested, except the parties to such transfers. All transfers not so entered on the books of the corporation are absolutely void; not because they are made without notice or fraudulently in law or fact, but because they are made so void by statute.”

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

Therefore, the transfer of the 75 shares in the North Electric Company, Inc., made by the defendant Diosomito to Barcelon was not valid as to Uson, on January 18, 1932, the date on which she obtained her attachment lien on said shares of stock which still stood in the name of Diosomito on the books of the corporation.

Judgment affirmed.

4. a) A by-law provision creating in favor of a corporation a preferential right to buy the shares of a retiring shareholder violates the property rights of shareholders as provided by the Corporation Law.

ANTONIO ESCAÑO, plaintiff-appellee, vs.FILIPINAS MINING CORPORATION, ET Al., defendants.STANDARD INVESTMENT OF THE PHILIPPINES, appellant. FACTS:

On March 8, 1937, the plaintiff-appellee obtained judgment in the Court of First Instance of Manila against Silverio Salvosa whereby the latter was ordered to transfer and deliver to the former 116 active shares and an undetermined number of shares in escrow of the Filipinas Mining Corporation and to pay the sum of P500 as damages, with the proviso that the escrow shares shall be transferred and delivered to the plaintiff only after they shall have been released by the company. On June 25, 1937, a writ of garnishment was served by the sheriff of Manila upon the Filipinas Mining Corporation to satisfy the said judgment; and on July 29, 1937, the Filipinas Mining Corporation advised the sheriff of Manila that according to its books the judgment debtor Silverio Salvosa was the registered owner of 1,000 active shares and about 21,339 unissued shares held in escrow by the said corporation. The sheriff sold the 1,000 active shares at public auction, realizing therefrom only the sum of P10, which was applied in partial satisfaction of the judgment for damages in the sum of P500.

ISSUE: Whether the issuance by the Filipinas Mining Corporation of the said 18,580 shares of its stock to the Standard Investment of the Philippines was valid as against the attaching judgment creditor of the original owner, Silverio Salvosa, namely, the present plaintiff-appellee Antonio Escaño.

RULING:

Shares of stock so issued are personal property and may be transferred by delivery of the certificate indorsed by the owner or his attorney in fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate, and the number of shares transferred.

It is admitted that under this legal provision and the decision of this Court in Uson vs. Diosomito, 61 Phil. 535, the transfer of duly issued shares of stock is not valid as against third parties and the corporation until it is noted upon the books of the corporation; but it is contended that the transfer of unissued shares of stock held in escrow is valid against the whole world although not notified to the corporation and not noted upon its books. Since the sale, transfer, or assignment of unissued shares of stock held in escrow is not specifically provided for by law, the question has to be resolved by resorting to analogy. What is the reason of the law for requiring the recording upon the books of the corporation of transfers of shares of stock as a condition precedent to their validity against the corporation, and third parties? We imagine that it is (1) to enable the corporation to know at all times who its actual stockholders are, because mutual rights and obligations exist between the corporation and its stockholders; (2) to afford to the corporation an opportunity to object or refuse its consent to the transfer in case it has any claim against the stock sought to be transferred, or for any other valid reason; and (3) to avoid fictitious or fraudulent transfers. Do these reasons hold as to the transfer of unissued shares held in escrow? To sustain appellant's contention is to declare that they do not. But we see no valid reason for treating unissued shares held in escrow differently from issued shares insofar as their sale and transfer is concerned. In both cases the corporation is entitled to know who the actual owners of the shares are, and to object to the transfer upon any valid ground. Likewise, in both cases the possibility of

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fictitious or fraudulent transfers exists. The only reason advanced by the appellant for exempting the transfer of unissued shares from recording is that in case of unissued shares there is no certificate number to be recorded. But that is a mere detail which does not affect the reasons behind the rule. The lack of such detail does not make it impossible to record the transfer upon the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, and the number of shares transferred, which are the most essential data. As a matter of fact, the defendant Filipinas Mining Corporation was able to take not of the transfer of the escrow shares in question to the Standard Investment of the Philippines on December 7, 1940, without knowing the certificate number that would correspond to said shares.

Moreover, it seems illogical and unreasonable to hold that inactive or unissued shares still held by the corporation in escrow pending receipt of authorization from the Government to issue them, may be negotiated or transferred unrestrictedly and more freely than active or issued shares evidenced by certificates of stock.

We are, therefore, of the opinion and so hold that section 35 of the Corporation Law, which requires the registration of transfers of shares stock upon the books of the corporation as a condition precedent to their validity against the corporation and third parties, is also applicable to unissued shares held by the corporation in escrow.

Ponce vs alsons cement

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

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

Issue: Whether or not ACC should issue Ponce a certificate of stock in his name?

Whether or not the complaint for Mandamus should prevail?

Held:

Fausto Gaid was an original subscriber of respondent corporation’s 239,500 shares. It is undisputed that petitioner had not made a previous request upon the corporate secretary of ALSONS, respondent Francisco M. Giron Jr., to record the alleged transfer of stocks.

Pursuant to Section 63 of the Corporation Code a transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned. As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. It is only when the transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From this time, the consequent obligation on the part of the corporation to recognize such rights as it is mandated by law to recognize arises.

The situation would be different if the petitioner was himself the registered owner of the stock which he sought to transfer to a third party, for then he would be entitled to the remedy of mandamus. the transfer is not effective until it is recorded. Unless and until such recording is made the demand for the issuance of stock certificates to the alleged transferee has no legal basis. the stock and transfer book is the basis for ascertaining the persons entitled to the rights and subject to the liabilities of a stockholder. Where a transferee is not yet recognized as a stockholder, the corporation is under no specific legal duty to issue stock certificates in the transferee’s name.

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

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

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Petitioner was elected as President of the Visayan Educational Supply Corp and subsequently reelected to such position but remained in the Board of Directors as director. While petitioner was still the president of the respondent corporation, two other incorporators assigned to the corporation their shares., represented by certificate of stock No. 4 and 5 after which, they were paid the corresponding 40% corporate stock-in-trade. Petitioner's certificate of stock No. 2 was cancelled by virtue of Resolution No. 1981 which was passed and approved while petitioner was still a member of the Board of Directors of the respondent corporation. Due to the withdrawal of the aforesaid incorporators and in order to complete the membership of the five (5) directors of the board, petitioner sold fifty (50) shares out of his 400 shares of capital stock to his brother Angel S. Tan. Another incorporator, Alfredo B. Uy, also sold fifty (50) of his 400 shares of capital stock to Teodora S. Tan and both new stockholders attended the special meeting. Angel Tan was elected director. Accordingly, as a result of the sale by petitioner of his fifty (50) shares of stock to Angel S. Tan, Certificate of Stock No. 2 was cancelled and the corresponding Certificates No. 6 in the name of Angel S. Tan and for the remaining 350 shares, Stock Certificate No. 8 was issued in the name of petitioner Alfonso S. Tan.Stock No. 2 and 8 were delivered for his endorsement and cancellation but Mr. Alfonso Tan did not make proper endorsement of the cancelled Certificate of Stock No. 2; instead he kept the cancelled Certificate of Stock No. 2.When petitioner was dislodged from his position as president, he withdrew from the corporation on condition that he be paid with stocks-in-trade. After the withdrawal of the stocks, the board of the respondent corporation held a meeting effecting the cancellation of Stock Certificate Nos. 2 and 8 in the corporate stock and transfer book and submitted the minutes thereof to the SEC.

Five (5) years and nine (9) months after the transfer of 50 shares to Angel S. Tan, brother of petitioner Alfonso S. Tan, and three (3) years and seven (7) months after effecting the transfer of Stock Certificate Nos. 2 and 8 from the original owner (Alfonso S. Tan) in the stock and transfer book of the corporation, the latter filed the case before the SEC questioning for the first time, the cancellation of his aforesaid Stock Certificates Nos. 2 and 8. The bone of contention raised by the petitioner is that the deprivation of his shares despite the non-endorsement or surrender of his Stock Certificate Nos. 2 and 8, was without the process contrary to the provision of Section 63 of the Corporation Code (Batas Pambansa Blg. 68) which requires that:. . . No transfer, however, shall be valid, except as between the parties, until the transfer is recorded to the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.Issue: Whether or not delivery of certificate of stock is essential in order to effect the transfer thereof in the books of the corporationRuling: No.1. There is no doubt that there was delivery of Stock Certificate No. 2 made by the petitioner to the Corporation before its replacement with the Stock Certificate No. 6 for fifty (50) shares to Angel S. Tan and Stock Certificate No. 8 for 350 shares to the petitioner. The problem arose when petitioner was given back Stock Certificate No.

2 for him to endorse and he deliberately witheld it for reasons of his own. It was very obvious that petitioner devised the scheme of not returning the cancelled Stock Certificate No. 2 which was returned to him for his endorsement, to skim off the largesse of the corporation as shown by the trading of his Stock Certificate No. 8. He also used this scheme to renege on his indebtedness to respondent Tan Su Ching in the amount of P1 million. It is not remote that if petitioner could have cashed in on Stock Certificate No. 2 with the remainder of the goods that he padlocked, he would have done so, until the respondent corporation was bled entirely.2. Petitioner further claims that "(T)he cancellation and transfer of petitioner's shares and Certificate of Stock No. 2 as well as the issuance and cancellation of Certificate of Stock No. 8 was patently and palpably unlawful, null and void, invalid and fraudulent." And, that Section 63 of the Corporation Code of the Philippines is "mandatory in nature", meaning that without the actual delivery and endorsement of the certificate in question, there can be no transfer, or that such transfer is null and void. The word "may"is an auxilliary verb showing among others, opportunity or possibility. Under ordinary circumstances, the phrase "may be" implies the possible existence of something. In this case, the "something" is a law governing sectoral representation. The phrase in question should, therefore, be understood to mean as prescribed by such law that governs the matter at the time . . . The phrase does not and cannot, by its very wording, restrict itself to the uncertainly of future legislation. The Court held in Chua v. Samahang Magsasaka, that "the word "may" indicates that the transfer may be effected in a manner different from that provided for in the law." For all intents and purposes, however, since this was already cancelled which cancellation was also reported to the respondent Commission, there was no necessity for the same certificate to be endorsed by the petitioner. All the acts required for the transferee to exercise its rights over the acquired stocks were attendant and even the corporation was protected from other parties, considering that said transfer was earlier recorded or registered in the corporate stock and transfer book.Following the doctrine enunciated in the case of Tuazon v. La Provisora Filipina, where this Court held, that:1. delivery is not essential where it appears that the persons sought to be held as stockholders are officers of the corporation, and have the custody of the stock book . . 2. necessary to delineate the function of the stock itself from the actual delivery or endorsement of the certificate of stock itself as is the question in the instant case. A certificate of stock is not necessary to render one a stockholder in corporation. Nevertheless, a certificate of stock is the paper representative or tangible evidence of the stock itself and of the various interests therein. The certificate is not stock in the corporation but is merely evidence of the holder's interest and status in the corporation, his ownership of the share represented thereby, but is not in law the equivalent of such ownership. It expresses the contract between the corporation and the stockholder, but is not essential to the existence of a share in stock or the nation of the relation of shareholder to the corporation. Under the instant case, the fact of the matter is, the new holder, Angel S. Tan has already exercised his rights and prerogatives as stockholder and was even elected as member of the board of directors in the respondent corporation with the full knowledge and acquiescence of petitioner. Due to the transfer of fifty (50) shares, Angel S. Tan was clothed with rights and responsibilities in the board

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of the respondent corporation when he was elected as officer thereof.In Philippine jurisprudence, a certificate of stock is not a negotiable instrument. "Although it is sometime regarded as quasi-negotiable, in the sense that it may be transferred by endorsement, coupled with delivery, it is well-settled that it is non-negotiable, because the holder thereof takes it without prejudice to such rights or defenses as the registered owner/s or transferror's creditor may have under the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles governing estoppel." Considering the circumstances of the case, it appearing that petitioner is guilty of manipulation, and high-handedness, circumventing the clear provisions of law in shielding himself from his wrongdoing contrary to the protective mantle that the law intended for innocent parties, the Court finds the excuses of the petitioner as unworthy of belief.

A.R. Hager vs. Bryan (1911)

Facts:

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

Issue:

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

Held:

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

By the weight of authority mandamus will not lie in ordinary cases to compel a corporation of its officers to transfer stock on its books and issue new certificates to the transferee, since the writ (in such a case) is a purely private one, and there is generally an adequate remedy by an action against the corporation for damages.

Section 35, Act No. 1459, provides among other things, that:

No share of stock against which the corporation holds any unpaid claim, shall be transferable on the books of the corporation.

To permit the writ of mandamus to issue for the purpose of compelling the officers of a corporation, in cases like the present one, to transfer stock upon the books of the corporation, might, under certain circumstances, require such officers to transfer stock

against which the corporation holds unpaid claims. These claims might easily arise between the time of the issuance of the writ and the service of the same upon such officers. If the court should issue the writ, it might require an officer to transfer stock under conditions where the law expressly prohibited such transfer. The writ of mandamus will never issue to compel a person to violate an express provision of the law. The act required to be performed must be one which the law specially enjoin as a duty resulting from an office, trust, or station or unlawfully excludes the plaintiff from the used and enjoyment of a right or office to which he is entitled and from which he is unlawfully precluded.

Batong Buhay Gold Mines Inc. vs Court of Appeals

Facts:

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

Issue:

May the court order the transfer of share to INCO?

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

Held:

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

On the second issue:

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

The stipulation of facts of the parties does not at all show that private respondent intended to sell, or would sell or would have sold the stocks in question on specified dates. While it is true that shares of stock may go up or down in value (as in fact the concerned shares here really rose from fifteen (15) centavos to twenty three or twenty four (23/24) centavos per share and then fell to about two (2) centavos per share, still whatever profits could have been made are purely SPECULATIVE, for it was difficult to predict with any decree of

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certainty the rise and fall in the value of the shares. Thus this Court has ruled that speculative damages cannot be recovered.

WON vs. WACK WACK FACTS: Defendant (a non-stock corporation) issued to Iwao Teruyama Membership Certificate No. 201 which was assigned to M. T. Reyes. Subsequently in the same year 1944, M. T. Reyes transferred and assigned said certificate to the plaintiff, Won. Almost 11 years after, the plaintiff filed an action against the defendant, alleging that shortly after the rehabilitation of the defendant after the war, the plaintiff asked the defendant to register in its books the assignment in favor of the plaintiff and to issue to the latter a new certificate, but that the defendant had refused and still refuses to do so unlawfully; and praying that the plaintiff be declared the owner of one share of stock of the defendant and that the latter be ordered to issue a correspondent new certificate. Defendant filed a motion to dismiss, alleging that from 1944, when the plaintiff's right of action had accrued, 1955, when the complaint was filed, eleven years have elapsed, and that therefore the complaint was filed beyond the 5-year period fixed in Article 1149 of the Civil Code. The Court dismissed the complaint. ISSUE: Whether or not the plaintiff was bound, under condition and By-Laws of the defendant or any statutory rule for that matter, to present and register the certificate assigned to him in 1944 within any definite or fixed period. HELD: The certificate in question contains a condition to the effect that no assignment thereof "shall be effective with respect to the club until such assignment is registered in the books of the club, as provided in the By-Laws." The defendant has not made herein any pretense to that effect; but it contends that from the moment the certificate was assigned to the plaintiff, the latter's right to have the assignment registered commenced to exist. This contention is correct, but it would not follow that said right should be exercised immediately or within a definite period. The existence of a right is one thing, and the duration of said right is another. On the other hand, it is stated in the appealed order of dismissal that the plaintiff sought to register the assignment on April 13, 1955; whereas in plaintiff's brief it is alleged that it was only in February, 1955, when the defendant refused to recognize the plaintiff. If, as already observed, there is no fixed period for registering an assignment, how can the complaint be considered as already barred by the Statute of Limitations when it was filed on April 26, 1955, or barely a few days (according to the lower court) and two months (according to the plaintiff), after the demand for registration and its denial by the defendant. Plaintiff's right was violated only sometime in 1955, and it could not accordingly have asserted any cause of action against the defendant before that.The defendant seems to believe that the plaintiff was compelled immediately to register his assignment. Any such compulsion is obviously for the benefit of the plaintiff, because it is only after registration that the transfer would be binding against the defendant.Order reversed.

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