Corporation Law Full Text

CORPORATION LAW CASES (9
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SECOND DIVISION
[G.R. No. L-28120. November 25, 1976.]
RICARDO A. NAVA, petitioner-appellant, vs. PEERS MARKETING
CORPORATION, RENATO R. CUSI and AMPARO CUSI, respondents-appellees.
Rolando M. Medalla, for appellant.
Jose Y. Montalvo, for appellees.
D E C I S I O N
AQUINO, J p:
This is a mandamus case. Teofilo Po as an incorporator subscribed to eighty shares of Peers Marketing
Corporation at one hundred pesos a share or a total par value of eight thousand pesos. Po paid two thousand
pesos or twenty-five percent of the amount of his subscription. No certificate of stock was issued to him or, for that
matter, to any incorporator, subscriber or stockholder.
On April 2, 1966 Po sold to Ricardo A. Nava for two thousand pesos twenty of his eighty shares. In the deed of
sale Po represented that he was "the absolute and registered owner of twenty shares" of Peers Marketing
Corporation.
Nava requested the officers of the corporation to register the sale in the books of the corporation. The request
was denied because Po has not paid fully the amount of his subscription. Nava was informed that Po was
delinquent in the payment of the balance due on his subscription and that the corporation had a claim on his
entire subscription of eighty shares which included the twenty shares that had been sold to Nava.
On December 21, 1966 Nava filed this mandamus action in the Court of First Instance of Negros Occidental,
Bacolod City Branch to compel the corporation and Renato R. Cusi and Amparo Cusi, its executive vice-president
and secretary respectively, to register the said twenty shares in Nava's name in the corporation's transfer book.
The respondents in their answer pleaded the defense that no shares of stock against which the corporation holds
an unpaid claim are transferable in the books of the corporation.
After hearing, the trial court dismissed the petition. Nava appealed on the ground that the decision "is contrary to
law." His sole assignment of error is that the trial court erred in applying the ruling in Fua Cun vs. Summers and
China Banking Corporation, 44 Phil. 705 to justify respondents' refusal in registering the twenty shares in Nava's
name in the books of the corporation.
The rule enunciated in the Fua Cun case is that payment of one-half of the subscription does not entitle the
subscriber to a certificate of stock for one-half of the number of shares subscribed.
Appellant Nava contends that the Fua Cun case was decided under section 36 of the Corporation Law which
provides that "no certificate of stock shall be issued to a subscriber as fully paid up until the full par value thereof
has been paid by him to the corporation". Section 36 was amended by Act No. 3518. It is now section 37. Section
37 provides that "no certificate of stock shall be issued to a subscriber as fully paid up until the full par value
thereof, or the full subscription in case of no par stock, has been paid by him to the corporation".
The issue is whether the officers of Peers Marketing Corporation can be compelled by mandamus to enter in its
stock and transfer book the sale made by Po to Nava of the twenty shares forming part of Po's subscription of
eighty shares, with a total par value of P8,000 and for which Po had paid only P2,000, it being admitted that the
corporation has an unpaid claim of P6,000 as the balance due on Po's subscription and that the twenty shares are
not covered by any stock certificate.
Apparently, no provision of the by-laws of the corporation covers that situation. The parties did not bother to
submit in evidence the by-laws nor invoke any of its provisions. The corporation can include in its by-laws rules,
not inconsistent with law, governing the transfer of its shares of stock (Sec. 13 7, Act No. 1459; Fleischer vs.
Botica Nolasco Co., 47 Phil 583, 589).
We hold that the transfer made by Po to Nava is not the "alienation, sale, or transfer of stock" that is supposed to
be recorded in the stock and transfer book, as contemplated in section 52 of the Corporation Law.
As a rule, the shares which may be alienated are those which are covered by certificates of stock, as shown in the
following provisions of the Corporation Law and as intimated in Hager vs. Bryan, 19 Phil 138 (overruling the
decision in Hager vs. Bryan, 21 Phil. 523. See 19 Phil. 616, notes, and Hodges vs. Lezama, 14 SCRA 1030).
"SEC. 35.The capital stock of stock corporations shall be divided into shares for which
certificates signed by the president or the vice-president, countersigned by the
secretary or clerk and sealed with the seal of the corporation, shall be issued in
accordance with the by-laws. Shares of stock so issued are personal property and
may be transferred by delivery of the certificate indorsed by the owner or his attorney
in fact or other person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is entered and noted
upon the books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate, and the number of
shares transferred.
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"No share of stock against which the corporation holds any unpaid claim shall be
transferable on the books of the corporation.
"SEC. 36.(re voting trust agreement) . . .
"xxx xxx xxx
"The certificates of stock so transferred shall be surrendered and cancelled, and new
certificates therefor issued to such person or persons, or corporation, as such trustee
or trustees, in which new certificates it shall appear that they are issued pursuant to
said agreement.
xxx xxx xxx
(Emphasis supplied).
(In the case of nonstock corporations a membership certificate is usually issued. Lee E. Won vs. Wack Wack Golf
& Country Club, Inc., 104 Phil. 466; Wack Wack Golf & Country Club, Inc. vs. Won, L-23851, March 26, 1976, 70
SCRA 165).
As prescribed in section 35, shares of stock may be transferred by delivery to the transferee of the certificate
properly indorsed. "Title may be vested in the transferee by delivery of the certificate with a written assignment or
indorsement thereof" (18 C.J.S. 928). There should be compliance with the mode of transfer prescribed by law (18
C.J.S. 930).
The usual practice is for the stockholder to sign the form on the back of the stock certificate. The certificate may
thereafter be transferred from one person to another. If the holder of the certificate desires to assume the legal
rights of a shareholder to enable him to vote at corporate elections and to receive dividends, he fills up the blanks
in the form by inserting his own name as transferee. Then he delivers the certificate to the secretary of the
corporation so that the transfer may be entered in the corporation's books. The certificate is then surrendered and
a new one issued to the transferee. (Hager vs. Bryan, 19 Phil. 138, 143-4).
That procedure cannot be followed in the instant case because, as already noted, the twenty shares in question
are not covered by any certificate of stock in Po's name. Moreover, the corporation has a claim on the said shares
for the unpaid balance of Po's subscription. A stock subscription is a subsisting liability from the time the
subscription is made. The subscriber is as much bound to pay his subscription as he would be to pay any other
debt. The right of the corporation to demand payment is no less incontestable. (Velasco vs. Poizat, 37 Phil. 802;
Lumanlan vs. Cura, 59 Phil. 746)
A corporation cannot release an original subscriber from paying for his shares without a valuable consideration
(Philippine National Bank vs. Bitulok Sawmill, Inc., L-24177-85, June 29, 1968, 23 SCRA 1366) or without the
unanimous consent of the stockholders (Lingayen Gulf Electric Power Co., Inc. vs. Baltazar, 93 Phil. 404).
Under the facts of this case, there is no clear legal duty on the part of the officers of the corporation to register the
twenty shares in Nava's name. Hence, there is no cause of action for mandamus.
Nava argues that under section 37 a certificate of stock may be issued for shares the par value of which have
already been paid for although the entire subscription has not been fully paid. He contends that Peers Marketing
Corporation should issue a certificate of stock for the twenty shares, notwithstanding that Po had not paid fully his
subscription for the eighty shares, because section 37 requires full payment for the subscription, as a condition
precedent for the issuance of the certificate of stock, only in the case of no par stock.
Nava relies on Baltazar vs. Lingayen Gulf Electric Power Co., Inc., L-16236-38, June 30, 1965, 14 SCRA 522,
where it was held that section 37 "requires as a condition before a shareholder can vote his shares that his full
subscription be paid in the case of no par value stock; and in case of stock corporation with par value, the
stockholder can vote the shares fully paid by him only, irrespective of the unpaid delinquent shares".
There is no parallelism between this case and the Baltazar case. It is noteworthy that in the Baltazar case the
stockholder, an incorporator, was the holder of a certificate of stock for the shares the par value of which had
been paid by him. The issue was whether the said shares had voting rights although the incorporator had not paid
fully the total amount of his subscription. That is not the issue in this case.
In the Baltazar case, it was held that where a stockholder subscribed to a certain number of shares with par value
and he made a partial payment and was issued a certificate for the shares covered by his partial payment, he is
entitled to vote the said shares, although he has not paid the balance of his subscription and a call or demand had
been made for the payment of the par value of the delinquent shares.
As already stressed, in this case no stock certificate was issued to Po. Without the stock certificate, which is the
evidence of ownership of corporate stock, the assignment of corporate shares is effective only between the
parties to the transaction (Davis vs. Wachter, 140 So. 361).

The delivery of the stock certificate, which represents the shares to be alienated, is essential for the protection of
both the corporation and its stockholders (Smallwood vs. Moretti, 128 So. 2d 628).
In view of the foregoing considerations, the trial court's judgment dismissing the petition for mandamus is affirmed.
Costs against the petitioner-appellant.
SO ORDERED.
Fernando (Chairman), Barredo, Antonio and Concepcion, Jr., JJ., concur.
FIRST DIVISION
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[G.R. No. 126891. August 5, 1998.]
LIM TAY, petitioner, vs. COURT OF APPEALS, GO FAY AND CO. INC., SY GUIOK,
and ESTATE OF ALFONSO LIM, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De Los Angeles for petitioner.
Manuel M. Gonzales for private respondent.
SYNOPSIS
Private respondent Sy Guiok and Alfonso Sy Lim secured a loan from petitioner Lim Tay, securing their loans with
contracts of pledge covering their respective shares of stock in Go Fay & Company, Inc. Under said contracts of
pledge, Guiok and Sy Lim agreed that in the event of their failure to pay the amount within the period agreed
upon, the pledgee, Lim Tay, was authorized to foreclose the pledge upon the said shares of stock.
Respondent Guiok and Sy Lim endorsed their respective shares of stock in blank and delivered the same to Lim
Tay. Guiok and Lim, however, failed to pay their respective loans to Lim Tay.
Lim Tay filed a petition for mandamus with the Securities and Exchange Commission (SEC) against Go Fay &
Company, praying that an order be issued directing the corporate secretary of the company to register the stock
transfers and issue new certificates in his favor. Lim Tay alleged in his petition that the controversy between him
as stockholder and the company was intra-corporate in view of the obstinate refusal of the corporate secretary of
the company to record the transfer of the shares of stock of Guiok and Sy Lim in favor of petitioner.
The registration of shares in a stockholder's name, the issuance of stock certificates, and the right to receive
dividends which pertain to the said shares are all rights that flow from ownership. The determination of whether or
not a shareholder is entitled to exercise the preceding rights falls within the jurisdiction of the SEC. However, if
ownership of the shares is not clearly established and is still unresolved at the time the action for mandamus is
filed, then jurisdiction lies with the regular courts.
Manifestly, petitioner's complaint by itself did not contain any prima facie showing that petitioner was the owner of
the shares of stocks. Quite the contrary, it demonstrated that he was merely a pledgee, not an owner. The
contractual stipulation which was part of the complaint, shows that petitioner was merely authorized to foreclose
the pledge upon maturity of the loans, not to own them. Accordingly, it failed to lay down a sufficient basis for the
SEC to exercise jurisdiction over the controversy.
SYLLABUS
1.MERCANTILE LAW; CORPORATION LAW; OWNERSHIP OF SHARES OF STOCKS; JURISDICTION LIES
WITH REGULAR COURTS AND NOT WITH THE SEC; REASON. The registration of shares in a stockholder's
name, the issuance of stock certificates, and the right to receive dividends which pertain to the said shares are all
rights that flow from ownership. The determination of whether or not a shareholder is entitled to exercise the
above-mentioned rights falls within the jurisdiction of the SEC. However, if ownership of the shares is not clearly
established and is still unresolved at the time the action for mandamus is filed, then jurisdiction lies with the
regular courts. As a general rule, the jurisdiction of a court or tribunal over the subject matter is determined by the
allegations in the complaint. In the present case, however, petitioner's claim that he was the owner of the shares
of stock in question has no prima facie basis. In his Complaint, petitioner alleged that, pursuant to the contracts of
pledge, he became the owner of the shares when the term for the loans expired. However, the contracts of
pledge, which were made integral parts of the Complaint, contain this common proviso: In the event of the failure
of the PLEDGOR to pay the amount within a period of six (6) months from the date hereof, the PLEDGEE is
hereby authorized to foreclose the pledge upon the said shares of stock . . .."
2.REMEDIAL LAW; CIVIL PROCEDURE; MANDAMUS; MANDAMUS WILL NOT ISSUE TO ESTABLISH A
RIGHT. Petitioner has failed to establish a clear legal right. Petitioner's contention that he is the owner of the
said shares is completely without merit. Quite the contrary and as already shown, he does not have any
ownership rights at all. At the time petitioner instituted his suit at the SEC, his ownership claim had no prima facie
leg to stand on. At best, his contention was disputable and uncertain. Mandamus will not issue to establish a legal
right, but only to enforce one that is already clearly established.
3.CIVIL LAW; CREDIT TRANSACTIONS; PLEDGE; PETITIONER DID NOT ACQUIRE OWNERSHIP OF THE
SHARES BY VIRTUE OF THE PLEDGE. There is no showing that petitioner made any attempt to foreclose or
sell the shares through public or private auction, as stipulated in the contracts of pledge and as required by Article
2112 of the Civil Code. Therefore, ownership of the shares could not have passed to him. The pledgor remains
the owner during the pendency of the pledge and prior to foreclosure and sale, as explicitly provided by Article
2103 of the same Code: "Unless the thing pledged is expropriated, the debtor continues to be the owner thereof.
Nevertheless, the creditor may bring the actions which pertain to the owner of the thing pledged in order to
recover it from, or defend it against a third person."
4.ID.; PRESCRIPTION; PETITIONER'S POSSESSION OF THE SHARES OF STOCK AS A PLEDGEE CANNOT
RIPEN INTO OWNERSHIP BY PRESCRIPTION. Petitioner's contention that he can be deemed to have
acquired ownership over the certificates of stock through extraordinary prescription, as provided for in Article 1132
of the Civil Code, is untenable. What is required by Article 1132 is possession in the concept of an owner. In the
present case, petitioner's possession of the stock certificates came about because they were delivered to him
pursuant to the contracts of pledge. His possession as a pledgee cannot ripen into ownership by prescription.
5.ID.; NOVATION; NOVATION OF A CONTRACT MUST NOT BE PRESUMED. Neither did petitioner acquire
the shares by virtue of a novation of the contract of pledge. Novation is defined as "the extinguishment of an
obligation by a subsequent one which terminates it, either by changing its object or principal conditions, by
substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor."
Novation of a contract must not be presumed. "In the absence of an express agreement, novation takes place
only when the old and the new obligations are incompatible on every point."
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D E C I S I O N
PANGANIBAN, J p:
The duty of a corporate secretary to record transfers of stocks is ministerial. However, he cannot be compelled to
do so when the transferee's title to said shares has no prima facie validity or is uncertain. More specifically, a
pledgor, prior to foreclosure and sale, does not acquire ownership rights over the pledged shares and thus cannot
compel the corporate secretary to record his alleged ownership of such shares on the basis merely of the contract
of pledge. Similarly, the SEC does not acquire jurisdiction over a dispute when a party's claim to being a
shareholder is, on the face of the complaint, invalid or inadequate or is otherwise negated by the very allegations
of such complaint. Mandamus will not issue to establish a right, but only to enforce one that is already
established. LibLex
Statement of the Case
These are the principles used by this Court in resolving this Petition for Review on Certiorari before us, assailing
the October 24, 1996 Decision 1 of the Court of Appeals 2 in CA-GR SP No. 40832, the dispositive portion of
which reads:
"IN THE LIGHT OF ALL THE FOREGOING, the Petition at bench is DENIED DUE
COURSE and is hereby DISMISSED. With costs against the [p]etitioner." 3
By the foregoing disposition, the Court of Appeals effectively affirmed the March 7, 1996 Decision 4 of the
Securities and Exchange Commission (SEC) en banc:
"WHEREFORE, in view of all the foregoing, judgment is hereby rendered dismissing
the appeal on the ground that mandamus will only issue upon a clear showing of
ownership over the assailed shares of stock, [t]he determination of which, on the
basis of the foregoing facts, is within the jurisdiction of the regular courts and not with
the SEC." 5
The SEC en banc upheld the August 16, 1993 Decision 6 of SEC Hearing Officer Rolando C. Malabonga, which
dismissed the action for mandamus filed by petitioner.
The Facts
As found by the Court of Appeals, the facts of the case are as follows:
" . . . On January 8, 1980, Respondent-Appellee Sy Guiok secured a loan from the
[p]etitioner in the amount of P40,000 payable within six (6) months. To secure the
payment of the aforesaid loan and interest thereon, Respondent Guiok executed a
Contract of Pledge in favor of the [p]etitioner whereby he pledged his three hundred
(300) shares of stock in the Go Fay & Company Inc., Respondent Corporation, for
brevity's sake. Respondent Guiok obliged himself to pay interest on said loan at the
rate of 10% per annum from the date of said contract of pledge. On the same date,
Alfonso Sy Lim secured a loan, from the [p]etitioner in the amount of P40,000 payable
in six (6) months. To secure the payment of his loan, Sy Lim executed a 'Contract of
Pledge' covering his three hundred (300) shares of stock in Respondent Corporation.
Under said contract, Sy Lim obliged himself to pay interest on his loan at the rate of
10% per annum from the date of the execution of said contract.
Under said 'Contracts of Pledge,' Respondent[s] Guiok and Sy Lim covenanted, inter
alia, that:
'3.In the event of the failure of the PLEDGOR to pay the amount within a
period of six (6) months from the date hereof, the PLEDGEE is hereby
authorized to foreclose the pledge upon the said shares of stock hereby
created by selling them same at public or private sale with or without
notice to the PLEDGOR, at which sale the PLEDGEE may be the
purchaser at his option; and the PLEDGEE is hereby authorized and
empowered at his option to transfer the said shares of stock on the books
of the corporation to his own name and to hold the certificate issued in
lieu thereof under the terms of this pledge, and to sell the said shares to
issue to him and to apply the proceeds of the sale to the payment of the
said sum and interest, in the manner hereinabove provided;

4.In the event of the foreclosure of this pledge and the sale of the
pledged certificate, any surplus remaining in the hands of the PLEDGEE
after the payment of the said sum and interest, and the expenses, if any,
connected with the foreclosure sale, shall be paid by the PLEDGEE to
the PLEDGOR;
5.Upon payment of the said amount and interest in full, the PLEDGEE
will, on demand of the PLEDGOR, redeliver to him the said shares of
stock by surrendering the certificate delivered to him by the PLEDGOR or
by retransferring each share to the PLEDGOR, in the event that the
PLEDGEE, under the option hereby granted, shall have caused such
shares to be transferred to him upon the books of the issuing company.'
(idem, supra)
Respondent Guiok and Sy Lim endorsed their respective shares of stock in blank and
delivered the same to the [p]etitioner." 7
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However, Respondent Guiok and Sy Lim failed to pay their respective loans and the
accrued interests thereon to the [p]etitioner. In October, 1990, the [p]etitioner filed a
'Petition for Mandamus' against Respondent Corporation, with the SEC entitled 'Lim
Tay versus Go Fay & Company. Inc., SEC Case No. 03894', praying that:
'PRAYER
WHEREFORE, premises considered, it is respectfully prayed that an
order be issued directing the corporate secretary of [R]espondent Go Fay
& Co, Inc. to register the stock transfers and issue new certificates in
favor of Lim Tay. It is likewise prayed that [R]espondent Go Fay & Co.,
Inc[.] be ordered to pay all dividends due and unclaimed on the said
certificates to [P]laintiff Lim Tay. cdphil
Plaintiff further prays for such other relief just and equitable in the
premises.' (page 34, Rollo)
The [p]etitioner alleged, inter alia, in his Petition that the controversy between him as
stockholder and the Respondent Corporation was intra-corporate in view of the
obstinate refusal of the corporate secretary of Respondent Corporation to record the
transfer of the shares of stock of Respondent Guiok and Sy Lim in favor of and under
the name of the [p]etitioner and to issue new certificates of stock to the [p]etitioner.
The Respondent Corporation filed its Answer to the Complaint and alleged, as
Affirmative Defense, that:
'AFFIRMATIVE DEFENSE '
7.Respondent repleads and incorporates herein by reference the
foregoing allegations.
8.The Complaint states no cause of action against [r]espondent.
9.Complainant is not a stockholder of [r]espondent. Hence, the Honorable
Commission has no jurisdiction to enter the present controversy since
their [sic] is no intracorporate relationship between complainant and
respondent.
10.Granting arguendo that a pledge was constituted over the
shareholdings of Sy Guiok in favor of the complainant and that the former
defaulted in the payment of his obligations to the latter, the same did not
automatically vest [i]n complainant ownership of the pledged shares.'
(page 37, Rollo)
In the interim, Sy Lim died. Respondents Guiok and the Intestate Estate of Alfonso Sy
Lim, represented by Conchita Lim, filed their Answer-In-Intervention with the SEC
alleging, inter alia, that:
'xxx xxx xxx
3.Deny specifically the allegation under paragraph 5 of the Complaint
that, failure to pay the loan within the contract period automatically
foreclosed the pledged shares of stocks and that the share of stocks are
automatically purchased by the plaintiff, for being false and distorted, the
truth being that pursuant to the [sic] paragraph 3 of the contract of
pledges, Annexes 'A' and 'B', it is clear that upon failure to pay the
amount within the stipulated period, the pledgee is authorized to
foreclose the pledge and thereafter, to sell the same to satisfy the loan.
[H]owever, to this point in time, plaintiff has not performed any operative
act of foreclosing the shares of stocks of [i]ntervenors in accordance with
the Chattel Mortgage law, [n]either was there any sale of stocks by
way of public or private auction made after foreclosure in favor of the
plaintiff to speak about, and therefore, the respondent company could not
be force[d] to [sic] by way of mandamus, to transfer the subject shares of
stocks from the name of your [i]ntervenors to that of the plaintiff in the
absence of clear and legal basis for such;
4.DENY specifically the allegations under paragraphs 6, 7 and 8 of the
complaint as to the existence of the alleged intracorporate dispute
between plaintiff and company for being without proper and legal basis.
In the first place, plaintiff is not a stockholder of the respondent
corporation; there was no foreclosure of shares executed in accordance
with the Chattel Mortgage Law whatsoever; there were no sales
consummated that would transfer to the plaintiff the subject shares of
stocks and therefore, any demand to transfer the shares of stocks to the
name of the plaintiff has no legal basis. In the second place, [i]ntervenors
had been in the past negotiating possible compromise and at the same
time, had tendered payment of the loan secured by the subject pledges
but plaintiff refused unjustifiably to oblige and accept payment o[r] even
agree on the computation of the principal amount of the loan and interest
on top of a substantial amount offered just to settle and compromise the
indebtedness of [i]ntervenors;
II.SPECIAL AFFIRMATIVE DEFENSES
Intervenors replead by way of reference all the foregoing allegations to
form part of the special affirmative defenses;
5.This Honorable Commission has no jurisdiction over the person of the
respondent and nature of the action, plaintiff having no personality at all
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to compel respondent by way of mandamus to perform certain corporate
function[s]; prLL
6.The complaint states no cause of action;
7.That respondent is not [a] real party in interest;
8.The appropriation of the subject shares of stocks by plaintiff, without
compliance with the formality of law, amounted to '[p]actum
commis[s]orium' therefore, null and void;
9.Granting for the sake of argument only that there was a valid
foreclosure and sale of the subject st[o]cks in favor of the plaintiff
which [i]ntervenors deny still paragraph 5 of the contract allows
redemption, for which intervenors are willing to redeem the share of
stocks pledged;
10.Even the Chattel Mortgage law allowed redemption of the [c]hattel
foreclosed;
11.As a matter of fact, on several occasions, [i]ntervenors had made
representations with the plaintiff for the compromise and settlement of all
the obligations secured by the subject pledges even offering to pay
compensation over and above the value of the obligations, interest[s] and
dividends accruing to the share of stocks but, plaintiff unjustly refused to
accept the offer of payment;' ( pages 39-42, Rollo)
The [r]espondents-[i]ntervenors prayed the SEC that judgment be rendered in their
favor, as follows:
'IV. PRAYER
It is respectfully prayed to this Honorable Commission after due hearing,
to dismiss the case for lack of merit, ordering plaintiff to accept payment
for the loans secured by the subject shares of stocks and to pay plaintiff:
1.The sum of P50,000.00, as moral damages;
2.the sum of P50,000.00, as attorneys fees; and,
3.costs of suit.
Other reliefs just and equitable [are] likewise prayed for.' (pages 42-43,
Rollo)
After due proceedings, the [h]earing [o]fficer promulgated a Decision dismissing
[p]etitioner's Complaint on the ground that although the SEC had jurisdiction over the
action, pursuant to the Decision of the Supreme Court in the case of 'Rural Bank of
Salinas et. al. versus Court of Appeals, et al., 210 SCRA 510', he failed to prove the
legal basis for the secretary of the Respondent Corporation to be compelled to
register stock transfers in favor of the [p]etitioner and to issue new certificates of stock
under his name (pages 67-77, Rollo) The [p]etitioner appealed the Decision of the
[h]earing [o]fficer to the SEC, but, on March 7, 1996, the SEC promulgated a
Decision, dismissing [p]etitioner's appeal on the grounds that: (a) the issue between
the [p]etitioner and the [r]espondents being one involving the ownership of the shares
of stock pledged by Respondent Guiok and Sy Lim the SEC had no jurisdiction over
the action filed by the [p]etitioner; (b) the latter had no cause of action for mandamus
against the Respondent Corporation, the right of ownership of the [p]etitioner over the
300 shares of stock pledged by Respondent Guiok and Sy Lim not having been as
yet, established, preparatory to the institution of said Petition for Mandamus with the
SEC."
Ruling of the Court of Appeals
On the issue of jurisdiction, the Court of Appeals ruled:
"In ascertaining whether or not the SEC had exclusive jurisdiction over [p]etitioner's
action, the [a]ppellate [c]ourt must delve into and ascertain: (a) whether or not there is
a need to enlist the expertise and technical know-how of the SEC in resolving the
issue of the ownership of the shares of stock; (b) the status of the relationships of the
parties; [and] (c) the nature of the question that is the subject of the controversy.
Where the controversy is purely a civil matter resoluble by civil law principles and
there is no need for the application of the expertise and technical know-how of the
SEC, then the regular courts have jurisdiction over the action." 8 [citations omitted]
On the issue of whether mandamus can be availed of by the petitioner the Court of Appeals agreed with the SEC,
viz:
". . . [T]he [p]etitioner failed to establish a clear and legal right to the writ of mandamus
prayed for by him . . .Mandamus will not issue to enforce a right which is in substantial
dispute or to which a substantial doubt exists . . .The principal function of the writ of
mandamus is to command and expedite, and not to inquire and adjudicate and,
therefore it is not the purpose of the writ to establish a legal right, but to enforce one
which has already been established." 9 [citations omitted] prLL

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The Court of Appeals debunked petitioner's claim that he had acquired ownership over the shares by virtue of
novation, holding that respondents' indorsement and delivery of the shares were pursuant to Articles 2093 and
2095 of the Civil Code and that petitioner's receipt of dividends was in compliance with Article 2102 of the same
Code. Petitioner's claim that he had acquired ownership of the shares by virtue of prescription was likewise
dismissed by Respondent Court in this wise:
"The prescriptive period for the action of Respondent[s] Guiok and Sy Lim to recover
the shares of stock from the [p]etitioner accrued only from the time they paid their
loans and the interests thereon and [made] a demand for their return. 10
Hence, the petitioner brought before us this Petition for Review on Certiorari in accordance with Rule 45 of the
Rules of Court. 11
Assignment of Errors
Petitioner submits, for the consideration of this Court, these issues: 12
"(a)Whether the Securities and Exchange Commission had jurisdiction over the
complaint filed by the petitioner; and
(b)Whether the petitioner is entitled to the relief of mandamus as against the
respondent Go Fay & Co., Inc."
In addition, petitioner contends that it has acquired ownership of the shares "through extraordinary prescription,"
pursuant to Article 1132 of the Civil Code, and through respondents' subsequent acts, which amounted to a
novation of the contracts of pledge. Petitioner also claims that there was dacion en pago, in which the shares of
stock were deemed sold to petitioner, the consideration for which was the extinguishment of the loans and the
interests thereon. Petitioner likewise claims that laches bars respondents from recovering the subject shares.
The Court's Ruling
The petition has no merit.
First Issue: Jurisdiction of the SEC
Claiming that the present controversy is intra-corporate and falls within the exclusive jurisdiction of the SEC,
petitioner relies heavily on Abejo v. De La Cruz, 13 which upheld the jurisdiction of the SEC over a suit filed by an
unregistered stockholder seeking to enforce his rights. He also seeks support from Rural Bank of Salinas, Inc. v.
Court of Appeals, 14 which ruled that the right of a transferee or an assignee to have stocks transferred to his
name was an inherent right flowing from his ownership of the said stocks.
The registration of shares in a stockholder's name, the issuance of stock certificates, and the right to receive
dividends which pertain to the said shares are all rights that flow from ownership. The determination of whether or
not a shareholder is entitled to exercise the above-mentioned rights falls within the jurisdiction of the SEC.
However, if ownership of the shares is not clearly established and is still unresolved at the time the action for
mandamus is filed, then jurisdiction lies with the regular courts.
Section 5 of Presidential Decree No. 902-A sets forth the jurisdiction of the SEC as follows:
"SEC. 5.In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of
associations registered with it as expressly granted under existing laws and decrees,
it shall have original and exclusive jurisdiction to hear and decide cases involving:
(a)Devices or schemes employed by or any acts of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or of stockholders, partners,
members of associations or organizations registered with the Commission;
(b)Controversies arising out of intra-corporate or partnership relations, between and
among stockholders, members, or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association
and the State insofar as it concerns their individual franchise or right to exist as such
entity;
(c)Controversies in the election or appointment of directors, trustees, officers or
managers of such corporations, partnerships or associations;
(d)Petitions of corporations, partnerships or associations to be declared in the state of
suspension of payments in cases where the corporation, partnership or association
possesses property to cover all its debts but foresees the impossibility of meeting
them when they respectively fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the
Management Committee created pursuant to this decree." 15
Thus, a controversy "among stockholders, partners or associates themselves" 16 is intra-corporate in nature and
falls within the jurisdiction of the SEC. cda
As a general rule, the jurisdiction of a court or tribunal over the subject matter is determined by the allegations in
the complaint. 17 in the present case, however, petitioner's claim that he was the owner of the shares of stock in
question has no prima facie basis.
In his Complaint, petitioner alleged that, pursuant to the contracts of pledge, he became the owner of the shares
when the term for the loans expired. The Complaint contained the following pertinent averments:
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"xxx xxx xxx
3.On [J]anuary 8, 1990, under a Contract of Pledge, Lim Tay received three hundred
(300) shares of stock of Go Fay & Co., Inc., from Sy Guiok as, security for the
payment of a loan of [f]orty [t]housand [p]esos (P40,000.00) Philippine currency, the
sum of which was payable within six (6) months [with interest] at ten percentum (10%)
per annum from the date of the execution of the contract; a copy of this Contract of
Pledge is attached as Annex "A" and made part hereof ;
4.On the same date January 8, 1980, under a similar Contract of Pledge, Lim Tay
received three hundred (300) shares of stock of Go Fay & Co., Inc. from Alfonso Sy
Lim as security for the payment of a loan of [f]orty [t]housand [p]esos (P40,000.00)
Philippine currency, the sum of which was payable within six (6) months [with interest]
at ten percentum (10%) per annum from the date of the execution of the contract;
copy of this Contract of Pledge is attached as Annex "B" and made part hereof ;
5.By the express terms of the agreements, upon failure of the borrowers to pay the
stated amounts within the contract period, the pledge is foreclosed and the shares of
stock are purchased by [p]laintiff, who is expressly authorized and empowered to
transfer the duly endorsed shares of stock on the books of the corporation to his own
name; . . . 18 (emphasis supplied)
However, the contracts of pledge, which were made integral parts of the Complaint, contain this common proviso:
"3.In the event of the failure of the PLEDGOR to pay the amount within a period of six
(6) months from the date hereof, the PLEDGEE is hereby authorized to foreclose the
pledge upon the said shares of stock hereby created by selling the same at public or
private sale with or without notice to the PLEDGOR, at which sale the PLEDGEE may
be the purchaser at his option; and the PLEDGEE is hereby authorized and
empowered at his option, to transfer the said shares of stock on the books of the
corporation to his own name and to hold the certificate issued in lieu thereof under the
terms of this pledge, and to sell the said shares to issue to him and to apply the
proceeds of the sale to the payment of the said sum and interest, in the manner
hereinabove provided; "
This contractual stipulation, which was part of the Complaint, shows that plaintiff was merely authorized to
foreclose the pledge upon maturity of the loans, not to own them. Such foreclosure is not automatic, for it must be
done in a public or private sale. Nowhere did the Complaint mention that petitioner had in fact foreclosed the
pledge and purchased the shares after such foreclosure His status as a mere pledgee does not, under civil law,
entitle him to ownership of the subject shares. It is also noteworthy that petitioner's Complaint did not aver that
said shares were acquired through extraordinary prescription, novation or laches. Moreover, petitioner's claim,
subsequent to the filing of the Complaint, that he acquired ownership of the said shares through these three
modes is not indubitable and still has to be resolved. In fact, as will be shown, such allegation has no merit.
Manifestly, the Complaint by itself did not contain any prima facie showing that petitioner was the owner of the
shares of stocks. Quite the contrary, it demonstrated that he was merely a pledgee, not an owner. Accordingly, it
failed to lay down a sufficient basis for the SEC to exercise jurisdiction over the controversy. In fact, the very
allegations of the Complaint and its annexes negated the jurisdiction of the SEC.
Petitioner's reliance on the doctrines set forth in Abejo v. De la Cruz and Rural Bank of Salinas, Inc. v. Court of
Appeals is misplaced. In Abejo, the Abejo spouses sold to Telectronic Systems, Inc. shares of stock in Pocket Bell
Philippines, Inc. Subsequent to such contract of sale, the corporate secretary, Norberto Braga, refused to record
the transfer of the shares in the corporate books and instead asked for the annulment of the sale, claiming that he
and his wife had a preemptive right over some of the shares, and that his wife's shares were sold without
consideration or consent.
At the time the Bragas questioned the validity of the sale, the contract had already been perfected, thereby
demonstrating that Telectronic Systems, Inc. was already the prima facie owner of the shares and, consequently,
a stockholder of Pocket Bell Philippines, Inc. Even if the sale were to be annulled later on, Telectronic Systems,
Inc. had, in the meantime, title over the shares from the time the sale was perfected until the time such sale was
annulled. The effects of an annulment operate prospectively and do not, as a rule, retroact to the time the sale
was made. Therefore, at the time the Bragas questioned the validity of the transfers made by the Abejos,
Telectronic Systems, Inc. was already aprima facie shareholder of the corporation, thus making the dispute
between the Bragas and the Abejos "intra-corporate" in nature. Hence, the Court held that "the issue is not on
ownership of shares but rather the non-performance by the corporate secretary of the ministerial duty of recording
transfers of shares of stock of the corporation of which he is secretary " 19

Unlike Abejo, however, petitioner's ownership over the shares in this case was not yet perfected when the
Complaint was filed. The contract of pledge certainly does not make him the owner of the shares pledged.
Further, whether prescription effectively transferred ownership of the shares, whether there was a novation of the
contracts of pledge, and whether laches had set in were difficult legal issues, which were unpleaded and
unresolved when herein petitioner asked the corporate secretary of Go Fay to effect the transfer, in his favor, of
the shares pledged to him. cda
In Rural Bank of Salinas, Melenia Guerrero executed deeds of assignment for the shares in favor of the
respondents in that case. When the corporate secretary refused to register the transfer, an action for mandamus
was instituted. Subsequently, a motion for intervention was filed, seeking the annulment of the deeds of
assignment on the grounds that the same were fictitious and antedated, and that they were in fact donations
because the considerations therefor were below the book value of the shares.
Like the Abejo spouses, the respondents in Rural Bank of Salinas were already prima facie shareholders when
the deeds of assignment were questioned. If the said deeds were to be annulled later on, respondents would still
be considered shareholders of the corporation from the time of the assignment until the annulment of such
contracts.
Second Issue: Mandamus Will Not
Issue to Establish a Right
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Petitioner prays for the issuance of a writ of mandamus, directing the corporate secretary of respondent
corporation to have the shares transferred to his name in the corporate books, to issue new certificates of stock
and to deliver the corresponding dividends to him. 20
"In order that a writ of mandamus may issue, it is essential that the person petitioning for the same has a clear
legal right to the thing demanded and that it is the imperative duty of the respondent to perform the act required. It
neither confers powers nor imposes duties and is never issued in doubtful cases. It is simply a command to
exercise a power already possessed and to perform a duty already imposed." 21
In the present case, petitioner has failed to establish a clear legal right. Petitioner's contention that he is the owner
of the said shares is completely without merit. Quite the contrary and as already shown, he does not have any
ownership rights at all. At the time petitioner instituted his suit at the SEC, his ownership claim had no prima facie
leg to stand on. At best, his contention was disputable and uncertain. Mandamus will not issue to establish a legal
right, but only to enforce one that is already clearly established.
Without Foreclosure and
Purchase at Auction,
Pledgor Is Not the Owner of Pledged Shares
Petitioner initially argued that ownership of the shares pledged had passed to him, upon Respondents Sy Guiok
and Sy Lim's failure to pay their respective loans. But on appeal, petitioner claimed that ownership over the
shares had passed to him, not via the contracts of pledge, but by virtue of prescription and by respondents'
subsequent acts which amounted to a novation of the contracts of pledge. We do not agree.
At the outset, it must be underscored that petitioner did not acquire ownership of the shares by virtue of the
contracts of pledge. Article 2112 of the Civil Code states:
"The creditor to whom the credit has not been satisfied in due time, may proceed
before a Notary Public to the sale of the thing pledged. This sale shall be made at a
public auction, and with notification to the debtor and the owner of the thing pledged in
a proper case, stating the amount for which the public sale is to be held. If at the first
auction the thing is not sold, a second one with the same formalities shall be held; and
if at the second auction there is no sale either, the creditor may appropriate the thing
pledged. In this case he shall be obliged to give an acquittance for his entire claim."
Furthermore, the contracts of pledge contained a common proviso, which we quote again for the sake of clarity:
"3.In the event of the failure of the PLEDGOR to pay the amount within a period of six
(6) months from the date hereof, the PLEDGEE is hereby authorized to foreclose the
pledge upon the said shares of stock hereby created by selling the same at public or
private sale with or without notice to the PLEDGOR, at which sale the PLEDGEE may
be the purchaser at his option; and the PLEDGEE is hereby authorized and
empowered at his option to transfer the said shares of stock on the books of the
corporation to his own name, and to hold the certificate issued in lieu thereof under
the terms of this pledge, and to sell the said shares to issue to him and to apply the
proceeds of the sale to the payment of the said sum and interest, in the manner
hereinabove provided;" 22
There is no showing that petitioner made any attempt to foreclose or sell the shares through public or private
auction, as stipulated in the contracts of pledge and as required by Article 2112 of the Civil Code. Therefore,
ownership of the shares could not have passed to him. The pledgor remains the owner during the pendency of the
pledge and prior to foreclosure and sale, as explicitly provided by Article 2103 of the same Code: LLphil
"Unless the thing pledged is expropriated, the debtor continues to be the owner
thereof.
Nevertheless, the creditor may bring the actions which pertain to the owner of the
thing pledged in order to recover it from, or defend it against a third person."
No Ownership
by Prescription
Petitioner did not acquire the shares by prescription either. The period of prescription of any cause of action is
reckoned only from the date the cause of action accrued.
"Since a cause of action requires as an essential element not only a legal right of the plaintiff and a correlative
obligation of the defendant, but also an act or omission of the defendant in violation of said legal right, the cause
of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty." 23
Accordingly, a cause of action on a written contract accrues when a breach or violation thereof occurs.
Under the contracts of pledge, private respondents would have a right to ask for the redelivery of their certificates
of stock upon payment of their debts to petitioner, consonant with Article 2105 of the Civil Code, which reads:
"The debtor cannot ask for the return of the thing pledged against the will of the
creditor, unless and until he has paid the debt and its interest, with expenses in a
proper case." 24
Thus, the right to recover the shares based on the written contract of pledge between petitioner and respondents
would arise only upon payment of their respective loans. Therefore, the prescriptive period within which to
demand the return of the thing pledged should begin to run only after the payment of the loan and a demand for
the thing has been made, because it is only then that respondents acquire a cause of action for the return of the
thing pledged.
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Prescription should not begin to run on the action to demand the return of the thing pledged while the loan still
exists. This is because the right to ask for the return of the thing pledged will not arise so long as the loan
subsists. In the present case, the prescriptive period did not begin to run when the loan became due. On the other
hand, it is petitioner's right to demand payment that may be in danger of prescription.
Petitioner contends that he can be deemed to have acquired ownership over the certificates of stock through
extraordinary prescription, as provided for in Article 1132 of the Civil Code which states:
"Art. 1132. The ownership of movables prescribes through uninterrupted possession
for four years in good faith.
The ownership of personal property also prescribes through uninterrupted possession
for eight years, without need of any other condition. . . ."
Petitioner's argument is untenable. What is required by Article 1132 is possession in the concept of an owner. In
the present case, petitioner's possession of the stock certificates came about because they were delivered to him
pursuant to the contracts of pledge. His possession as a pledgee cannot ripen into ownership by prescription. As
aptly pointed out by Justice Jose C. Vitug:
"Acquisitive prescription is a mode of acquiring ownership by a possessor through the
requisite lapse of time. In order to ripen into ownership, possession must be in the
concept of an owner, public, peaceful and uninterrupted. Thus, possession with a
juridical title, such as by a usufructory, a trustee, a lessee, agent or a pledgee, not
being in the concept of an owner, cannot ripen into ownership by acquisitive
prescription unless the juridical relation is first expressly repudiated and such
repudiation has been communicated to the other party." 25
Petitioner expressly repudiated the pledge, only when he filed his Complaint and claimed that he was not a mere
pledgee, but that he was already the owner of the shares. Based on the foregoing, petitioner has not acquired the
certificates of stock through extraordinary prescription.
No Novation
in Favor of Petitioner
Neither did petitioner acquire the shares by virtue of a novation of the contract of pledge. Novation is defined as
"the extinguishment of an obligation by a subsequent one which terminates it, either by changing its object or
principal conditions, by substituting a new debtor in place of the old one, or by subrogating a third person to the
rights of the creditor." 26 Novation of a contract must not be presumed. "In the absence of an express agreement,
novation takes place only when the old and the new obligations are incompatible on every point." 27
In the present case, novation cannot be presumed by (a) respondents' indorsement and delivery of the certificates
of stock covering the 600 shares, (b) petitioner's receipt of dividends from 1980 to 1983, and (c) the fact that
respondents have not instituted any action to recover the shares since 1980.

Respondents' indorsement and delivery of the certificates of stock were pursuant to paragraph 2 of the contract of
pledge which reads:
"2.The said certificates had been delivered by the PLEDGOR endorsed in blank to be
held by the PLEDGEE under the pledge as security for the payment of the
aforementioned sum and interest thereon accruing." 28
This stipulation did not effect the transfer of ownership to petitioner. It was merely in compliance with Article 2093
of the Civil Code, 29 which requires that the thing pledged be placed in the possession of the creditor or a third
person of common agreement; and Article 2095, 30 which states that if the thing pledged are shares of stock,
then the "instrument proving the right pledged" must be delivered to the creditor. cdll
Moreover, the fact that respondents allowed the petitioner to receive dividends pertaining to the shares was not
meant to relinquish ownership thereof. As stated by respondent corporation, the same was done pursuant to an
agreement between the petitioner and Respondents Sy Guiok and Sy Lim, following Article 2102 of the Civil Code
which provides:
"If the pledge earns or produces fruits, income, dividends, or interests, the creditor
shall compensate what he receives with those which are owing him; but if none are
owing him, or insofar as the amount may exceed that which is due, he shall apply it to
the principal. Unless there is a stipulation to the contrary, the pledge shall extend to
the interest and the earnings of the right pledged."
Novation cannot be inferred from the mere fact that petitioner has not, since 1980, instituted any action to recover
the shares. Such action is in fact premature, as the loan is still outstanding. Besides, as already pointed out,
novation is never presumed inferred.
No Dacion en Pago
in Favor of Petitioner
Neither can there be dacion en pago, in which the certificates of stock are deemed sold to petitioner, the
consideration for which is the extinguishment of the loans and the accrued interests thereon. Dacion en pago is a
form of novation in which a change takes place in the object involved in the original contract. Absent an explicit
agreement, petitioner cannot simply presume dacion en pago.
Laches Not
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a Bar to Petitioner
Petitioner submits that "the inaction of the individual respondents with respect to the recovery of the shares of
stock serves to bar them from asserting rights over said shares on the basis of laches." 31
Laches has been defined as "the failure or neglect, for an unreasonable length of time, to do that which by
exercising due diligence could or should have been done earlier; it is negligence or omission to assert a right
within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or
declined to assert it." 32
In this case, it is in fact petitioner who may be guilty of laches. Petitioner had all the time to demand payment of
the debt. More important, under the contracts of pledge, petitioner could have foreclosed the pledges as soon as
the loans became due. But for still unknown or unexplained reasons, he failed to do so, preferring instead to
pursue his baseless claim to ownership.
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. Costs against petitioner.
LLphil
SO ORDERED.
Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ ., concur.
FIRST DIVISION
[G.R. No. 124535. September 28, 2001.]
THE RURAL BANK OF LIPA CITY, INC., THE OFFICERS AND DIRECTORS,
BERNARDO BAUTISTA, JAIME CUSTODIO, OCTAVIO KATIGBAK, FRANCISCO
CUSTODIO, and JUANITA BAUTISTA OF THE RURAL BANK OF LIPA CITY, INC.,
petitioners, vs. HONORABLE COURT OF APPEALS, HONORABLE COMMISSION
EN BANC, SECURITIES AND EXCHANGE COMMISSION, HONORABLE
ENRIQUE L. FLORES, JR., in his capacity as Hearing Officer, REYNALDO
VILLANUEVA, SR., AVELINA M. VILLANUEVA, CATALINO VILLANUEVA,
ANDRES GONZALES, AURORA LACERNA, CELSO LAYGO, EDGARDO REYES,
ALEJANDRA TONOGAN and ELENA USI, respondents.
Rosales Law Office for petitioners.
Amando D. Ignacio and Jose R. Dimayuga for private respondents.
SYNOPSIS
This is an appeal from the CA decision which upheld the decision of the SEC which granted the
preliminary injunction prayed for by private respondents who claimed that the newly elected officers of
petitioner-bank should be enjoined from discharging their duties because private respondents-stockholders
of petitioner-bank were not notified of the stockholders' meeting held on January 15, 1994 wherein said new
set of officers were elected.
The Supreme Court found the appeal meritless, ruling: that while private respondents executed
a deed of assignment of their shares in favor of petitioners, there was no effective transfer of shares since
the requirements prescribed by the law for a valid transfer of shares of stock have not been complied with.
Consequently, petitioner, as mere assignees cannot enjoy the status of stockholders, insofar as the
assigned shares are concerned, and private respondents cannot, as yet, be deprived of their rights as
stockholders, until the issue of ownership of the shares in question is finally resolved. IaDcTC
SYLLABUS
1.COMMERCIAL LAW; CORPORATION CODE; TRANSFER OF SHARES OF STOCK; REQUISITES FOR
VALIDITY. We have uniformly held that for a valid transfer of stocks, there must be strict compliance with the
mode of transfer prescribed by law. The requirements are: (a) There must be delivery of the stock certificate; (b)
The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make
the transfer; and (c) To be valid against third parties, the transfer must be recorded in the books of the
corporation.
2.ID.; ID.; ID.; ID.; EFFECT OF NON-COMPLIANCE THEREWITH; CASE AT BAR. While it may be true that
there was an assignment of private respondents' shares to the petitioners, said assignment was not sufficient to
effect the transfer of shares since there was no endorsement of the certificates of stock by the owners, their
attorneys-in-fact or any other person legally authorized to make the transfer. Moreover, petitioners admit that the
assignment of shares was not coupled with delivery, the absence of which is a fatal defect. The rule is that the
delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the
lawful owner to the transferee. Title may be vested in the transferee only by delivery of the duly indorsed
certificate of stock. . . . Consequently, the petitioners, as mere assignees, cannot enjoy the status of a
stockholder, cannot vote nor be voted for, and will not be entitled to dividends, insofar as the assigned shares are
concerned. Parenthetically, the private respondents cannot, as yet, be deprived of their rights as stockholders,
until and unless the issue of ownership and transfer of the shares in question is resolved with finality.
3.ID.; ID.; SECURITIES AND EXCHANGE COMMISSION; R.A. NO. 8799; SEC JURISDICTION OVER CASES
FALLING UNDER SEC. 5 OF PD NO. 902-A NOW COGNIZABLE BY THE RTC; CASE AT BAR. While this
case was pending, Republic Act No. 8799 was enacted, transferring to the courts of general jurisdiction or the
appropriate Regional Trial Court the SEC's jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A. One of those cases enumerated is any controversy "arising out of intra-corporate or
partnership relations, between and among stockholders, members, or associates, between any and/or all of them
and the corporation, partnership or association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and the state insofar as it concerns their
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individual franchise or right to exist as such entity." The instant controversy clearly falls under this category of
cases which are now cognizable by the Regional Trial Court.
D E C I S I O N
YNARES-SANTIAGO, J p:
Before us is a petition for review on certiorari assailing the Decision of the Court of Appeals dated February 27,
1996, as well as the Resolution dated March 29, 1996, in CA-G.R. SP No. 38861.
The instant controversy arose from a dispute between the Rural Bank of Lipa City, Incorporated (hereinafter
referred to as the Bank), represented by its officers and members of its Board of Directors, and certain
stockholders of the said bank. The records reveal the following antecedent facts:
Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a Deed of
Assignment, 1 wherein he assigned his shares, as well as those of eight (8) other shareholders under his control
with a total of 10,467 shares, in favor of the stockholders of the Bank represented by its directors Bernardo
Bautista, Jaime Custodio and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife,
Avelina, executed an Agreement 2 wherein they acknowledged their indebtedness to the Bank in the amount of
Four Million Pesos (P4,000,000.00), and stipulated that said debt will be paid out of the proceeds of the sale of
their real property described in the Agreement.
At a meeting of the Board of Directors of the Bank on November 15, 1993, the Villanueva spouses assured the
Board that their debt would be paid on or before December 31 of that same year; otherwise, the Bank would be
entitled to liquidate their shareholdings, including those under their control. In such an event, should the proceeds
of the sale of said shares fail to satisfy in full the obligation, the unpaid balance shall be secured by other
collateral sufficient therefor.
When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board sent them a
letter 3 demanding: (1) the surrender of all the stock certificates issued to them; and (2) the delivery of sufficient
collateral to secure the balance of their debt amounting to P3,346,898.54. The Villanuevas ignored the bank's
demands, whereupon their shares of stock were converted into Treasury Stocks. Later, the Villanuevas, through
their counsel, questioned the legality of the conversion of their shares. 4
On January 15, 1994, the stockholders of the Bank met to elect the new directors and set of officers for the year
1994. The Villanuevas were not notified of said meeting. In a letter dated January 19, 1994, Atty. Amado Ignacio,
counsel for the Villanueva spouses, questioned the legality of the said stockholders' meeting and the validity of all
the proceedings therein. In reply, the new set of officers of the Bank informed Atty. Ignacio that the Villanuevas
were no longer entitled to notice of the said meeting since they had relinquished their rights as stockholders in
favor of the Bank.
Consequently, the Villanueva spouses filed with the Securities and Exchange Commission (SEC), a petition for
annulment of the stockholders' meeting and election of directors and officers on January 15, 1994, with damages
and prayer for preliminary injunction 5 , docketed as SEC Case No. 02-94-4683. Joining them as co-petitioners
were Catalino Villanueva, Andres Gonzales, Aurora Lacerna, Celso Laygo, Edgardo Reyes, Alejandro Tonogan,
and Elena Usi. Named respondents were the newly-elected officers and directors of the Rural Bank, namely:
Bernardo Bautista, Jaime Custodio, Octavio Katigbak, Francisco Custodio and Juanita Bautista.
The Villanuevas' main contention was that the stockholders' meeting and election of officers and directors held on
January 15, 1994 were invalid because: (1) they were conducted in violation of the by-laws of the Rural Bank; (2)
they were not given due notice of said meeting and election notwithstanding the fact that they had not waived their
right to notice; (3) they were deprived of their right to vote despite their being holders of common stock with
corresponding voting rights; (4) their names were irregularly excluded from the list of stockholders; and (5) the
candidacy of petitioner Avelina Villanueva for directorship was arbitrarily disregarded by respondent Bernardo
Bautista and company during the said meeting.
On February 16, 1994, the SEC issued a temporary restraining order enjoining the respondents, petitioners
herein, from acting as directors and officers of the Bank, and from performing their duties and functions as such. 6
In their joint Answer, 7 the respondents therein raised the following defenses:
1)The petitioners have no legal capacity to sue;
2)The petition states no cause of action;
3)The complaint is insufficient;
4)The petitioners' claims had already been paid, waived, abandoned, or otherwise
extinguished;
5)The petitioners are estopped from challenging the conversion of their shares.
Petitioners, respondents therein, thus moved for the lifting of the temporary restraining order and the dismissal of
the petition for lack of merit, and for the upholding of the validity of the stockholders' meeting and election of
directors and officers held on January 15, 1994. By way of counterclaim, petitioners prayed for actual, moral and
exemplary damages.
On April 6, 1994, the Villanuevas' application for the issuance of a writ of preliminary injunction was denied by the
SEC Hearing Officer on the ground of lack of sufficient basis for the issuance thereof. However, a motion for
reconsideration 8 was granted on December 16, 1994, upon finding that since the Villanuevas' have not disposed
of their shares, whether voluntarily or involuntarily, they were still stockholders entitled to notice of the annual
stockholders' meeting was sustained by the SEC. Accordingly, a writ of preliminary injunction was issued
enjoining the petitioners from acting as directors and officers of the bank. 9
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Thereafter, petitioners filed an urgent motion to quash the writ of preliminary injunction, 10 challenging the
propriety of the said writ considering that they had not yet received a copy of the order granting the application for
the writ of preliminary injunction.
With the impending 1995 annual stockholders' meeting only nine (9) days away, the Villanuevas filed an Omnibus
Motion 11 praying that the said meeting and election of officers scheduled on January 14, 1995 be suspended or
held in abeyance, and that the 1993 Board of Directors be allowed, in the meantime, to act as such. One (1) day
before the scheduled stockholders meeting, the SEC Hearing Officer granted the Omnibus Motion by issuing a
temporary restraining order preventing petitioners from holding the stockholders meeting and electing the board of
directors and officers of the Bank. 12
A petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its directors and officers before
the SEC en banc, 13 naming as respondents therein SEC Hearing Officer Enrique L. Flores, Jr., and the
Villanuevas, erstwhile petitioners in SEC Case No. 02-94-4683. The said petition alleged that the orders dated
December 16, 1994 and January 13, 1995, which allowed the issuance of the writ of preliminary injunction and
prevented the bank from holding its 1995 annual stockholders' meeting, respectively, were issued by the SEC
Hearing Officer with grave abuse of discretion amounting to lack or excess of jurisdiction. Corollarily, the Bank, its
directors and its officers questioned the SEC Hearing Officer's right to restrain the stockholders' meeting and
election of officers and directors considering that the Villanueva spouses and the other petitioners in SEC Case
No. 02-94-4683 were no longer stockholders with voting rights, having already assigned all their shares to the
Bank.
In their Comment/Opposition, the Villanuevas and other private respondents argued that the filing of the petition
for certiorari was premature and there was no grave abuse of discretion on the part of the SEC Hearing Officer,
nor did he act without or in excess of his jurisdiction.
On June 7, 1995, the SEC en banc denied the petition for certiorari in an Order, 14 which stated:
In the case now before us, petitioners could not show any proof of despotic or
arbitrary exercise of discretion committed by the hearing officer in issuing the assailed
orders save and except the allegation that the private respondents have already
transferred their stockholdings in favor of the stockholders of the Bank. This, however,
is the very issue of the controversy in the case a quo and which, to our mind, should
rightfully be litigated and proven before the hearing officer. This is so because of the
undisputed fact the (sic) private respondents are still in possession of the stock
certificates evidencing their stockholdings and as held by the Supreme Court in
Embassy Farms, Inc. v. Court of Appeals, et al., 188 SCRA 492, citing Nava v. Peers
Marketing Corp., the non-delivery of the stock certificate does not make the transfer of
the shares of stock effective. For an effective transfer of stock, the mode of transfer as
prescribed by law must be followed.
We likewise find that the provision of the Corporation Code cited by the herein
petitioner, particularly Section 83 thereof, to support the claim that the private
respondents are no longer stockholders of the Bank is misplaced. The said law
applies to acquisition of shares of stock by the corporation in the exercise of a
stockholder's right of appraisal or when the said stockholder opts to dissent on a
specific corporate act in those instances provided by law and demands the payment
of the fair value of his shares. It does not contemplate a "transfer" whereby the
stockholder, in the exercise of his right to dispose of his shares (jus disponendi) sells
or assigns his stockholdings in favor of another person where the provisions of
Section 63 of the same Code should be complied with.
The hearing officer, therefore, had a basis in issuing the questioned orders since the
private respondents' rights as stockholders may be prejudiced should the writ of
injunction not be issued. The private respondents are presumably stockholders of the
Bank in view of the fact that they have in their possession the stock certificates
evidencing their stockholdings. Until proven otherwise, they remain to be such and the
hearing officer, being the one directly confronted with the facts and pieces of evidence
in the case, may issue such orders and resolutions which may be necessary or
reasonable relative thereto to protect their rights and interest in the meantime that the
said case is still pending trial on the merits.
A subsequent motion for reconsideration 15 was likewise denied by the SEC en banc in a Resolution 16 dated
September 29, 1995.
A petition for review was thus filed before the Court of Appeals, which was docketed as CA-G.R. SP No. 38861,
assailing the Order dated June 7, 1995 and the Resolution dated September 29, 1995 of the SEC en banc in SEC
EB No. 440. The ultimate issue raised before the Court of Appeals was whether or not the SEC en banc erred in
finding:
1.That the Hon. Hearing Officer in SEC Case No. 02-94-4683 did not commit any
grave abuse of discretion that would warrant the filing of a petition for certiorari;
2.That the private respondents are still stockholders of the subject bank and further
stated that "it does not contemplate a transfer" whereby the stockholders, in the
exercise of his right to dispose of his shares (Jus Disponendi) sells or assigns his
stockholdings in favor of another person where the provisions of Sec. 63 of the same
Code should be complied with; and
3.That the private respondents are presumably stockholders of the bank in view of the
fact that they have in their possession the stock certificates evidencing their
stockholdings.
On February 27, 1996, the Court of Appeals rendered the assailed Decision 17 dismissing the petition for review
for lack of merit. The appellate court found that:
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The public respondent is correct in holding that the Hearing Officer did not commit
grave abuse of discretion. The officer, in exercising his judicial functions, did not
exercise his judgment in a capricious, whimsical, arbitrary or despotic manner. The
questioned Orders issued by the Hearing Officer were based on pertinent law and the
facts of the case.
Section 63 of the Corporation Code states: ". . . Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or certificates
indorsed by the owner . . . . No transfer, however, shall be valid, except as between
the parties, until the transfer is recorded in the books of the corporation so as to show
the names of the parties to the transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares transferred."
In the case at bench, when private respondents executed a deed of assignment of
their shares of stocks in favor of the Stockholders of the Rural Bank of Lipa City,
represented by Bernardo Bautista, Jaime Custodio and Octavio Katigbak, title to such
shares will not be effective unless the duly indorsed certificate of stock is delivered to
them. For an effective transfer of shares of stock, the mode and manner of transfer as
prescribed by law should be followed. Private respondents are still presumed to be
the owners of the shares and to be stockholders of the Rural Bank.
We find no reversible error in the questioned orders.
Petitioners' motion for reconsideration was likewise denied by the Court of Appeals in an Order 18 dated March
29, 1996.
Hence, the instant petition for review seeking to annul the Court of Appeals' decision dated February 27, 1996
and the resolution dated March 29, 1996. In particular, the decision is challenged for its ruling that notwithstanding
the execution of the deed of assignment in favor of the petitioners, transfer of title to such shares is ineffective
until and unless the duly indorsed certificate of stock is delivered to them. Moreover, petitioners faulted the Court
of Appeals for not taking into consideration the acts of disloyalty committed by the Villanueva spouses against the
Bank.
We find no merit in the instant petition.
The Court of Appeals did not err or abuse its discretion in affirming the order of the SEC en banc, which in turn
upheld the order of the SEC Hearing Officer, for the said rulings were in accordance with law and jurisprudence.
The Corporation Code specifically provides:
SECTION 63.Certificate of stock and transfer of shares. The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president
or vice president, countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation shall be issued in accordance with the by-laws.
Shares of stocks so issued are personal property and may be transferred by delivery
of the certificate or certificates indorsed by the owner or his attorney-in-fact or other
person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the
corporation so as to show the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of shares
transferred.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation. (Emphasis ours)
Petitioners argue that by virtue of the Deed of Assignment, 19 private respondents had relinquished to them any
and all rights they may have had as stockholders of the Bank. While it may be true that there was an assignment
of private respondents' shares to the petitioners, said assignment was not sufficient to effect the transfer of shares
since there was no endorsement of the certificates of stock by the owners, their attorneys-in-fact or any other
person legally authorized to make the transfer. Moreover, petitioners admit that the assignment of shares was not
coupled with delivery, the absence of which is a fatal defect. The rule is that the delivery of the stock certificate
duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the transferee. 20
Thus, title may be vested in the transferee only by delivery of the duly indorsed certificate of stock. 21

We have uniformly held that for a valid transfer of stocks, there must be strict compliance with the mode of
transfer prescribed by law. 22 The requirements are: (a) There must be delivery of the stock certificate; (b) The
certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the
transfer; and (c) To be valid against third parties, the transfer must be recorded in the books of the corporation. As
it is, compliance with any of these requisites has not been clearly and sufficiently shown.
It may be argued that despite non-compliance with the requisite endorsement and delivery, the assignment was
valid between the parties, meaning the private respondents as assignors and the petitioners as assignees. While
the assignment may be valid and binding on the petitioners and private respondents, it does not necessarily make
the transfer effective. Consequently, the petitioners, as mere assignees, cannot enjoy the status of a stockholder,
cannot vote nor be voted for, and will not be entitled to dividends, insofar as the assigned shares are concerned.
Parenthetically, the private respondents cannot, as yet, be deprived of their rights as stockholders, until and
unless the issue of ownership and transfer of the shares in question is resolved with finality.
There being no showing that any of the requisites mandated by law 23 was complied with, the SEC Hearing
Officer did not abuse his discretion in granting the issuance of the preliminary injunction prayed for by petitioners
in SEC Case No. 02-94-4683 (herein private respondents). Accordingly, the order of the SEC en banc affirming
the ruling of the SEC Hearing Officer, and the Court of Appeals decision upholding the SEC en banc order, are
valid and in accordance with law and jurisprudence, thus warranting the denial of the instant petition for review.
To enable the shareholders of the Rural Bank of Lipa City, Inc. to meet and elect their directors, the temporary
restraining order issued by the SEC Hearing Officer on January 13, 1995 must be lifted. However, private
respondents shall be notified of the meeting and be allowed to exercise their rights as stockholders thereat.
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While this case was pending, Republic Act No. 8799 24 was enacted, transferring to the courts of general
jurisdiction or the appropriate Regional Trial Court the SEC's jurisdiction over all cases enumerated under Section
5 of Presidential Decree No. 902-A. 25 One of those cases enumerated is any controversy "arising out of intra-
corporate or partnership relations, between and among stockholders, members, or associates, between any
and/or all of them and the corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association and the state insofar as it
concerns their individual franchise or right to exist as such entity." The instant controversy clearly falls under this
category of cases which are now cognizable by the Regional Trial Court.
Pursuant to Section 5.2 of R.A. No. 8799, this Court designated specific branches of the Regional Trial Courts to
try and decide cases formerly cognizable by the SEC. For the Fourth Judicial Region, specifically in the Province
of Batangas, the RTC of Batangas City, Branch 32 is the designated court. 26
WHEREFORE, in view of all the foregoing, the instant petition for review on certiorari is DENIED. The Decision
and Resolution of the Court of Appeals in CA-G.R. SP No. 38861 are hereby AFFIRMED. The case is ordered
REMANDED to the Regional Trial Court of Batangas City, Branch 32, for proper disposition. The temporary
restraining order issued by the SEC Hearing Officer dated January 13, 1995 is ordered LIFTED.
SO ORDERED.
Davide, Jr., C.J., Kapunan and Pardo, JJ., concur.
Puno, J., concurs in the result.
SECOND DIVISION
[G.R. No. 139802. December 10, 2002.]
VICENTE C. PONCE, petitioner, vs. ALSONS CEMENT CORPORATION, and
FRANCISCO M. GIRON, JR., respondents.
Quiason Makalintal Barot Torres and Ibarra for petitioner.
Estelito P. Mendoza for respondents.
SYNOPSIS
Petitioner herein filed a complaint with the SEC for mandamus and damages against respondents. With his
allegations, petitioner prayed for the SEC to issue in his name certificates of stocks covering the 239,500 shares
of stocks and its legal increments and for the corporation to pay him damages. Respondent moved to dismiss the
complaint on the ground, among others, that it states no cause of action. After respondents filed their reply, the
SEC hearing officer granted the motion to dismiss. According to the hearing officer, insofar as the issuance of
stock certificates is concerned, the real party-in-interest was Fausto G. Gaid, or his estate, or his heirs. Gaid was
an incorporator and an original stockholder of the respondent corporation who subscribed and fully paid for
239,500 shares of stock. The petitioner tried to step into the shoes of Gaid and thereby become a stockholder of
the defendant corporation by demanding the issuance of the stock certificate in his name. The SEC hearing officer
decided that the petitioner could not do as he prayed because there was no record of any assignment or transfer
in the books of the respondent corporation and there was neither instruction nor authority from the transferor for
such assignment or transfer. Petitioner appealed the order of dismissal. The Commission en banc reversed the
decision of the hearing officer. The motion for reconsideration having been denied, the respondents appealed to
the Court of Appeals. The Court of Appeals held that in the absence of any allegations that the transfer of shares
between Fausto Gaid and the petitioner was registered in the stock and transfer book of respondent corporation,
petitioner failed to state a cause of action. Thus, the CA dismissed the complaint for mandamus for failure to state
a cause of action. Hence, the instant petition for review on certiorari. At issue herein was whether the Court of
Appeals erred in holding that herein petitioner had no cause of action for a writ of mandamus.
The Supreme Court ruled that petitioner had no cause of action and that his petition for mandamus was properly
dismissed. From the corporation's point of view, the transfer is not effective until it is recorded. As between the
corporation, on one hand, and its stockholders and third persons on the other, the corporation looks only to its
books for the purpose of determining who its stockholders are. cSCADE
SYLLABUS
1.MERCANTILE LAW; CORPORATION CODE; TRANSFER OF SHARES OF STOCKS; SHOULD BE
RECORDED IN THE STOCK AND TRANSFER BOOK OF A CORPORATION; EFFECT OF FAILURE;
APPLICATION IN CASE AT BAR. Pursuant to Sec. 63 of the Corporation Code, a transfer of shares of stock
not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is
concerned. As between the corporation on the one hand, and its shareholders and third persons on the other, the
corporation looks only to its books for the purpose of determining who its shareholders are. It is only when the
transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee
as one of its stockholders. From this time, the consequent obligation on the part of the corporation to recognize
such rights as it is mandated by law to recognize arises. Hence, without such recording, the transferee may not be
regarded by the corporation as one among its stockholders and the corporation may legally refuse the issuance of
stock certificates in the name of the transferee even when there has been compliance with the requirements of
Section 64 of the Corporation Code. This is the import of Section 63 which states that "No transfer, however, shall
be valid, except between the parties, until the transfer is recorded in the books of the corporation showing the
names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred." Unless and until such recording is made the demand for the issuance of stock
certificates to the alleged transferee has no legal basis.
2.ID.; ID.; CERTIFICATE OF STOCK, A TANGIBLE EVIDENCE OF THE STOCK ITSELF AND OF THE
VARIOUS INTERESTS THEREIN; IMPORTANCE OF CERTIFICATE OF STOCK, CONSTRUED. In Tan vs.
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SEC, 206 SCRA 740 (1992), we had occasion to declare that a certificate of stock is not necessary to render one
a stockholder in a corporation. But a certificate of stock is the tangible evidence of the stock itself and of the
various interests therein. The certificate is the evidence of the holder's interest and status in the corporation, his
ownership of the share represented thereby. The certificate is in law, so to speak, an equivalent of such
ownership. It expresses the contract between the corporation and the stockholder, but it is not essential to the
existence of a share in stock or the creation of the relation of shareholder to the corporation. In fact, it rests on the
will of the stockholder whether he wants to be issued stock certificates, and a stockholder may opt not to be
issued a certificate.
3.REMEDIAL LAW; SPECIAL CIVIL ACTIONS; PETITION FOR MANDAMUS; WHEN NOT PROPER TO
COMPEL THE REGISTRATION OF STOCK TRANSFER; APPLICATION IN CASE AT BAR. The deed of
undertaking with indorsement presented by petitioner does not establish, on its face, his right to demand for the
registration of the transfer and the issuance of certificates of stocks. In Hager vs. Bryan, 19 Phil. 138 (1911), this
Court held that a petition for mandamus fails to state a cause of action where it appears that the petitioner is not
the registered stockholder and there is no allegation that he holds any power of attorney from the registered
stockholder, from whom he obtained the stocks, to make the transfer. . . . In Rivera vs. Florendo, 144 SCRA 643,
657 (1986), we reiterated that a mere indorsement by the supposed owners of the stock, in the absence of
express instructions from them, cannot be the basis of an action for mandamus and that the rights of the parties
have to be threshed out in an ordinary action. That Hager and Rivera involved petitions for mandamus to compel
the registration of the transfer, while this case is one for issuance of stock, is of no moment. It has been made
clear, thus far, that before a transferee may ask for the issuance of stock certificates, he must first cause the
registration of the transfer and thereby enjoy the status of a stockholder insofar as the corporation is concerned. A
corporate secretary may not be compelled to register transfers of shares on the basis merely of an indorsement of
stock certificates. With more reason, in our view, a corporate secretary may not be compelled to issue stock
certificates without such registration. . . . Absent an allegation that the transfer of shares is recorded in the stock
and transfer book of respondent ALSONS, there appears no basis for a clear and indisputable duty or clear legal
obligation that can be imposed upon the respondent corporate secretary, so as to justify the issuance of the writ of
mandamus to compel him to perform the transfer of the shares to petitioner. The test of sufficiency of the facts
alleged in a petition is whether or not, admitting the facts alleged, the court could render a valid judgment thereon
in accordance with the prayer of the petition. This test would not be satisfied if, as in this case, not all the
elements of a cause of action are alleged in the complaint. Where the corporate secretary is under no clear legal
duty to issue stock certificates because of the petitioner's failure to record earlier the transfer of shares, one of the
elements of the cause of action for mandamus is clearly missing. IaHDcT
D E C I S I O N
QUISUMBING, J p:
This petition for review seeks to annul the decision 1 of the Court of Appeals, in CA-G.R. SP No. 46692, which set
aside the decision 2 of the Securities and Exchange Commission (SEC) En Banc in SEC-AC No. 545 and
reinstated the order 3 of the Hearing Officer dismissing herein petitioner's complaint. Also assailed is the CA's
resolution 4 of August 10, 1999, denying petitioner's motion for reconsideration. DTAaCE
On January 25, 1996, plaintiff (now petitioner) Vicente C. Ponce, filed a complaint 5 with the SEC for mandamus
and damages against defendants (now respondents) Alsons Cement Corporation and its corporate secretary
Francisco M. Giron, Jr. In his complaint, petitioner alleged, among others, that:
xxx xxx xxx
5.The late Fausto G. Gaid was an incorporator of Victory Cement Corporation (VCC),
having subscribed to and fully paid 239,500 shares of said corporation.
6.On February 8, 1968, plaintiff and Fausto Gaid executed a "Deed of Undertaking"
and "Indorsement" whereby the latter acknowledges that the former is the owner of
said shares and he was therefore assigning/endorsing the same to the plaintiff. A
copy of the said deed/indorsement is attached as Annex "A".
7.On April 10, 1968, VCC was renamed Floro Cement Corporation (FCC for brevity).
8.On October 22, 1990, FCC was renamed Alsons Cement Corporation (ACC for
brevity) as shown by the Amended Articles of Incorporation of ACC, a copy of which is
attached as Annex "B".
9.From the time of incorporation of VCC up to the present, no certificates of stock
corresponding to the 239,500 subscribed and fully paid shares of Gaid were issued in
the name of Fausto G. Gaid and/or the plaintiff.
10.Despite repeated demands, the defendants refused and continue to refuse without
any justifiable reason to issue to plaintiff the certificates of stocks corresponding to the
239,500 shares of Gaid, in violation of plaintiff's right to secure the corresponding
certificate of stock in his name. 6

Attached to the complaint was the Deed of Undertaking and Indorsement 7 upon which petitioner based his
petition for mandamus. Said deed and indorsement read as follows:
DEED OF UNDERTAKING
KNOW ALL MEN BY THESE PRESENTS:
I, VICENTE C. PONCE, is the owner of the total subscription of Fausto Gaid with
Victory Cement Corporation in the total amount of TWO HUNDRED THIRTY-NINE
THOUSAND FIVE HUNDRED (P239,500.00) PESOS and that Fausto Gaid does not
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have any liability whatsoever on the subscription agreement in favor of Victory
Cement Corporation.
(SGD.)
VICENTE C. PONCE
February 8, 1968
CONFORME:
(SGD.) FAUSTO GAID
INDORSEMENT
I, FAUSTO GAID is indorsing the total amount of TWO HUNDRED THIRTY-NINE
THOUSAND FIVE HUNDRED (239,500.00) stocks of Victory Cement Corporation to
VICENTE C. PONCE.
(SGD.) FAUSTO GAID
With these allegations, petitioner prayed that judgment be rendered ordering respondents (a) to issue in his name
certificates of stocks covering the 239,500 shares of stocks and its legal increments and (b) to pay him damages.
8
Instead of filing an answer, respondents moved to dismiss the complaint on the grounds that: (a) the complaint
states no cause of action; mandamus is improper and not available to petitioner; (b) the petitioner is not the real
party in interest; (c) the cause of action is barred by the statute of limitations; and (d) in any case, the petitioner's
cause of action is barred by laches. 9 They argued, inter alia, that there being no allegation that the alleged
"INDORSEMENT" was recorded in the books of the corporation, said indorsement by Gaid to the plaintiff of the
shares of stock in question assuming that the indorsement was in fact a transfer of stocks was not valid
against third persons such as ALSONS under Section 63 of the Corporation Code. 10 There was, therefore, no
specific legal duty on the part of the respondents to issue the corresponding certificates of stock, and mandamus
will not lie. 11
Petitioner filed his opposition to the motion to dismiss on February 19, 1996 contending that: (1) mandamus is the
proper remedy when a corporation and its corporate secretary wrongfully refuse to record a transfer of shares and
issue the corresponding certificates of stocks; (2) he is the proper party-in-interest since he stands to be benefited
or injured by a judgment in the case; (3) the statute of limitations did not begin to run until defendant refused to
issue the certificates of stock in favor of the plaintiff on April 13, 1992.
After respondents filed their reply, SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss in an
Order dated February 29, 1996, which held that:
xxx xxx xxx
Insofar as the issuance of certificates of stock is concerned, the real party in interest
is Fausto G. Gaid, or his estate or his heirs. Gaid was an incorporator and an original
stockholder of the defendant corporation who subscribed and fully paid for 239,500
shares of stock (Annex "B"). In accordance with Section 37 of the old Corporation Law
(Act No. 1459) obtaining in 1968 when the defendant corporation was incorporated,
as well as Section 64 of the present Corporation Code (Batas Pambansa Blg. 68), a
stockholder who has fully paid for his subscription together with interest and expenses
in case of delinquent shares, is entitled to the issuance of a certificate of stock for his
shares. According to paragraph 9 of the Complaint, no stock certificate was issued to
Gaid.
Comes now the plaintiff who seeks to step into the shoes of Gaid and thereby become
a stockholder of the defendant corporation by demanding issuance of the certificates
of stock in his name. This he cannot do, for two reasons: there is no record of any
assignment or transfer in the books of the defendant corporation, and there is no
instruction or authority from the transferor (Gaid) for such assignment or transfer.
Indeed, nothing is alleged in the complaint on these two points.
xxx xxx xxx
In the present case, there is not even any indorsement of any stock certificate to
speak of. What the plaintiff possesses is a document by which Gaid supposedly
transferred the shares to him. Assuming the document has this effect, nevertheless
there is neither any allegation nor any showing that it is recorded in the books of the
defendant corporation, such recording being a prerequisite to the issuance of a stock
certificate in favor of the transferee. 12
Petitioner appealed the Order of dismissal. On January 6, 1997, the Commission En Banc reversed the appealed
Order and directed the Hearing Officer to proceed with the case. In ruling that a transfer or assignment of stocks
need not be registered first before it can take cognizance of the case to enforce the petitioner's rights as a
stockholder, the Commission En Banc cited our ruling in Abejo vs. De la Cruz, 149 SCRA 654 (1987) to the effect
that:
. . . As the SEC maintains, "There is no requirement that a stockholder of
a corporation must be a registered one in order that the Securities and
Exchange Commission may take cognizance of a suit seeking to enforce
his rights as such stockholder". This is because the SEC by express
mandate has "absolute jurisdiction, supervision and control over all
corporations" and is called upon to enforce the provisions of the
Corporation Code, among which is the stock purchaser's right to secure
the corresponding certificate in his name under the provisions of Section
63 of the Code. Needless to say, any problem encountered in securing
the certificates of stock representing the investment made by the buyer
must be expeditiously dealt with through administrative mandamus
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proceedings with the SEC, rather than through the usual tedious regular
court procedure. . . .
Applying this principle in the case on hand, a transfer or assignment of stocks need
not be registered first before the Commission can take cognizance of the case to
enforce his rights as a stockholder. Also, the problem encountered in securing the
certificates of stock made by the buyer must be expeditiously taken up through the so-
called administrative mandamus proceedings with the SEC than in the regular courts.
13
The Commission En Banc also found that the Hearing Officer erred in holding that petitioner is not the real party in
interest.
xxx xxx xxx
As appearing in the allegations of the complaint, plaintiff-appellant is the transferee of
the shares of stock of Gaid and is therefore entitled to avail of the suit to obtain the
proper remedy to make him the rightful owner and holder of a stock certificate to be
issued in his name. Moreover, defendant-appellees failed to show that the transferor
nor his heirs have refuted the ownership of the transferee. Assuming these allegations
to be true, the corporation has a mere ministerial duty to register in its stock and
transfer book the shares of stock in the name of the plaintiff-appellant subject to the
determination of the validity of the deed of assignment in the proper tribunal. 14
Their motion for reconsideration having been denied, herein respondents appealed the decision 15 of the SEC En
Banc and the resolution 16 denying their motion for reconsideration to the Court of Appeals.
In its decision, the Court of Appeals held that in the absence of any allegation that the transfer of the shares
between Fausto Gaid and Vicente C. Ponce was registered in the stock and transfer book of ALSONS, Ponce
failed to state a cause of action. Thus, said the CA, "the complaint for mandamus should be dismissed for failure
to state a cause of action." 17 Petitioner's motion for reconsideration was likewise denied in a resolution 18 dated
August 10, 1999.
Hence, the instant petition for review on certiorari alleging that:
I.. . . THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
COMPLAINT FOR ISSUANCE OF A CERTIFICATE OF STOCK FILED
BY PETITIONER FAILED TO STATE A CAUSE OF ACTION BECAUSE
IT DID NOT ALLEGE THAT THE TRANSFER OF THE SHARES
(SUBJECT MATTER OF THE COMPLAINT) WAS REGISTERED IN THE
STOCK AND TRANSFER BOOK OF THE CORPORATION, CITING
SECTION 63 OF THE CORPORATION CODE.
II.. . . THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE
CASES OF "ABEJO VS. DE LA CRUZ", 149 SCRA 654 AND "RURAL
BANK OF SALINAS, INC., ET AL. VS. COURT OF APPEALS, ET AL.",
G.R. NO. 96674, JUNE 26, 1992.
III.. . . THE HONORABLE COURT OF APPEALS ERRED IN APPLYING A 1911
CASE, "HAGER VS. BRYAN", 19 PHIL. 138, TO DISMISS THE
COMPLAINT FOR ISSUANCE OF A CERTIFICATE OF STOCK. 19
At issue is whether the Court of Appeals erred in holding that herein petitioner has no cause of action for a writ of
mandamus. HECaTD
Petitioner first contends that the act of recording the transfer of shares in the stock and transfer book and that of
issuing a certificate of stock for the transferred shares involves only one continuous process. Thus, when a
corporate secretary is presented with a document of transfer of fully paid shares, it is his duty to record the
transfer in the stock and transfer book of the corporation, issue a new stock certificate in the name of the
transferee, and cancel the old one. A transferee who requests for the issuance of a stock certificate need not spell
out each and every act that needs to be done by the corporate secretary, as a request for issuance of stock
certificates necessarily includes a request for the recording of the transfer. Ergo, the failure to record the transfer
does not mean that the transferee cannot ask for the issuance of stock certificates.
Secondly, according to petitioner, there is no law, rule or regulation requiring a transferor of shares of stock to first
issue express instructions or execute a power of attorney for the transfer of said shares before a certificate of
stock is issued in the name of the transferee and the transfer registered in the books of the corporation. He
contends that Hager vs. Bryan, 19 Phil. 138 (1911), and Rivera vs. Florendo, 144 SCRA 643 (1986), cited by
respondents, do not apply to this case. These cases contemplate a situation where a certificate of stock has been
issued by the company whereas in this case at bar, no stock certificates have been issued even in the name of
the original stockholder, Fausto Gaid.

Finally, petitioner maintains that since he is under no compulsion to register the transfer or to secure stock
certificates in. his name, his cause of action is deemed not to have accrued until respondent ALSONS denied his
request.
Respondents, in their comment, maintain that the transfer of shares of stock not recorded in the stock and transfer
book of the corporation is non-existent in so far as the corporation is concerned and no certificate of stock can be
issued in the name of the transferee. Until the recording is made, the transfer cannot be the basis of issuance of a
certificate of stock. They add that petitioner is not the real party-in-interest, the real party-in-interest being Fausto
Gaid since it is his name that appears in the records of the corporation. They conclude that petitioner's cause of
action is barred by prescription and laches since 24 years elapsed before he made any demand upon ALSONS.
We find the instant petition without merit. The Court of Appeals did not err in ruling that petitioner had no cause of
action, and that his petition for mandamus was properly dismissed.
TH
SET) 19 | P a g e

There is no question that Fausto Gaid was an original subscriber of respondent corporation's 239,500 shares.
This is clear from the numerous pleadings filed by either party. It is also clear from the Amended Articles of
Incorporation 20 approved on April 9, 1995 21 that each share had a par value of P1.00 per share. And, it is
undisputed that petitioners had not made a previous request upon the corporate secretary of ALSONS,
respondent Francisco M. Giron Jr., to record the alleged transfer of stocks.
The Corporation Code states that:
SEC. 63.Certificate of stock and transfer of shares. The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president
or vice-president, countersigned by the secretary or assistant secretary, sealed with
the seal of the corporation shall be issued in accordance with the by-laws. Shares of
stock so issued are personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation so as
to show the names of the parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.
Pursuant to the foregoing provision, a transfer of shares of stock not recorded in the stock and transfer book of
the corporation is non-existent as far as the corporation is concerned. 22 As between the corporation on the one
hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose
of determining who its shareholders are. 23 It is only when the transfer has been recorded in the stock and
transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From this time, the
consequent obligation on the part of the corporation to recognize such rights as it is mandated by law to recognize
arises. HcISTE
Hence, without such recording, the transferee may not be regarded by the corporation as one among its
stockholders and the corporation may legally refuse the issuance of stock certificates in the name of the
transferee even when there has been compliance with the requirements of Section 64 24 of the Corporation
Code. This is the import of Section 63 which states that "No transfer, however, shall be valid, except between the
parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the number of shares
transferred." The situation would be different if the petitioner was himself the registered owner of the stock which
he sought to transfer to a third party, for then he would be entitled to the remedy of mandamus. 25
From the corporation's point of view, the transfer is not effective until it is recorded. Unless and until such
recording is made the demand for the issuance of stock certificates to the alleged transferee has no legal basis.
As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation
looks only to its books for the purpose of determining who its shareholders are. 26 In other words, the stock and
transfer book is the basis for ascertaining the persons entitled to the rights and subject to the liabilities of a
stockholder. Where a transferee is not yet recognized as a stockholder, the corporation is under no specific legal
duty to issue stock certificates in the transferee's name.
It follows that, as held by the Court of Appeals:
. . . until registration is accomplished, the transfer, though valid between the parties,
cannot be effective as against the corporation. Thus, in the absence of any allegation
that the transfer of the shares between Gaid and the private respondent [herein
petitioner] was registered in the stock and transfer book of the petitioner corporation,
the private respondent has failed to state a cause of action. 27
Petitioner insists that it is precisely the duty of the corporate secretary, when presented with the document of fully
paid shares, to effect the transfer by recording the transfer in the stock and transfer book of the corporation and to
issue stock certificates in the name of the transferee. On this point, the SEC En Banc cited Rural Bank of Salinas,
Inc. vs. Court of Appeals, 28 where we held that:
For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares
in its stock and transfer book, which duty is ministerial on its part, is to render
nugatory and ineffectual the spirit and intent of Section 63 of the Corporation Code.
Thus, respondent Court of Appeals did not err in upholding the decision of respondent
SEC affirming the Decision of its Hearing Officer directing the registration of the 473
shares in the stock and transfer book in the names of private respondents. At all
events, the registration is without prejudice to the proceedings in court to determine
the validity of the Deeds of Assignment of the shares of stock in question. AcHEaS
In Rural Bank of Salinas, Inc., however, private respondent Melania Guerrero had a Special Power of Attorney
executed in her favor by Clemente Guerrero, the registered stockholder. It gave Guerrero full authority to sell or
otherwise dispose of the 473 shares of stock registered in Clemente's name and to execute the proper documents
therefor. Pursuant to the authority so given, Melania assigned the 473 shares of stock owned by Guerrero and
presented to the Rural Bank of Salinas the deeds of assignment covering the assigned shares. Melania Guerrero
prayed for the transfer of the stocks in the stock and transfer book and the issuance of stock certificates in the
name of the new owners thereof. Based on those circumstances, there was a clear duty on the part of the
corporate secretary to register the 473 shares in favor of the new owners, since the person who sought the
transfer of shares had express instructions from and specific authority given by the registered stockholder to
cause the disposition of stocks registered in his name.
That cannot be said of this case. The deed of undertaking with indorsement presented by petitioner does not
establish, on its face, his right to demand for the registration of the transfer and the issuance of certificates of
stocks. In Hager vs. Bryan, 19 Phil. 138 (1911), this Court held that a petition for mandamus fails to state a cause
of action where it appears that the petitioner is not the registered stockholder and there is no allegation that he
holds any power of attorney from the registered stockholder, from whom he obtained the stocks, to make the
transfer, thus:
It appears, however, from the original as well as the amended petition, that this
petitioner is not the registered owner of the stock which he seeks to have transferred,
and except in so far as he alleges that he is the owner of the stock and that it was
"indorsed" to him on February 5 by the Bryan-Landon Company, in whose name it is
registered on the books of the Visayan Electric Company, there is no allegation that
the petitioner holds any power of attorney from the Bryan-Landon Company
TH
SET) 20 | P a g e

authorizing him to make demand on the secretary of the Visayan Electric Company to
make the transfer, which petitioner seeks to have made through the medium of the
mandamus of this court.
Without discussing or deciding the respective rights of the parties which might be
properly asserted in an ordinary action or an action in the nature of an equitable suit,
we are all agreed that in a case such as that at bar, a mandamus should not issue to
compel the secretary of a corporation to make a transfer of the stock on the books of
the company, unless it affirmatively appears that he has failed or refused so to do,
upon the demand either of the person in whose name the stock is registered, or of
some person holding a power of attorney for that purpose from the registered owner
of the stock. There is no allegation in the petition that the petitioner or anyone else
holds a power of attorney from the Bryan-Landon Company authorizing a demand for
the transfer of the stock, or that the Bryan-Landon Company has ever itself made
such demand upon the Visayan Electric Company, and in the absence of such
allegation we are not able to say that there was such a clear indisputable duty, such a
clear legal obligation upon the respondent, as to justify the issuance of the writ to
compel him to perform it.

Under the provisions of our statute touching the transfer of stock (Secs. 35 and 36 of
Act No. 1459), 29 the mere indorsement of stock certificates does not in itself give to
the indorsee such a right to have a transfer of the shares of stock on the books of the
company as will entitle him to the writ of mandamus to compel the company and its
officers to make such transfer at his demand, because, under such circumstances the
duty, the legal obligation, is not so clear and indisputable as to justify the issuance of
the writ. As a general rule and especially under the above-cited statute, as between
the corporation on the one hand, and its shareholders and third persons on the other,
the corporation looks only to its books for the purpose of determining who its
shareholders are, so that a mere indorsee of a stock certificate, claiming to be the
owner, will not necessarily be recognized as such by the corporation and its officers,
in the absence of express instructions of the registered owner to make such transfer
to the indorsee, or a power of attorney authorizing such transfer. 30
In Rivera vs. Florendo, 144 SCRA 643, 657 (1986), we reiterated that a mere indorsement by the supposed
owners of the stock, in the absence of express instructions from them, cannot be the basis of an action for
mandamus and that the rights of the parties have to be threshed out in an ordinary action. That Hager and Rivera
involved petitions for mandamus to compel the registration of the transfer, while this case is one for issuance of
stock, is of no moment. It has been made clear, thus far, that before a transferee may ask for the issuance of
stock certificates, he must first cause the registration of the transfer and thereby enjoy the status of a stockholder
insofar as the corporation is concerned. A corporate secretary may not be compelled to register transfers of
shares on the basis merely of an indorsement of stock certificates. With more reason, in our view, a corporate
secretary may not be compelled to issue stock certificates without such registration. 31
Petitioner's reliance on our ruling in Abejo vs. De la Cruz, 149 SCRA 654 (1987), that notice given to the
corporation of the sale of the shares and presentation of the certificates for transfer is equivalent to registration is
misplaced. In this case there is no allegation in the complaint that petitioner ever gave notice to respondents of
the alleged transfer in his favor. Moreover, that case arose between and among the principal stockholders of the
corporation, Pocket Bell, due to the refusal of the corporate secretary to record the transfers in favor of
Telectronics of the corporation's controlling 56% shares of stock which were covered by duly endorsed stock
certificates. As aforesaid, the request for the recording of a transfer is different from the request for the issuance
of stock certificates in the transferee's name. Finally, in Abejo we did not say that transfer of shares need not be
recorded in the books of the corporation before the transferee may ask for the issuance of stock certificates. The
Court's statement, that "there is no requirement that a stockholder of a corporation must be a registered one in
order that the Securities and Exchange Commission may take cognizance of a suit seeking to enforce his rights
as such stockholder among which is the stock purchaser's right to secure the corresponding certificate in his
name," 32 was addressed to the issue of jurisdiction, which is not pertinent to the issue at hand.
Absent an allegation that the transfer of shares is recorded in the stock and transfer book of respondent ALSONS,
there appears no basis for a clear and indisputable duty or clear legal obligation that can be imposed upon the
respondent corporate secretary, so as to justify the issuance of the writ of mandamus to compel him to perform
the transfer of the shares to petitioner. The test of sufficiency of the facts alleged in a petition is whether or not,
admitting the facts alleged, the court could render a valid judgment thereon in accordance with the prayer of the
petition. 33 This test would not be satisfied if, as in this case, not all the elements of a cause of action are alleged
in the complaint. 34 Where the corporate secretary is under no clear legal duty to issue stock certificates because
of the petitioner's failure to record earlier the transfer of shares, one of the elements of the cause of action for
mandamus is clearly missing. AaSCTD
That petitioner was under no obligation to request for the registration of the transfer is not in issue. It has no
pertinence in this controversy. One may own shares of corporate stock without possessing a stock certificate. In
Tan vs. SEC, 206 SCRA 740 (1992), we had occasion to declare that a certificate of stock is not necessary to
render one a stockholder in a corporation. But a certificate of stock is the tangible evidence of the stock itself and
of the various interests therein. The certificate is the evidence of the holder's interest and status in the
corporation, his ownership of the share represented thereby. The certificate is in law, so to speak, an equivalent of
such ownership. It expresses the contract between the corporation and the stockholder, but it is not essential to
the existence of a share in stock or the creation of the relation of shareholder to the corporation. 35 In fact, it rests
on the will of the stockholder whether he wants to be issued stock certificates, and a stockholder may opt not to
be issued a certificate. In Won vs. Wack Wack Golf and Country Club, Inc., 104 Phil. 466 (1958), we held that
considering that the law does not prescribe a period within which the registration should be effected, the action to
enforce the right does not accrue until there has been a demand and a refusal concerning the transfer. In the
present case, petitioner's complaint for mandamus must fail, not because of laches or estoppel, but because he
had alleged no cause of action sufficient for the issuance of the writ.
WHEREFORE, the petition is DENIED for lack of merit. The decision of the Court of Appeals, in CA-G.R. SP No.
46692, which set aside that of the Securities and Exchange Commission En Banc in SEC-AC No. 545 and
reinstated the order of the Hearing Officer, is hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED. Bellosillo, Mendoza, Austria-Martinez and Callejo, Sr., JJ., concur.

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