Chapter XV – Transfer of Shares
the rules in Sec 43
— Free transferability of units of ownership in a corporate setting is one of
the attractive features of the corporation
— Shares of stock in a corporation are personal property and the owner
thereof has an inherent right, as an incident of his ownership, to transfer
the same at will
— SEC has allowed reasonable restrictions on transfer of shares in the AOI
if the restrictions comply with Section 93:
o that the restriction must appear in the AOI, by-laws and certificates
of stock
o restrictions must not be more onerous than granting the existing SHs
or the corporation the option to purchase the shares under
reasonable terms
Manner and effectivity of transfer
— Shares of stock, though intangible, are personal property, and are freely
transferable by the owner thereof
Sec 63
— Endorsement and delivery of the certificate and the registration of the
transfer in the book of the corporation is only one of the modes
recognized by law by which to legally and effectively sale and assign
shares that would be binding not only on the parties but also to the
corporation and to third parties who will deal with the covered shares
— Magsaysay-Labrador case: the sale or assignment must be registered in
the stock and transfer book of the corporation in order to be binding on
third parties. A transferee cannot claim a right to intervene as SH in
corporate issues on the strength of the transfer of shares allegedly
executed by a registered SH
The Stock Certificate
— 63: capital shall be divided into shares for which certificates signed by
the president or VP, countersigned by secretary, sealed with the
corporate seal shall be issued in accordance with the by-laws
— 64: no certificate shall be issued until the full amount of his subscription
+ interest + expenses shall be paid
o therefore a subscriber must pay his subscription totally before a
certificate can be issued to him…
o … but an unpaid and not declared delinquent subscription can be
vote for and upon in corporate meetings
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o delinquent shares, however, are entitled to dividends subject to
Nature of stock certificate
— De los santos: stock certificate is not a negotiable instrument, but is
considered quasi-negotiable:
o it may be transferred by endorsement + delivery but…
o … is not negotiable because the holder take it without prejudice
to such rights or defenses as registered owners or transferor’s
creditor may have under the law, subject to limitations imposed
by law on estoppel
— SEC: evidence of ownership of shares and that a person may own
shares without possessing a stock certificate, provided as he is duly
recorded in the books as a subscriber and owner, he is entitled to all
the rights of a SH
Probative value
— The stock certificate, once issued, is a continuing affirmation or
representation that the stock described is valid and genuine and is at
least prima facie evidence of ownership of stock
o as long as the subscriber is duly recorded in the books as the
owner of the shares, he is considered a SH of record and entitled
to all rights of a SH
Issuance of the stock certificate
— Issuance of shares must have the signature of the president or VP,
countersigned by the corporate secretary or assistant secretary, and
sealed with the corporate seal
— Issuance is NOT necessary to constitute the subscriber a SH of the
corporation…
— … but delivery of the certificate is an essential element of the
issuance
— 63: Every SH has the right to have a proper certificate issued to him
upon demand:
o provided he complies with the requirements/conditions in 64 i.e.
FULL payment of subscription
— SEC: remedies available to a SH if a corporation wrongfully refuses to
issue a certificate:
o File a suit for specific performance
o File for alternative relief by way of damages
o File a petition for mandamus to compel the issuance
o Rescind the contract of subscription and sue to recover payment
Negotiation of the certificate of stock
— Endorsement + delivery = quasi-negotiability
o Endorsement: essential requisite
o SEC: AOI cannot do away with the endorsement requisite for a valid
negotiation
o 63 is mandatory
— Three (3) purposes:
o Sale and assignment
o Pursuant to a trust or nominee arrangement
o Pledge or other encumbrance of the shares
1. Indorsement of stock certificate; registration in corporate
books
— At the back of ever stock certificate is a transfer form with blank spaces
for the transferee’s name
— When a SH wants to transfer his shares, all he has to do is to sign the
form. He need not fill the blanks as this may be done by the transferee
— Sec 74: The stock and transfer book shall be kept in the principal office
of the corporation or in the office of its stock transfer agent and shall be
open for inspection to any director or SH at reasonable hours on
business days
2. Effect of lack of registration
— Until registration is accomplished, the transfer, though valid between the
parties, cannot be effective as against the corporation
— Unrecorded transferees cannot enjoy the status of a SH—he cannot vote
or be voted for and will not be entitled to dividends
— Until challenged in a proper proceeding, a SH of record has the right to
participate in any meeting
— In order to be recognized as SH for voting purposes, his transfer must be
recorded on the books
— If refused, he can go to court to prove his right
— Until transfer is registered, transferee is not a SH but an outsider, and
any action he may wish to bring against the corporation must be
brought before the regular courts and not the SEC
— An unregistered transfer, not being effective against persons other than
the parties thereto, cannot prevail over the rights of a subsequent
attaching creditor
Uson v Diasomoto. F: Unson is the creditor of Diosomoto, who is original
owner of 75 shares of North Electric which were levied by a writ of
attachment to satisfy the judgment creditor. Uson obtained judgment
against Diosomoto and the shares were sold at public auction to the
judgment creditor Uson.
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--Diosomoto sold the shares attached to Barcelon and delivered the
corresponding certificates. The transfer to Barcelon was not registered
and noted on the books of the corporation until after 9 months after the
attachment was levied and later (9 months after) transferred to HPE
Jollye. HPL Jollye claims to be owner of the 75 shares and presents a
certificate of stock issued by North Electric.
I: W/n a bona fide transfer of shares of a corporation, not registered or
noted on the books, is valid as against a subsequent lawful attachment of
said shares, regardless of whether the attaching creditor had actual
notice of the transfer or not .
H: GR: NO> No transfer is valid except as between the parties unless it is
duly registered. All transfers of shares must be entered on the books of
the corporation. All transfers not so validly entered are invalid as to
attaching or execution creditors of the assignors, of the corporation, and
as to all subsequent purchasers in GF, and even to all parties interested.
All transfers not so entered on the books are absolutely void, not because
they are without notice or fraudulent in law, but because they are made
void by the statute. Courts in the Phils adhere to the principle that the
right of the owner of the shares to transfer to same by delivery of the
certificate, whether it be regarded as statutory or common law right, is
limited and restricted by the express provision that “no transfer shall be
valid except as between the parties, until the transfer is entered and
noted upon the books of the corporation.
The right of the owner of the shares of a corporation to transfer the same
by delivery of the certificate, whether it be regarded by the express
provision that “no transfer however shall be valid except as between the
parties, until the transfer is entered and noted upon the books of the
corporation.”
--The transfer of 75 shares in the NEC, made by Diosomito to Barcelon
was not valid as to Uson, on Jan 18, 1932, the date on w/c they still stood
in the name of Diosomito on the books of the corp.
Nautica Canning Corp v Yumul. F: Roberto C. Yumul was appointed
COO/General Manager of Nautica. On the same date, First Dominion
Prime Holdings, Inc., Nautica’s parent company, through its Chairman
Alvin Y. Dee, granted Yumul an Option to Purchase up to 15% of the total
stocks it subscribed from Nautica. A Deed of Trust and Assignment was
executed between First Dominion Prime Holdings, Inc. and Yumul whereby
the former assigned 14,999 of its subscribed shares in Nautica to the
latter. The deed stated that the 14,999 “shares were acquired and paid
for in the name of the ASSIGNOR only for convenience, but actually
executed in behalf of and in trust for the ASSIGNEE.” After Yumul’s
resignation from Nautica on August 5, 1996, he wrote a letter to Dee
requesting the latter to formalize his offer to buy Yumul’s 15% share in
Nautica on or before August 20, 1996; and demanding the issuance of the
corresponding certificate of shares in his name should Dee refuse to buy the
same. Dee, through Atty. Fernando R. Arguelles, Jr., Nautica’s corporate
secretary, denied the request claiming that Yumul was not a stockholder of
Nautica. Yumul requested that the Deed of Trust and Assignment be
recorded in the Stock and Transfer Book of Nautica, and that he, as a
stockholder, be allowed to inspect its books and records. Yumul’s requests
were denied allegedly because he neither exercised the option to purchase
the shares nor paid for the acquisition price of the 14,999 shares. Atty.
Arguelles maintained that the cash dividend received by Yumul is held by
him only in trust for First Dominion Prime Holdings, Inc. Nautica et al
contend that Yumul was not a stockholder of Nautica; that he was just a
nominal owner of one share as the beneficial ownership belonged to Dee
who paid for said share when Nautica was incorporated. They also allege
that Yumul was given the option to purchase shares of stocks in Nautica
under the Option to Purchase, and since he failed to exercise the option,
there was thus no cause or consideration for the Deed of Trust and
Assignment, which makes it void for being simulated or fictitious.
H: The SEC and CA correctly found Yumul to be a stockholder of Nautica, of
one share of stock recorded in Yumul’s name, although allegedly held in
trust for Dee. Nautica’s Articles of Incorporation and By-laws, as well as the
General Information Sheet filed with the SEC indicated that Yumul was an
incorporator and subscriber of one share. Even granting that there was an
agreement between Yumul and Dee whereby the former is holding the share
in trust for Dee, the same is binding only as between them. From the
corporation’s vantage point, Yumul is its stockholder with one share,
considering that there is no showing that Yumul transferred his subscription
to Dee, the alleged real owner of the share, after Nautica’s incorporation.
Other than petitioners’ self-serving assertion that the beneficial ownership
belongs to Dee, they failed to show that the subscription was transferred to
Dee after Nautica’s incorporation. The conduct of the parties also constitute
sufficient proof of Yumul’s status as a stockholder. On April 4, 1995, Yumul
was elected during the regular annual stockholders’ meeting as a Director of
Nautica’s Board of Directors. Thereafter, he was elected as president of
Nautica. Thus, Nautica and its stockholders knowingly held respondent out
to the public as an officer and a stockholder of the corporation.
The SC refrained from ruling on whether or not Yumul can compel the
corporate secretary to register said deed. It held it to be a question which is
civil in nature and thus beyond the ambit of the SEC, the court of origin of
the current action. It is only after an appropriate case is filed and decision
rendered thereon by the proper forum can the issue be resolved.
Razon v IAC. F: Enrique Razon organized the E. Razon, Inc. for the purpose
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of bidding for the arrastre services in South Harbor. Vicente Chuidian is
the administrator of the intestate estate of Juan Telesforo Chuidian. A
stock certificate for 1,500 shares of stock of E Razon Inc was issued in the
name of Juan T. Chuidian. On the basis of the 1,500 shares of stock, the
late Juan T. Chuidian and after him, Vicente Chuidian, were elected as
directors of E. Razon, Inc. Enrique Razon had not questioned the
ownership by Juan T. Chuidian of the shares of stock in question and had
not brought any action to have the certificate of stock over the said
shares cancelled. The certificate of stock was in the possession of
defendant Razon who refused to deliver said shares to the plaintiff, until
the same was surrendered by defendant Razon and deposited in a safety
box in Philippine Bank of Commerce. 1,500 shares of stook under Stock
Certificate No. 003 were delivered by the late Chuidian to Enrique
because it was the latter who paid for all the subscription on the shares
of stock in the defendant corporation and the understanding was that he
(defendant Razon) was the owner of the said shares of stock and was to
have possession thereof until such time as he was paid therefor by the
other nominal incorporators/ stockholders. Since then, Enrique Razon was
in possession of said stock certificate even during the lifetime of the late
Chuidian, from the time the late Chuidian delivered the said stock
certificate to Razon. By agreement of the parties delivered it for deposit
with the bank under the joint custody of the parties. TC ruled Razon owns
the shares, IAC reverses.
Razon claims that the shares of stock were registered in the name of
Chuidian only as nominal stockholder and with the agreement that the
said shares of stock were owned and held by the petitioner but Chuidian
was given the option to buy the same. Vicente B. Chuidian insists that the
appellate court's decision declaring his deceased father Juan T. Chuidian
as owner of the 1,500 shares of stock of E. Razon, Inc. should have
included all cash and stock dividends and all the pre-emptive rights
accruing to the said 1,500 shares of stock.
I: Who owns the shares? Does ownership of the said shares include all
cash and dividends?
H: (1) Chuidian owns the shares. For an effective, transfer of shares of
stock the mode and manner of transfer as prescribed by law must be
followed. As provided under the Corporation Code of the Philippines,
shares of stock may be transferred by delivery to the transferee of the
certificate properly indorsed. Title may be vested in the transferee by the
delivery of the duly indorsed certificate of stock. However, no transfer
shall be valid, except as between the parties until the transfer is properly
recorded in the books of the corporation. In the instant case, there is no
dispute that the questioned 1,500 shares of stock of E. Razon, Inc. are in
the name of the late Juan Chuidian in the books of the corporation.
Moreover, the records show that during his lifetime Chuidian was elected
member of the Board of Directors of the corporation which clearly shows
that he was a stockholder of the corporation. From the point of view of the
corporation, therefore, Chuidian was the owner of the 1,500 shares of stock.
In such a case, the petitioner who claims ownership over the questioned
shares of stock must show that the same were transferred to him by proving
that all the requirements for the effective transfer of shares of stock in
accordance with the corporation's by laws, if any, were followed or in
accordance with the provisions of law. Razon however did not present any
by-laws which could show that the 1,500 shares of stock were effectively
transferred to him. In the absence of the corporation's by-laws or rules
governing effective transfer of shares of stock, the provisions of the
Corporation Law are made applicable to the instant case.
The law is clear that in order for a transfer of stock certificate to be effective,
the certificate must be properly indorsed and that title to such certificate of
stock is vested in the transferee by the delivery of the duly indorsed
certificate of stock. (Section 35, Corporation Code) Since the certificate of
stock covering the questioned 1,500 shares of stock registered in the name
of the late Juan Chuidian was never indorsed to the petitioner, the inevitable
conclusion is that the questioned shares of stock belong to Chuidian. The
petitioner's asseveration that he did not require an indorsement of the
certificate of stock in view of his intimate friendship with the late Juan
Chuidian can not overcome the failure to follow the procedure required by
law or the proper conduct of business even among friends. To reiterate,
indorsement of the certificate of stock is a mandatory requirement of law for
an effective transfer of a certificate of stock. The preponderance of evidence
also supports the findings that the shares of stock were given to Juan T.
Chuidian for value. Juan T. Chuidian was the legal counsel who handled the
legal affairs of the corporation. We give credence to the testimony of the
private respondent that the shares of stock were given to Juan T. Chuidian in
payment of his legal services to the corporation. Razon failed to overcome
this testimony.
(2) The cash and stock dividends and all the pre-emptive rights are all
incidents of stock ownership. The rights of stockholders are generally
enumerated as follows: [F]irst, to have a certificate or other evidence of his
status as stockholder issued to him; second, to vote at meetings of the
corporation; third, to receive his proportionate share of the profits of the
corporation; and lastly, to participate proportionately in the distribution of
the corporate assets upon the dissolution or winding up.
— Oral testimony to show that one is the principal or beneficial
owner of shares for which he has allowed a certificate of stock to
be issued in the name of his alleged nominee will not be
sufficient basis to claim rightful ownership over the shares of
stock.
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— The law is clear that in order for a transfer of stock certificate
to be effective, the certificate must be properly indorsed and
that title to such certificate of stock is vested in the
transferee by delivery of the duly indorsed stock certificate.
3. No registration of transfer of unpaid shares
— Any unpaid balance on the subscription—there can be no stock
certificate on which an indorsement may be made. Shares are thus
not transferable on the books
— The words “unpaid claim” in Sec 63 does not necessarily mean that
there should have been a previous call by the board
o As long as any portion remains unpaid, a corporation has a claim
on the shares, and may demand for the same
— Corporation may agree to record a transfer even if there is still an
unpaid balance, provided the transferee assumes the obligation to
pay the balance
— Under 63 no shares of stock against which the corporation hold any
unpaid claim shall be transferable in the books of the corporation
o A corporation may refuse to register a sale or assignment of
shares not fully paid
o China Banking Corp case: principle of non-registration of unpaid
shares not applicable in pledged shares sold at public auction
o Unpaid claims refers to any unpaid claims arising from unpaid
subscription, and not to any indebtedness which a subscriber
may owe a corporation from other transactions
— Baltazar: since it was the practice and procedure of the corporation to
issue certificates of stock to its individual subscribers, it may not take
away the right to vote granted by the certificates
o 64: provides a legal basis for the corporation through its board to
refuse any claim by a subscriber to issue stock certificates
covering the extent of share as that have been paid-up while
leaving the remaining balance unpaid
o 64 does not prohibit the corporation from dividing the
subscription of a subscriber by considering the portion thereof as
fully paid and issuing a corresponding certificate over the paid-up
shares; such option is only granted to the corporation
o Thus a corporation may apply payments made by subscribers on
their subscriptions either as:
 Full payment for the corresponding number of shares, the
par value of which is covered by such payment, (Baltazar)
or…
 Payment pro-rata to each and all the entire number of
shares subscribed for (Nava and Fua Cun)
— Sale of portion of not fully paid shares
 o SH cannot transfer part of his subscription—indivisibility of
subscription of contract (Nava and Fua Cun)
o Difficult to determine whether or not partial payments made should
be applied as full payment
— Sale of entire not fully paid shares
o Entire subscription not fully paid may be transferred to a single
transferee
 Must secure the consent of the corporation since the transfer
contemplates a novation of contract
 But cannot be forced upon the corporation
— When shares fully paid
o Shares of stock issued with stock certificates become personal
property and may be transferred by deliver of the certificate
endorsed by the owner
4. Remedy if registration refused
— Transferee may petition the court for a writ of mandamus to compel
registration or the issuance of a new certificate
o There must be no other plain, speedy and adequate remedy
o There are no unpaid claims against stocks whose transfer sought to
be recorded
— Right to have transfer registered exists from the time of the transfer and
it is to the transferee’s benefit that the right be exercised early
— Mere blank indorsement of the certificate of stock by itself does not
clearly and unequivocally indicate that the registered owner’s wish to
have the certificate cancelled and a new one issued in the name of the
holder.
Rural Bank of Salinas v. CA. F: Clemente G. Guerrero, President of the
Rural Bank of Salinas, Inc., executed a Special Power of Attorney in favor of
his wife, private respondent Melania Guerrero, giving and granting the latter
full power and authority to sell or otherwise dispose of and/or mortgage 473
shares of stock of the Bank registered in his name. Pursuant to said Special
Power of Attorney, private respondent Melania Guerrero, as Attorney-in-Fact,
executed a Deed of Assignment for 472 shares out of the 473 shares, in
favor of private respondents, and executed a Deed of Assignment for the
remaining one (1) share of stock in favor of private respondent Francisco
Guerrero, Sr. Melania Guerrero presented to petitioner Rural Bank of Salinas
the two (2) Deeds of Assignment for registration with a request for the
transfer in the Bank's stock and transfer book of the 473 shares of stock so
assigned, the cancellation of stock certificates in the name of Clemente G.
Guerrero, and the issuance of new stock certificates covering the transferred
shares of stocks in the name of the new owners thereof. However, petitioner
Bank denied the request of respondent Melania Guerrero.
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I: W/n the courts can compel by Mandamus the Rural Bank of Salinas to
register in its stock and transfer book the transfer of 473 shares of stock
to private respondents.
H: Section 5 (b) of P.D. No. 902-A grants to the SEC the original and
exclusive jurisdiction to hear and decide cases involving intracorporate
controversies. An intracorporate controversy has been defined as one
which arises between a stockholder and the corporation. There is no
distinction, qualification, nor any exception whatsoever. The case at bar
involves shares of stock, their registration, cancellation and issuances
thereof by petitioner Rural Bank of Salinas. It is therefore within the
power of respondent SEC to adjudicate. Said Section (Sec. 35 of Act 1459
[now Sec. 63 of the Corporation Code]) contemplates no restriction as to
whom the stocks may be transferred. It does not suggest that any
discrimination may be created by the corporation in favor of, or against a
certain purchaser. The owner of shares, as owner of personal property, is
at liberty, under said section to dispose them in favor of whomever he
pleases, without limitation in this respect, than the general provisions of
law, the only limitation imposed by Section 63 of the Corporation Code
being any unpaid claim held by the corporation against the shares
intended to be transferred, which is absent in this case. The right of a
transferee/assignee to have stocks transferred to his name is an inherent
right flowing from his ownership of the stocks. Whenever a corporation
refuses to transfer and register stock in cases like the present,
mandamus will lie to compel the officers of the corporation to transfer
said stock in the books of the corporation" (Fleisher vs. Botica Nolasco).
The corporation's obligation to register is ministerial. In transferring
stock, the secretary of a corporation acts in purely ministerial capacity,
and does not try to decide the question of ownership. The duty of the
corporation to transfer is a ministerial one and if it refuses to make such
transaction without good cause, it may be compelled to do so by
mandamus. 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.
Restrictions on transfer; close corporations
Underlying doctrine on transfer restrictions
— Public policy against “restraint of trade”; shares of stock are
considered species of trade and occupation through the participation
in the business enterprise of the corporate entity
o A contract “in restraint of trade” is valid provided there is a
limitation upon either time or place; restraint must be reasonable
necessary for the protection of the contracting parties (Villa Rey v
Ferrer)
 oReasonable restrictions recognized by the SEC:
 Not more onerous than granting existing SHs or the
corporation the option to purchase the shares
 Not valid if absolute prohibition against sale or transfer of
shares without consent of the existing SHs
 Reasonable option period: 30-60 days
 After expiration, SH should be free to dispose his shares to
anyone
— Non-competition clause
o SEC: valid stipulation in the AOI or BLs as a condition for being a SH
 Based on the inherent right of the corporation to preserve
and protect itself by excluding competitors or hostile
interests
1. general rule: free transferability of shares
— free transferability: one of the most important advantages of the
corporation over a partnership
o furnishes a SH a convenient means of raising funds whenever the
need arises (i.e. can sell or use shares as collateral)
o when SH is dissatisfied with management, he can get out of the
business by selling his share subject to no restriction
2. exception: in close corporations
— reason: ownership and management are vested in the same peoplem
and there is wariness about any stranger coming in
— restrictions on transfer a means for SHs of close corporations to protect
themselves from future conflicts so that outsiders cannot come in
Sec 96-99
— can a corporation not closed place restrictions on the transfer of its
stocks?
o Campos: transfer restrictions are exceptions to the general rule of
free transferability; thus would only apply to closed corporations
because of their peculiar nature
3. intrinsic validity of various kinds of restrictions
— dual nature of the share of stock as both a contract and property
o as property: stock transfer restrictions invalid since alienation of
property cannot be subjected to any restriction
o as contract: parties should have freedom to impose such terms and
conditions deemed fit
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— Fleischer v Botica Nolasco: SC held a by-law giving the corporation
an option to buy such shares which a SH wished to transfer as ultra
vires because it is violative and in restraint of property rights of SHs
— Restrictions on transfer must be reasonable under the circumstances
to justify their exception to the rule of free transferability
— An absolute prohibition to transfer shares, even when contained in
the AOI, would be void since it would violate 63
(1) consent restriction or right of prior consent
— def’n: restriction which requires consent of the directors or of
other SHs before any transfer may be made
— would not be valid under the Corpo Code because it is more
onerous than the option restriction allowed by the Code
(2) option restriction or right of first refusal; valid if
reasonable
— right of first refusal: provides that a SH who may wish to sell
or assign his shares must first offer the shares to the
corporation or to the other existing SHs of the corporation
under reasonable terms and conditions
o when corporation or the other SHs fail to exercise can the
offering SH dispose of his shares to third parties
— def’n: restriction which requires a SH who wishes to sell or
transfer his shares to first offer the same to the corporation
or to the other SHs and give the latter an opportunity to
acquire the same should they wish to do so
— basis: share of stock are not mere property, but contracts
which create personal relations between the parties thereto
— may be ifo the corporation (right of first option), or of the
other SHs or of both successively
o Campos: must be ifo corporation and SHs successively to
be more effective
o Option ifo corporation cannot be enforced if it has no
unrestricted retained earnings (Sec 41)
— allowed under Sec 98
— may also apply to non-voting stocks
— length of time during which option may be exercised must be
reasonable
— must justifiable and reasonable under the circumstances
o SEC policy: option period limited to one (1) month
o When its terms are ambiguous or not specific or vague,
construction should be ifo free transferability
— Not limited to transfer for value under Sec 99
o May include donation
— Transfer price: may be fixed by the transfer stipulation
(3) prescribing qualifications of SHs, a transfer restriction
— AOI of a close corp may provide that only persons meeting
specified qualifications may become SHs
o Would prevent a transfer of stocks to anyone who does not
qualify under its articles
o “Subject to the provisions of the ff section” in Sec 97(1)
should be interpreted to qualify only “restrictions on their
transfers” and not “qualifications for owning or holding the
same”
— “buy-back agreements”: shares are given or assigned to officers
or employees under the condition that should they resign or be
terminated from employment, the corporation shall be granted
the right to buy-back the shares; these are valid provided the
terms and consideration therefor are reasonable
(4) redeemable common stock
— gives the corporation the power to redeem common stock
— allowed under Section 8 of the Code
(5) formal validity of restrictions
— Code requires restrictions on transfer to appear in the ff:
o AOI
o By-laws
o Stock certificate
— Fleischer v Botica Nolasco: If only in AOI or only in by-laws:
binding only on the corporation and the SH
o SC voided the by-law provision which granted to SHs an RFR
over shares sought to be disposed by other SHs
o RFR in by-laws not void per se, but that it is not the function
of by-laws to take away or abridge the substantial rights of
SHs
o By-laws are essentially intramural documents not binding
upon the public
— Salinas case: the only limitation imposed by Sec 63 is when the
corporation holds any unpaid claim against the shares to be
transferred, and that the corporation through its board, by-laws,
or officers, cannot create restrictions in stock transfers, because
restrictions must have their source in legislative enactments
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o By-laws are merely for the protection of the corporation,
and prescribe relation, not restriction, and are always
subject to the AOI or charter of the corporation
— If certificate of stock conspicuously shows restriction and is in
AOI: transferee is presumed to have notice
— If it does not conspicuously appear in stock certificate:
transferee may be presumed to have notice of the restriction
o Where presumption of notice arises: corporation may
refuse to register the transfer, unless all SHs consent
thereto or AOI is amended
o In any case, transferee has the right to rescind the
transfer to him
— If restriction is not in AOI or in by-laws but appears in a
private agreement between the SHs: should be binding
among them but not anyone not a party to the agreement
— Restriction may be done away with by amendment to the AOI
and the by-laws: 2/3 vote of OCS
— SH agreement will be binding on all parties to it and cannot
be changed against the objection of even only one of them
unauthorized transfers
1. certificates indorsed in blank; when quasi-negotiable
— stock certificate possess certain attributes of quasi-negotiability
based on the policy to give stability to transactions to encourage
their commercial use
— if certificate indorsed in blank and places it in the hands of
another for purposes other than transfer, such possessor may
transfer good title to a bona fide purchaser who relied on the
indorsement and believed him the be the real owner
— real owner is estopped from claiming shares as against such bona
fide purchasers which he has clothed the possessor with apparent
authority (Santamaria case)
— negotiable character is limited to the situation where the owner is
guilty of estoppel in making other persons believe that the
possessor has the right to transfer the same
o if not entrusted to anyone: not guilty of estoppel
o ex finder or thief
2. forged transfers
— GR: stock certificates, since they are only quasi-negotiable, do
not afford the same protection to a holder in GF and for value
who receives them in the course of their being negotiated, and
that the true owner will be preferred
 — Exception: when the true owner was guilty of negligence in causing
the loss
— if corporation issues a new certificate in pursuance of a forged
transfer: no liability incurred
o if it comes into the hands of a bona fide purchaser for value:
corporation will be estopped from denying validity thereof
o but corporation will have right of action against the person who
made false representations and in whose favor it issued a new
certificate
— duty of purchaser to determine that indorsement of the owner is
genuine
J Santamaria v HSBC. F: Josefa Santamaria is the owner of 10000 shares of
Batangas Minerals Inc thru the offices of the Woo stockbrokerage firm. She
then placed an order for 10000 shares of Crown Mines thru RJ Campos & Co
stockbrokerage firm and delivered the certificate of stock of her shares in
Batangas Minerals as security. Her name was penciled on the certificate she
delivered. The certificate then came into the possession of HSBC by virtue of
a document of hypothecation, wherein Campos pledged all shares and
securities in its possession to HSBC because of an overdraft account it had
with the bank. The certificate was indorsed by Campos to HSBC. HSBC then
requested the Batangas Minerals to cancel the same and a new certificate
was issued in the name of HSBC’s nominee Robert Taplin. Mrs Santamaria
then tendered payment for the Crown Mine shares with Campos, but the
latter was now prohibited from transacting business due to its insolvency
proceedings. She demanded that HSBC return her certificate, but Taplin
replied that the bank did not know anything about her transaction with
Campos. She sues HSBC.
I: W/n Santamaria could be charged with negligence for failing to take
necessary precautions in negotiating her stock certificate.
H: In making deposit of her certificate, Santamaria did not take any
precaution to protect herself against the possible misuse of shares. She
could have asked Batangas Minerals to cancel it and issue another in her
name to apprise the holder that she was the owner of the certificate. This
she failed to do so, and instead she delivered the certificate to Campos and
clothing the latter with apparent title to the shares represented by said
certificate, including apparent authority to negotiate it by delivering it to
HSBC. HSBC had no knowledge of the circumstances under which the
certificate of stock was delivered to Campos and had the perfect right to
assume that Campos was in lawful possession, in view of the fact that it was
a street certificate, which is transferable by mere delivery. Santamaria made
the negotiation of the certificate to other parties possible and the confidence
she placed in Campos made the wrong done possible. This was the
proximate cause of the damage suffered by her. She is thus estopped from
claiming further title to or interest therein as against a bona fide pledgee or
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transferee thereof. The certificate was delivered by Campos to HSBC in
the ordinary course of business, together with many other securities, and
at the time of delivery, HSBC had no knowledge that the shares belonged
to Santamaria. She was thus chargeable with negligence in failing to take
the necessary precautions upon delivering the certificate to her broker.
I: w/n HSBC was obligated to inquire who was the real owner of the
shares, and w/n it could be charged with negligence for failure to do so.
H: Upon its face, the holder of the certificate was entitled to demand its
transfer into his name from the issuing corporation. HSBC was not
obligated to look beyond the certificate to ascertain the ownership of the
stock because it was given pursuant to its contract of hypothecation. A
stock certificate, indorsed in blank, is deemed quasi-negotiable, and as
such the transferee thereof is justified in believing that it belongs to the
holder and transferor. The fact that her name was penciled on the
certificate cannot be considered sufficient reason to indicate that she was
the owner, considering that certificate was indorsed in blank by her
brokers and guaranteed by indorsement in blank by Campos.
— a bona fide pledgee or transferee of a stock from the
apparent owner is not chargeable with knowledge of the
limitations placed on said certificates by the real owner, or of
any secret agreement relating to the use which might be
made of stock by the holder.
— When a stock certificate is endorsed in blank, it constitutes
what is termed as a “street certificate” so that upon its face,
the holder is entitled to demand its transfer into his name
from the issuing corporation. Such certificate is quasi-
negotiable.
— Santamaria could not recover the certificates since she could
have asked that the corporation that issued it to cancel and
issue another. Her negligence was the immediate cause of
the damage, since the certificate was endorsed be her to
constitute as a street certificate.
A De Los Santos v. JH McGrath, Atty General of the US. F: Involves
the true ownership of 1,600,000 shares of Lepanto Mining. The original
owner was the Mitsui Co, a Japanese corporation, and was held in trust by
Vicente Madrigal, in whose name the shares were registered in the books
of Lepanto. Madrigal delivered the certificates to the Mitsui office in the
RP, which kept the same until the liberation of Manila by the US. The
Mitsuis nor Madrigal had never sold or disposed of the shares, which was
alleged to have been looted or stolen during the liberation. By virtue of
vesting order P-12, title in the shares was ordered vested in the Alien
Property Custodian of the US, which was succeeded in this action by the
US Atty General. De Los Santos and Astraquillo however claim to be
owners of 1,600,000 shares of Lepanto Mining, alleging that they bought
1,100,000 from Carl Hess and 500,000 from Juan Campos. All evidence and
persons who could testify as to their ownership of the shares no longer
existed. Hess was executed by the Japanese and Campos killed during the
liberation. A receipt made in a purported sale by Astraquillo of the shares
was curiously destroyed by fire.
I: Who owns the certificates?
H: Under the Code, a share of stock may be transferred by endorsement of
the certificate coupled with delivery. The transfer is not valid except as
between the transferring parties, unless it is entered and noted upon the
books of the corporation. No such entry in the name of de los Santos and
Astraquillo having been made, it follows that the transfer allegedly effected
by Hess and Campos is not valid, except as between themselves. It does not
bind the Madrigals or the Mitsuis who are not parties to the alleged
transaction. Although a stock certificate is sometimes regarded as quasi-
negotiable, in the sense that it may be transferred by endorsement, coupled
with delivery, it is well-settled that the instrument is non-negotiable,
because the holder thereof takes it without prejudice to such rights or
defense as the registered owner or credit may have under the law. If the
owner of the certificate has endorsed it in blank, and it is stolen from him, no
title is acquired by an innocent purchaser for value. The doctrine that a bona
fide purchaser of shares under a forged or unauthorized transfer acquires no
title as against the true owner does not apply where the circumstances are
such as to estop the latter from asserting his title. Where one of two
innocent parties must suffer by reason of a wrongful or unauthorized act, the
loss must fall on the one who first trusted the wrongdoer and put in his
hands the means of inflicting such loss. But negligence which will work an
estoppel of this kind must be the proximate cause of the damage and must
be in or immediately connected with the transfer itself.
Moreover, delos Santos and Astraquillo were aware of sufficient facts to put
them on notice of the need of inquiring into the regularity of the transactions
and the title of supposed vendors. The certificates were in the name of
Madrigal. Obviously therefore, the alleged sellers were not the registered
owners of the certificates and shares of stock. They must have been
conscious of the infirmities in title. The purported sales were also admittedly
hostile to the Japanese, who had prohibited it, and plaintiffs had actual
knowledge of these facts and of the risks attendant. In other words, they
assumed those risks and cannot validly claim against the registered SH, the
status of purchasers in GF.
— A stock certificate is not a negotiable instrument, but it is regarded as
quasi-negotiable in the sense that it may be transferred by endorsement
coupled with delivery
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— A transferee under a forged assignment acquires no title which can
be asserted against the true owner, unless the true owner’s own
negligence has been such as to create an estoppel against him
— The doctrine that a bona fide purchaser of shares under a forged or
unauthorized transfer acquires no title as against the true owner does
not apply where the circumstances are such as to estop the latter
from asserting his title
— It is not negotiable because the holder takes it without prejudice to
such rights or defenses as registered owners or transferor’s creditor
may have under the law, except insofar as such rights or defenses
are subject to the limitations imposed by the principles governing
estoppel
Collateral transfers
— As personal property, shares may be the subject matter of pledge
and chattel mortgage (CM)
o Collateral transfers are not covered by the registration
requirement in Sec 63 (applies only to absolute transfers per SC
in Monserrat v Ceron)
o If certificate is delivered as security for the performance of an
obligation, it is a pledge and governed by CC
o If not delivered, transaction must be registered in the CM registry
of the province
o If SHs domicile is in a different province, registration must also be
made in such province
Chua Gan v Samahang Magsasaka Inc. F: Chua Gan is the assignee of
all rights and interests of mortgagee Chua Chiu, in whose favor a
mortgage upon shares of corporation Samahang Magsasaka Inc owned by
debtor Cotoco was entered into, delivered, and registered in the RoDs.
Cotoco defaults, Chua Gan forecloses mortgage and after public auction,
certificate of shares were entered in his favor. Chua Gan then tendered
the certificates to the corporation for cancellation and the issuance of
new certificates in his name. Officers of Samahang Magsasaka refused,
contending that 9 attachments had been issued and served against the
shares of Cotoco in the books. 8 of the writs were served and noted in the
books before the corporation knew of the mortgage of Chua Chiu. Chua
Gan sues. (The registered owner mortgaged the shares and the
mortgagee not only registered the mortgage with the registry of deeds,
but also in the books of the corporation. When the mortgagee foreclosed
on the mortgage, the officers of the corporation refused to issue the new
certificates in the name of the mortgagee as the winning bidder thereof
in the auction sale, on the ground that before the mortgagee made his
demand upon the corporation, writs of attachments had been served
upon and registered in the books of the corporation against the
mortgagor, which the mortgagee refused to have annotated in the new
certificate to be issued to him) Under Sec 43.1 of the SRC: a corporation whose shares are listed in the
PSE or registered pursuant to the Corpo Code may:
I: w/n the registration of the CMs in the ROD is constructive notice to the
attaching creditors (w/n the mortgage took priority over the writs of — Issue shares to or record the transfer of some or all its shares
attachment) in the form of uncertificated securities, to investors or
H: GR: for purposes of execution, attachment, and garnishment, it is not the securities intermediaries, upon resolution of the board and
domicile of the owner of the certificate but the domicile of the corporation agreed by a SH
which is decisive. By analogy, and considering that the ownership of shares — Use of said uncertificated securities shall be without prejudice
in a corporation as property distinct from the certificates which are merely to the rights of the securities intermediary to subsequently
the evidence of such ownership, the property in the shares may be deemed require the issuance of the certificate
to be situated in the province in which the corporation has its principal office — Issue all of the shares of a particular class in the form of
or place of business. If this province is also the province of the owner’s uncertificated securities, subject to the condition that the
domicile, a single registration is sufficient. If not, the CM must be registered investors may not require the corporation to issue a
both at the owner’s domicile and in the province where the corporation has certificate
its principal office or place of business. In this sense the property mortgaged
is not the certificate but the participation and share of the owner in the Under 43.3 of the SRC: transfers of securities, including uncertificated
assets of the corporation. ones, may be validly made and consummated in any of the ff ways, which
would have the effect of delivery of a security in bearer form or duly
The transfer by endorsement and delivery of a certificate with intention to indorsed in blank, representing the unrestricted negotiability of such
pledge the shares covered thereby should be sufficient to give legal effect to delivery:
that intention and to consummate the juristic act without necessity for
registration. Thus the attaching creditors are entitled to priority over the — By appropriate book entries in the securities accounts
defectively registered mortgage of Chua Gan. maintained by securities intermediaries
— In the stock and transfer book held by the corporation or
— Considering the ownership of shares in a corporation as property distinct stock transfer agent
from the certificates which merely evidence the ownership, then the *The transfer shall only be valid—as to the corporation—when it is
property in the shares may be deemed to be situated in the province recorded in the books of the corporation
which the corporation has its principal office or place of business. In this
sense property mortgaged is not the certificate but the participation and
share of the owner in the assets of the corporation. Transfer or conveyance Remitting of transfer
— Although under 63 the surrender of the certificate is necessary to effect 1 Payment or consideration Presentation of original stock
the transfer of shares, it does not exclude the possibility that a transfer certificate
may be made in a different manner; meaning that the execution of a 2 Delivery of stock certificate Recording of transfer
deed of assignment can be a valid mode of transferring title covering (indorsed—manner of
shares of stock. indorsement)
3 Presentation of document of Cancellation
non-transferability and termination of membership in non-stock conveyance
corporations 4 Issuance of certificate

— GR: shares are freely transferable

— Exception: in close corporations

S90-91

Special rules on registered or listed shares

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 See table above
One without the other: short of ownership of
transferred shares
Short of having transfer recorded: kulang pa rin!
Cases show that it is NOT sufficient that you have
the stock certificate
Problems arise when:
Not all requirements for valid transfer are met
Considerable delay in satisfying requirements of the
Code
Parties not original owner/transferor could assert
proprietary rights
Stock certificate: evidence of ownership of shares
Whoever owns/holds the certificate is only
presumed to be the owner
Can be used to confirm conveyances made
Similar to a check/negotiable instrument; all you do is
endorse, even in blank: mere signature of endorser
Without this certificate: NO voting rights, NO
economic rights; these would not materialize until all
requirements are satisfied
Ideally, transfer and recording are done on the
same date
Both should happen one after the other
Books recognize only one owner
Code ensures that corporation recognizes only one SH
of record (see Portland case)
Transferee has way out if transfer or conveyance is
imperfect
If you do not comply, you expose yourself to risk!
Unless transferee does not intend to be a SH of
record (Chuidian: he has to be a SH because he
wants to be director!)
Corporation is not a party at the time of the
transfer; becomes party only when recorded (see
Abejo: recording is a ministerial duty)

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