Certificates of Stock and Their Transfer

 Delivery may be effected by endorsement and delivery. Once there is delivery

and endorsement, then there is a valid transfer.
 In so far as the contracting parties themselves are concerned, in order to make it
validly binding against third party and or the corporation itself, it must be
recorded in the books of the corporation.

Case: Chua Guan vs. Samahang Magsasaka, Inc.

Facts:
 The complaint alleges that the defendant Samahang Magsasakam Inc., is a
corporation duly organized under the laws of the Philippine Islands with the
principal office in Cabanatuan, Nueva Ecija, and that the individual defendants
are the president, secretary and treasurer respectively of the same.
 On June 18, 1931, Gonzalo H. Co Toco was the owner of 5,894 shares of the
capital stock of the said corporation represented by nine certificates having a par
value of Php 5.00 per share; that on said date Gonzalo H. Co Toco, a resident of
Manila, mortgaged said 5,894 shares to Chua Chiu to guarantee the payment of
a debt of Php 20,000 due on or before June 19, 1932.
 The said certificates of stock were delivered with the mortgage to the mortgagee,
Chua Chiu.
 The said mortgage was duly registered in the Office of the Register of Deeds of
Manila on June 23, 1931, and in the office of the said corporation on September
30, 1931.
 On November 28, 1931, Chua Chiu assigned all his right and interest in the said
mortgage to the plaintiff and the assignment was registered in the office of the
register of deeds of Manila on December 28, 1931, and in the office of the
corporation on January 4, 1932.
 The debtor, Gonzalo Toco, having defaulted in the payment of said debt at
maturity, the plaintiff foreclosed said mortgage and delivered the COS and copies
of the mortgage and assignment to the sheriff of the City of Manila in order to sell
the said shares at public auction.
 The plaintiff tendered the certificates of stock standing in the name of Gonzalo
Toco to the proper officers of the corporation for cancellation and demanded that
they issue new certificates in the name of the plaintiff.

Issue: Whether the registration of the mortgage in the registry of chattel mortgage in the
office of the register of deeds give constructive notice to the said attaching creditors and
thus gave preference to the mortgage over the other debts?

Ruling:
 In passing, let it be noted that the registration of the said chattel mortgage in the
office of the corporation was not necessary and had no legal effect. (Monserrat
vs. Ceron, 58 Phil., 469.)
 The long mooted question as to whether or not shares of a corporation could be
hypothecated by placing a chattel mortgage on the certificate representing such
 shares we now regard as settled by the case of Monserrat vs. Ceron, supra. But
that case did not deal with any question relating to the registration of such
a mortgage or the effect of such registration. Nothing appears in the record
of that case even tending to show that the chattel mortgage there involved
was ever registered anywhere except in the office of the corporation, and
there was no question involved there as to the right of priority among
conflicting claims of creditors of the owner of the shares
 Section 4 of Act No. 1508 provides two ways for executing a valid chattel
mortgage which shall be effective against third persons. First, the
possession of the property mortgage must be delivered to and retained by the
mortgagee; and, second, without such delivery the mortgage must be recorded
in the proper office or offices of the register or registers of deeds. If a chattel
mortgage of shares of stock of a corporation may validly be made without the
delivery of possession of the property to the mortgagee and the mere registration
of the mortgage is sufficient to constructive notice to third parties, we are
confronted with the question as to the proper place of registration of such a
mortgage. Section 4 provides that in such a case the mortgage resides at the
time of making the same or, if he is a non-resident, in the province in which the
property is situated; and it also provides that if the property is situated in a
different province from that in which the mortgagor resides the mortgage shall be
recorded both in the province of the mortgagor's residence and in the province
where the property is situated.
 If with respect to a chattel mortgage of shares of stock of a corporation,
registration in the province of the owner's domicile should be sufficient,
those who lend on such security would be confronted with the practical
difficulty of being compelled not only to search the records of every
province in which the mortgagor might have been domiciled but also every
province in which a chattel mortgage by any former owner of such shares
might be registered. We cannot think that it was the intention of the
legislature to put this almost prohibitive impediment upon the
hypothecation of shares of stock in view of the great volume of business
that is done on the faith of the pledge of shares of stock as collateral.
 It is a common but not accurate generalization that the situs of shares of stock
is at the domicile of the owner. The term situs is not one of fixed of invariable
meaning or usage. Nor should we lose sight of the difference between the situs
of the shares AND the situs of the certificates of shares. The situs of shares
of stock for some purposes may be at the domicile of the owner and for others at
the domicile of the corporation; and even elsewhere. (Cf. Vidal vs. South
American Securities Co., 276 Fed., 855; Black Eagle Min. Co. vs. Conroy, 94
Okla., 199; 221 Pac,, 425 Norrie vs. Kansas City Southern Ry. Co., 7 Fed. [2d].
158.) It is a general rule that for purposes of execution, attachment and
garnishment, it is not the domicile of the owner of a certificate but the
domicile of the corporation which is decisive. (Fletcher, Cyclopedia of the
Law of Private Corporations, vol. 11, paragraph 5106. Cf. sections 430 and 450,
Code of Civil Procedure.)
  By analogy with the foregoing and considering the ownership of shares in a
corporation as property distinct from the certificates which are merely the
evidence of such ownership, it seems to us a reasonable construction of
section 4 of Act No. 1508 to hold that the property in the shares may be
deemed to be situated in the province in which the corporation has its
principal office or place of business. If this province is also the province of the
owner's domicile, a single registration sufficient. If not, the chattel mortgage
should be registered both at the owner's domicile and in the province where the
corporation has its principal office or place of business. In this sense the property
mortgaged is not the certificate but the participation and share of the owner in the
assets of the corporation.
 In view of the premises, the attaching creditors are entitled to priority over
the defectively registered mortgage of the appellant and the judgment
appealed from must be affirmed without special pronouncement as to
costs in this instance.

Prof’s comment: Under the mortgage law, in cases of the mortgage of shares of
stock, in order to be valid and binding against the whole world, it must be registered in
the Registry of Deeds of the city or municipality of which the principal office is located or
established. In addition, if the owner resides in another city or municipality, it must also
be registered in the city or municipality where he resides. In the case above, true it is
that it is registered in the City of Manila, but it was it was never registered in the registry
of deeds of Cabanatuan, although it was registered in the books of corporation. As
we’ve seen in Monserrat vs. Ceron, the registration of mortgages in the stock and
transfer book has no effect on its validity. Its registration or non-registration in the stock
and transfer book will not affect its validity. That is why, there is a defective registration
of the mortgage. Being the case, it must be the Registry of Deeds of both Cabanatuan
and Manila.

The requisites for valid transfer under Section 62 is the endorsement of the stock
certificate made by the owner and delivery thereof to the transferee, that is the operative
act of transfer of shares, which is valid as between the contracting parties. However, to
be valid and binding against third parties, it must be registered in the stock and transfer
book. As we were saying, mortgages, are not required to be registered in the stock and
transfer book. Hence, registration or lack of registration does not affect its validity.

Importance of Registration in the Stock and Transfer Book:

a. To enable the corporation to know who the stockholders are;
b. To enable the transferee to exercise his rights as a stockholder;
c. To afford the corporation to object or refuse registration in cases allowed by law.
 Ex: Last par. of Sec. 62, No shares of stock against which the corporation
holds any unpaid claim shall be transferable in the books of the corporation.
o Unpaid claims, however, as held in China Banking vs. CA, would
only refer to the unpaid portion of the subscription of the
stockholder and not any other indebtedness that he may have
from the corporation.
 d. In cases of the violation of the nationalization or in cases where other
government agencies have other requirements.
 Ex: Like in cases of Banks, if the transfer would result to more than 20% of
the OCS of the bank, it shall be first subject to the approval of the BSP.
e. It may also be to avoid fictitious and fraudulent actions.
f. To protect creditors who have the right to look upon the stockholders in cases of
non-payment of unpaid subscriptions, watered stocks and for the satisfaction of
their claims.

Case: Uson vs. Diosomito

Facts:
 It appears that Toribia Uson had filed a civil action for debt in the CFI, against
Vicente Diosomito and that upon institution of said action an attachment was duly
issued and levied upon the property of the defendant Diosomito, including 75
shares of the North Electric Co., Inc, which stood in his name on the books of the
company when the attachment was levied on January 18, 1932.
 Subsequently, on June 23, 1932, in said civil case Toribie Uson obtained
judgment against the defendant Diosomito.
 To satisfy the judgment, the sheriff sold said shares at public auction in
accordance with law on March 20, 1933.
 The plaintiff Toribia Uson was the highest bidder and said shares were
adjudicated to her.
 In the present action, H.P.L., Jollye claims to be the owner of said 75 shares of
the North electric Co., Inc., and presents a certificate of stock issued to him by
the company on Feb. 13, 1933.
 There is no dispute that the defendant Vicente Diosomito was the original owner
of said shares of stock, having a par value of Php 7,500 and that on Feb. 3, 1931
he sold said shares to Emeterio Barcelon and delivered to the latter the
corresponding certs.
 But Barcelon did not present these certs to the corporation for registration until
the 16th of Sept, 1932, when they were cancelled and a new cert, No. 29, was
issued in favor of Barcelon, who transferred the same to the defendant H.P.L.,
Jollye to who a new cert No. 25 was issued on Feb 13, 1933.
 It will be seen, therefore, that the transfer of said shares by Diosomito, the
judgment debtor in suit No. 2525, to Barcelon was not registered and noted on
the books of the corporation until Sept. 6, 1932, which was some 9 months after
the attachment had been levied on said shares.

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

Held:
  SEC. 35. The capital stock of stock corporations shall be divided into shares for
which certificates signed by the president or the vice-president, countersigned by
the secretary or clerk and sealed with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate indorsed
by the owner or his attorney in fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as between the parties, until
the transfer is entered and noted upon the books of the corporation so as to
show the names of the parties to the transaction, the date of the transfer, the
number of the certificate, and the number of shares transferred.
 We prefer to adopt the line followed by the Supreme Courts of Massachusetts
and of Wisconsin. (See Clews vs. Friedman, 182 Mass., 555; 66 N.E. 201, and In
re Murphy, 51 Wis., 519; 8 N.W., 419.) In this case the court had under
consideration a statute identical with our own section 35, supra, and the court
said:
o We think the true meaning of the language is, and the obvious intention of
the legislature in using it was, that all transfers of shares should be
entered, as here required, on the books of the corporation. And it is
equally clear to us that all transfers of shares not so entered are invalid as
to attaching or execution creditors of the assignors, as well as to the
corporation and to subsequent purchasers in good faith, and indeed, as to
all persons interested, except the parties to such transfers. All transfers
not so entered on the books of the corporation are absolutely void; not
because they are without notice or fraudulent in law or fact, but because
they are made so void by statute.
o To us the language of the legislature is plain to the effect that the right of
the owner of the shares of stock of a Philippine corporation to transfer the
same by delivery of the certificate, whether it be regarded as statutory on
common law right, is limited and restricted by the express provision that
"no transfer, however, shall be valid, except as between the parties, until
the transfer is entered and noted upon the books of the corporation."
Therefore, the transfer of the 75 shares in the North Electric Company,
Inc., made by the defendant Diosomito to the defendant Barcelon was not
valid as to the plaintiff-appellee, Toribia Uson, on January 18, 1932, the
date on which she obtained her attachment lien on said shares of stock
which still stood in the name of Diosomito on the books of the corporation.

Prof’s comment: All transfer not registered in the books of corporation are not valid
and without course and effect as to the attachment or execution of the Corporation
itself, and subsequently, the purchasers for value and in good faith. Although, of course,
if may be valid between the contracting parties.

May the right of transfer of shares be regulated or restricted?

Answer:
Yes, it may be regulated and restricted either by law or by agreement of the parties or
by a provision in the AOI. The right of transfer of shares may however be not
unreasonably restricted or prohibited. However, the right to transfer shares may be
regulated to give the corporation reasonable protection against fraudulent transfers.
Also, as a matter of policy, the SEC grants the preferential rights to existing
stockholders and or the corporation itself, giving them the first option to purchase the
shares of a selling stockholder within a reasonable period as long as it is stated in the
AOI.
Other restrictions are stated in Sec. 62:
a. No transfer, however, shall be valid, except as 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.
b. No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation

Also, in Sec. 96 (a) in a close corporation:

a. A classification of shares or rights, the qualifications for owning or holding the
same, and restrictions on their transfers, subject to the provisions of the following
section.

Case: Cyrus Padgett vs. Babcock & Templeton, INC., and W.R. Babcock
Facts:
 The appellee, (Padgett) was an employee of the appellant corporation and
rendered services as such from January 1, 1923 to April 15, 1929.
 During that period, he bought 35 shares thereof at Php 100.00 a share at the
suggestion of the president of said corporation.
 He was also the recipient of the 9 shares by way of bonus during Christmas
seasons.
 In this way, the said appellee became the owner of 44 shares for which the
Certificates, issued in his favor.
 The word “non-transferable” appears on each and every one of these certificates.
 Before severing his connections with the said corporation, the appellee proposed
to the president that the said corporation buy his 44 shares at par value plus the
interest thereon, or he be authorized to sell them to other persons.
 The Corporation bought similar shares belonging to other employees, at par
value.
 Sometime later, the said president offered to buy the appellee’s shares first at
Php 85 each and then at Php 80.
 The appellee did not agree thereto.

Issue:
 Whether the restriction imposed on the right to transfer the shares is valid?

Held:
 The opinion seems to be unanimous that a restriction imposed upon a
certificate of shares, similar to the ones under consideration, is null and
 void on the ground that it constitutes and unreasonable limitation of the
right of ownership and is in restraint of trade.
 Shares of corporate stock being regarded as property, the owner of such
shares may, as a general rule, dispose of them as he sees fit, 1.) unless the
corporation has been dissolved, or 2.) unless the right to do so is properly
restricted, or the owner's privilege of disposing of his shares has been
hampered by his own action. (14 C. J., sec. 1033, pp. 663, 664.)
 Any restriction on a stockholder's right to dispose of his shares must be
construed strictly; and any attempt to restrain a transfer of shares is regarded as
being in restraint of trade, in the absence of a valid lien upon its shares, and
except to the extent that valid restrictive regulations and agreements exist and
are applicable. Subject only to such restrictions, a stockholder cannot be
controlled in or restrained from exercising his right to transfer by the corporation
or its officers or by other stockholders, even though the sale is to a competitor of
the company, or to an insolvent person, or even though a controlling interest is
sold to one purchaser. (Ibid., sec. 1035, pp. 665, 666.)
 In the case of Fleischer vs. Botica Nolasco Co. (47 Phil., 583), we have
discussed the validity of a clause in the by-laws of the defendant corporation,
which provided that, under the same conditions, the owner of a share of stock
could not sell it to another person except to the defendant corporation. In
deciding the legality and validity of said restriction, we held:
 The only restraint imposed by the Corporation Law upon transfer of shares
is found in section 35 of Act No. 1459. This restriction is necessary in order
that the officers of the corporation may know who are the stockholders,
which is essential in conducting elections of officers, in calling meetings of
stockholders, and for other purposes. But any restriction of the nature of
that imposed in the by-law now in question, is ultra vires, violative of the
property rights of shareholders, and in restraint of trade. (Id., p. 592.)
 It is obvious, therefore, that the restriction consisting in the word
"nontransferable", appearing on the 12 certificates, Exhibits F to F-11, is illegal
and should be eliminated.

Issue2:
 WON the corporation may be compelled to buy the shares of a selling
stockholder?

Held:
 There is no existing law nor authority in support of the plaintiff's claim to the effect
that the defendants are obliged to buy his shares of stock value at par value, plus
the interest demanded thereon. In this respect, we hold that there has been no
such contract, either express or implied, between the plaintiff and the defendants.
In the absence of a similar contractual obligation and of a legal provision
applicable thereto, it is logical to conclude that it would be unjust and
unreasonable to compel the said defendants to comply with a non-existent
or imaginary obligation. Whereupon, we are likewise compelled to
 conclude that the judgment originally rendered to that effect is untenable
and should be set aside.

Prof’s comment: In the case above, the word “nontransferable” is stamped on the face
of the Certificate of Stock. The owner of the share offered the President for the
acquisition of the share in view of the nontransferable stamped on the COS. So the
President offered Php 95, then Php 80. Since the par value is Php 100 and so the
shares. The Court ruled that any restrictions on the stockholder’s right to dispose of his
shares must be construed strictly and any attempt to restrain a transfer of shares is
regarded as deemed restrained in AOI. Obviously, the word “nontransferable” is null
and void for being unreasonable.

Case: Lambert vs. T.J. Fox

Issue:
 Whether the stipulation in the contract is valid?

Held:
 Yes it is valid. It is urged by the appellee in this case that the stipulation in the
contract suspending the power to sell the stock referred to therein is an illegal
stipulation, is in restraint of trade and, therefore, offends public policy. We do not
so regard it. The suspension of the power to sell has a beneficial purpose,
results in the protection of the corporation as well as of the individual
parties to the contract, and is reasonable as to the length of time of the
suspension. We do not here undertake to discuss the limitations to the
power to suspend the right of alienation of stock, limiting ourselves to the
statement that the suspension in this particular case is legal and valid.

Prof’s comment: Sec. 62. xxx Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates indorsed by the owner, his
attorney-infact, or any other person legally authorized to make the transfer. xxx is only a
General Rule.

XPN:
 Endorsement or Delivery by a notarized contract of claim.
 XPN to the XPN: the above XPN will appear to be true only if no certificate of
stock has yet been issued, because once the cert of stock has already been
issued, it cannot be done by a mere notarization.

XPN to the XPN to the XPN :P

 A certificate of stock which was not been endorsed nor delivered shall produce
shall a valid transfer. (refer to Tan vs. SEC)

Case: Embassy Farms vs. CA

Facts:
  Asuncion entered into a MOA with Evangelista whereby Evangelista agreed to
transfer his agricultural property of the Embassy Farms wherein 90% is owned by
Evangelista, including shares of stocks to Asuncion.
 Asuncion paid Php 8.6 Million.
 Evangelista endorsed in blank all his shares, including those of his nominees.
 Pursuant to the MOA, Asuncion was granted control over management and
properties of the farm.
 Asuncion, thereafter transferred some of his shares to his nominees.
 Evangelista alleged that it was non-compliance on the part of Asuncion.

Issue:
 Whether Evangelista has a better right to the shares and control of the corporate
affairs?

Held:
 Yes. From the pleadings submitted by the parties it is clear that although
Evangelista has indorsed in blank the shares outstanding in his name he
has not delivered the certificate of stocks to Asuncion because the latter
has not fully complied with his obligations under the MOA. There being no
delivery of the indorsed shares of stock Asuncion cannot therefore
effectively transfer to other person or his nominees the undelivered shares
of stock. For an effective transfer of shares of stock the mode and manner
of transfer as prescribed by law must be followed (Navea v. Peers Marketing
Corp., 74 SCRA 65).
 As provided under Section 3 of Batas Pambansa Bilang 68, otherwise known as
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 (18 C.J.S. 928, cited in Rivera v. Florendo, 144 SCRA 643). However,
no transfer shall be valid, except as between the parties until the transfer is
properly recorded in the books of the corporation (Sec. 63, Corporation
Code of the Philippines).
 In the case at bar the indorsed certificate of stock was not actually delivered to
Asuncion so that Evangelista is still the controlling stockholder of Embassy
Farms despite the execution of the memorandum of agreement and the turn-over
of control and management of the Embassy Farms to Asuncion on August 2,
1984.
 When Asuncion filed on April 10, 1986 an action for the rescission of contracts
with damages, the Pasig Court merely restored and established the status quo
prior to the execution of the MOA by the issuance of a restraining order on July
10, 1987 and the writ of preliminary injunction on July 30, 1987. It would be
unjust and unfair to allow Asuncion and his nominees to control and manage the
Embassy Farms despite the fact that Asuncion, who is the source of their
supposed shares of stock in the corporation, is not asking for the delivery of the
indorsed certificate of stock but for the rescission of the MOA. Rescission would
result in mutual restitution (Magdalena Estate v. Myrick, 71 Phil. 344) so it is but
 proper to allow Evangelista to manage the farm. Compared to Asuncion or his
nominees Evangelista would be more interested in the preservation of the
assets, equipment and facilities of Embassy Farms during the pendency of the
main case.

Case: Enrique Razon vs. Vicente Chudian

Facts:
 The stocks certificate was delivered, but it was not endorsed by the owner.

Issue:
 Whether petitioner Razon is the rightful owner of the shares?

Held:
 In the case of Embassy Farms, Inc. v. Court of Appeals (188 SCRA 492 [1990])
we ruled: “. . . For an effective, transfer of shares of stock the mode and manner
of transfer as prescribed by law must be followed (Navea v. Peers Marketing
Corp., 74 SCRA 65). As provided under Section 3 of Batas Pambansa Bilang, 68
otherwise known as 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 (18 C.J.S. 928, cited in Rivera v. Florendo, 144 SCRA 643).
However, no transfer shall be valid, except as between the parties until the
transfer is properly recorded in the books of the corporation (Sec. 63,
Corporation Code of the Philippines; Section 35 of the Corporation Law)”
 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. (See Section 30, Corporation Code) 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
(See Nava v. Peers Marketing Corporation, 74 SCRA 65 [1976]) or in
accordance with the provisions of law.
 The petitioner failed in both instances. The petitioner 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
cannot 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 oflla
certificate of stock.
 Moreover, the preponderance of evidence supports the appellate court's factual
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. Petitioner Razon failed to overcome this testimony.

Prof’s Comment: However, there is another mode of transfer of shares, which is by

duly notarized contract of sale.

Case: Rural Bank of Salinas, Inc. vs. CA

Facts:
 Clemente Guerrero, stockholder of the Rural Bank of Salinas executed an SPA in
favor of his wife to sell or dispose 473 shares of the Rural Bank.
 The wife assigned by Deed of Assignment.
 She presented it to the corporation, but the corporation refused.
 Mandamus case was filed with the then SEC.

Issue:
 Whether the mandamus was properly granted for the registration of the transfer
of the 473 shares in question?

Held:
 Respondent SEC correctly ruled in favor of the registering of the shares of stock
in question in private respondent's names. Such ruling finds support under
Section 63 of the Corporation Code, to wit: Sec. 63 (old) “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”.
 In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court interpreted
Sec. 63 in his wise: “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 is when the
corporation holds any unpaid claim against the shares intended to be transferred,
which is absent here.
 A corporation, either by its board, its by-laws, or the act of its officers, cannot
create restrictions in stock transfers, because: “Restrictions in the traffic of stock
must have their source in legislative enactment, as the corporation itself cannot
create such impediment. By-laws are intended merely for the protection of the
corporation, and prescribe regulation, not restriction; they are always subject to
the charter of the corporation. The corporation, in the absence of such power,
cannot ordinarily inquire into or pass upon the legality of the transactions by
which its stock passes from one person to another, nor can it question the
consideration upon which a sale is based.” (Tomson on Corporation Sec. 4137,
cited in Fleisher vs. Nolasco, Supra).
 The right of a transferee/assignee to have stocks transferred to his name is
an inherent right flowing from his ownership of the stocks. Thus: 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" (26, Cyc. 347, Hyer vs.
Bryan, 19 Phil. 138; Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).
 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. (Fletcher, Sec.
5528, page 434).
 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. (See. 5518, 12 Fletcher 394)
 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.

Prof’s comment: As I was saying earlier, the operative act is endorsement or by

notary.
But please note that the ruling in Rural Bank of Salinas is rendered nugatory, because
Mandamus is not a matter of right available to all alleged transfers. Like for instance,
Sec. 62, the share or transfer in the book is not fully paid, or if the stockholder has
unpaid claim, hence it is not subject to transfer.

Case: Tay vs. CA

Facts:
 Sy Guiok secured a loan from the petitioner in the amount of Php 40,000 payable
within 6 months, as secured by contract of pledge whereby he pledged his 300
shares of stocks in the Go Fay & Company Inc.
 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 petitioner in the
amount of Php 40,000 payable in 6 months.
 To secure the payment of his loan, Sy Lim executed a Contract of Pledge his 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.
 Respondent Guiok and Sy Lim endorsed their respective shares of stock in
sblank and delivered the same to the petitioner.
 However, respondent Guiok and Sy Lim failed to pay their respective loans and
the accrued interests thereon to the petitioners.
 In October 1990, the petitioner filed a Petitioner for Mandamus against
Respondent Corporation with the SEC entitled Lim Tay vs. Go Fay & Company,
Inc., praying that an order be issued directing the corporate secretary of
respondent Go Fay & Co., Inc. to register the stock transfers and issue new
certificated in favor of Lim Tay.
 Petitioner submits, for the consideration of this Court.

Issue:
 Whether the rulings in the Abejo case and the Rural Bank of Salinas case will
apply?

Held:
 No. 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.
 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 pre-emptive 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 tranfers made by the Abejos, Telectronic Systems, Inc. was already
 a prima 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."
 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.
 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.

Issue2: Whether petitioner is entitled to the relief of mandamus as against the

company?

Held:
 No. 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.
 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.
 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.

Issue3: Whether by Guiok and Lim’s failure to pay, the ownership of the shares
automatically passed to Lim Tay?

Held:
 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;”
 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.”

Case: The Rural Bank of Lipa City, INC., et al. vs. CA

Facts:
  Villanueva Sr. executed a deed of assignment wherein he assigned his shares as
well as 8 other stockholders under his control with a total of 10,457 shares in
favor of the stockholders of the Bank represented by its Board of Directors.
 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 the said meeting.
 Thus, the validity of the meeting was questioned.

Issue:
 Whether the transfer of the shares is ineffective for non-indorsement and non-
delivery of the certificate of stocks?

Held:
 The Corporation Code specifically provides:
o 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, 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. Thus, title may be vested in the transferee only by delivery of
the duly indorsed certificate of stock.
 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. 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 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.

Case: Alfonso S. Tan vs. SEC

Issue:
 Whether the cancellation and transfer of stock certificate no. 2 was valid?

Held:
 Petitioner claims that "(T)he cancellation and transfer of petitioner's shares and
Certificate of Stock No. 2 (Exh. A) as well as the issuance and cancellation of
Certificate of Stock No. 8 (Exh. M) was patently and palpably unlawful, null and
void, invalid and fraudulent." (Rollo, p. 9) And, that Section 63 of the Corporation
Code of the Philippines is "mandatory in nature", meaning that without the actual
delivery and endorsement of the certificate in question, there can be no transfer,
or that such transfer is null and void.
 Contrary to the understanding of the petitioner with respect to the use of the word
"may", in the case of Shauf v. Court of Appeals, (191 SCRA 713, 27 November
1990), this Court held, that "Remedial law statues are to be construed liberally."
The term 'may' as used in adjective rules, is only permissive and not mandatory.
 This Court held in Chua v. Samahang Magsasaka, that "the word "may" indicates
that the transfer may be effected in a manner different from that provided for in
the law." (62 Phil. 472)
 Moreover, it is safe to infer from the facts deduced in the instant case that, there
was already delivery of the unendorsed Stock Certificate No. 2, which is essential
to the issuance of Stock Certificate Nos. 6 and 8 to angel S. Tan and petitioner
Alfonso S. Tan, respectively. What led to the problem was the return of the
 cancelled certificate (No. 2) to Alfonso S. Tan for his endorsement and his
deliberate non-endorsement.
 For all intents and purposes, however, since this was already cancelled which
cancellation was also reported to the respondent Commission, there was no
necessity for the same certificate to be endorsed by the petitioner. All the acts
required for the transferee to exercise its rights over the acquired stocks were
attendant and even the corporation was protected from other parties, considering
that said transfer was earlier recorded or registered in the corporate stock and
transfer book.
 Following the doctrine enunciated in the case of Tuazon v. La Provisora Filipina,
where this Court held, that:
o But delivery is not essential where it appears that the persons sought to
be held as stockholders are officers of the corporation, and have the
custody of the stock book . . . (67 Phi. 36).
o Furthermore, there is a necessity to delineate the function of the stock
itself from the actual delivery or endorsement of the certificate of stock
itself as is the question in the instant case. A certificate of stock is not
necessary to render one a stockholder in corporation.
o Nevertheless, a certificate of stock is the paper representative or tangible
evidence of the stock itself and of the various interests therein. The
certificate is not stock in the corporation but is merely evidence of the
holder's interest and status in the corporation, his ownership of the share
represented thereby, but is not in law the equivalent of such ownership. It
expresses the contract between the corporation and the stockholder, but
is not essential to the existence of a share in stock or the nation of the
relation of shareholder to the corporation. (13 Am. Jur. 2d, 769)
o Under the instant case, the fact of the matter is, the new holder, Angel S.
Tan has already exercised his rights and prerogatives as stockholder and
was even elected as member of the board of directors in the respondent
corporation with the full knowledge and acquiescence of petitioner. Due to
the transfer of fifty (50) shares, Angel S. Tan was clothed with rights and
responsibilities in the board of the respondent corporation when he was
elected as officer thereof.
o Besides, in Philippine jurisprudence, a certificate of stock is not a
negotiable instrument. "Although it is sometime regarded as quasi-
negotiable, in the sense that it may be transferred by endorsement,
coupled with delivery, it is well-settled that it is non-negotiable, because
the holder thereof takes it without prejudice to such rights or defenses as
the registered owner/s or transferror's creditor may have under the law,
except insofar as such rights or defenses are subject to the limitations
imposed by the principles governing estoppel." (De los Santos vs.
McGrath, 96 Phil. 577)
o To follow the argument put up by petitioner which was upheld by the
Cebu SEC Extension Office Hearing Officer, Felix Chan, that the
cancellation of Stock Certificate Nos. 2 and 8 was null and void for lack of
delivery of the cancelled "mother" Certificate No. 2 whose endorsement
 was deliberately withheld by petitioner, is to prescribe certain restrictions
on the transfer of stock in violation of the corporation law itself as the only
law governing transfer of stocks. While Section 47(s) grants a stock
corporation the authority to determine in the by-laws "the manner of
issuing certificates" of shares of stock, however, the power to regulate is
not the power to prohibit, or to impose unreasonable restrictions of the
right of stockholders to transfer their shares. (Emphasis supplied)
o In Fleisher v. Botica Nolasco Co., Inc., it was held that a by-law which
prohibits a transfer of stock without the consent or approval of all the
stockholders or of the president or board of directors is illegal as
constituting undue limitation on the right of ownership and in restraint of
trade. (47 Phil. 583)

Case: Lee E. Won alias Ramon Lee vs. Wack Wack Gold and Country Club Inc.
Facts:
 Reyes transferred to Won in 1942 club shares of Wack Wack Gold and Country
Club Inc (non-stock) to Iwao Teruyama Membership Certificate.
 Subsequently in the same year 1944, M.T. Reyes transferred and assigned said
certificate to the plaintiff.
 On April 26, 1955, the plaintiff filed an action in the CFI Manila against Wack
Wack alleging that shortly after the rehabilitation of the defendant after the war,
the plaintiff asked the defendant to register in its books the assignment in favor of
the plaintiff and to issue to the latter a new certificate but that Wack Wack had
refused and still refuses to do so unlawfully; and praying that the plaintiff be
declared the owner of one share certificate.
 Wack Wack refused on the ground of prescription.
 CFI dismissed the petition.

Issue:
 Whether plaintiff was bound to present and register the certificate assigned to
him within any definite or fixed period?

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