NATIONAL EXCHANGE v DEXTER

DOCTRINE: a special stipulation contained in a subscription to corporate stock, which, if valid,

would lessen the capital of the company and relieve the subscriber from liability to be sued upon the
subscription is illegal.

FACTS: Respondent subscribed to the corporate stock of CS Salmon & Co. The subscription contract
provided that the payments will be taken from the dividends Dexter will be receiving on his shares.
An initial amount of P15,000 was paid from the dividends. However, no other dividend was thereafter
declared by the company, and thus, no other payment was made for the subscription The National
Exchange, who became the assignee of CS Salmon, instituted an action to recover the remaining
amount.

ISSUE: WON the subscription contract was valid

HELD: No. The subscription contract was void since it works a fraud on creditors who rely on the
theoretical capacity of the company. Under the contract, this theoretical value will never be realized
since there are no dividends, stockholders will not be compelled to pay the balance of their
subscriptions

USION v DIOSOMITO

DOCTRINE: the right of the owner of the shares of stock of a Philippine corporation to transfer the
name 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, however, shall be valid, except as between
the parties, until the transfer is entered and noted upon the books of the corporation.” Therefore, an
attachment lien prevails over a prior unregistered bona fide stock transfer.

FACTS: Toribia Usion filed civil action for debt against Vicente Diosomito. Upon institution of said
action, an attachment was duly issued and respondent’s property was levied upon, including 75 shares
of the North Electric Co., which stood in his name on the books of the company when the attachment
was levied on Jan. 18, 1932. The sheriff sold said shares at a public auction with Uson being the
highest bidder. H.P.L Jollye claims to be the owner of the said 75 shares, and presents a certificate of
stock issued to him by the company on Feb. 13, 1933.

Respondent was the original owner of said share of stock, he sold said shares to Emeterio Barcelon on
Feb. 3, 1931 and delivered the corresponding certificates. But Barcelon did not present these
certificates to the corporation for registration until 16 Sept. 1932, when they were cancelled and a new
certificate was issued in favor of Barcelon, who transferred the same to H.P.L Jollye to whom a new
certificate was issued. The transfer to Jollye was made 5 months after the issuance of a certificate of
stock in Barcelon’s name.

ISSUE: WON the bona fide transfer of the shares of the corporation, not registered or noted on the
books of the corporation, is valid as against subsequent lawful attachment of said shares

HELD: NO. The transfer of the 75 shares made by Diosomito as to Barcelon was not valid as to the
plaintiff. Uson, on 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 corp.

Sec. 35 says that no transfer, however, is 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.
 MONSERRAT v CARLOS CERON

DOCTRINE: Inasmuch as Sec. 35 of the Corporation Law does not require the notation upon the
books of a corporation of transactions relating to its shares, except the transfer of the possession and
ownership thereof, as a necessary requisite to the validity of such transfer, the notation upon the said
books of the corporation of a chattel mortgage constitution on such shares is not necessary to its
validity.

FACTS: Monserrat assigned to Carlos Ceron half of his common shares of stock with a
corresponding certificate of stock having been issued. Said assignment prohibited him from selling,
mortgaging, encumbering, alienating or exercising any act implying absolute ownership of all or any
of the shares of stock in question. Ceron alleged that, upon instructions of the plaintiff, he did not
make any annotation of said document in the stock book on the date which the stocks in question were
to be sold at public auction to satisfy his debt to Matute. Ceron mortgaged the common shares of
stock in question to Eduardo Matute.

ISSUE: WON it is necessary to enter upon the books of the corporation a mortgage constituted on
common shares of stock in order that such mortgage may be valid and may have force and effect as
against third persons

HELD: No. Sec. 35 of the RCC does not require any entry except of transfers of stock in order that
such transfer may be valid as against third persons. It is a rule on statutory construction that the words
of a statute are to be taken in their natural, plan and ordinary signification in accordance with the
common and approved usage of the language, unless there is reason to believe from the context of the
statute that such words have been used in another sense.

Although a chattel mortgage accompanied by delivery of the mortgaged thing transfers the title and
ownership thereof to the mortgage creditor, such transfer is not absolute but constitutes a mere
security for he payment of the mortgage debt, the transfer in question becoming null and void from
the time the mortgage debtor complies with his obligation to pay his debt.

CHUA GUAN v SAMAHANG MAGSASAKA

DOCTRINE: the registration of the chattel mortgage in the office of the corporation as not necessary
and had no legal effect.

The only safe way to accomplish the hypothecation of shares of stock of a Philippine corporation is
for the creditor to insist on the assignment and delivery of the certificate and to obtain the transfer of
the legal title to him on the books of the corporation by the cancellation of the certificate and the
issuance of a new one to him.

FACTS: Gonzalo H. Co Toco was the owner of 5,894 shares of capital stock of Samahang
Magsasaka Inc., he mortgaged his shares. to Chua Chiu to guarantee the payment of a debt. The said
certificates of stock were delivered with mortgage to the mortgagee, Chua Chiu. It was duly registered
with the ROD of Manila and in the office of the corporations.

Chua Chiu assigned all his right and interest in the said mortgage to Chua Guan and the assignment
was also duly registered. Co Toco defaulted in the payment of said debt, thus, Chua Guan foreclosed
said mortgage and the certificates of stocks were sold at public auction, with the plaintiff being the
highest bidder. Chua Guan demanded the issuance of new certificates but the officers refused and still
refuse to issue said new shares.
ISSUE: WON the shares of a corporation could be hypothecated by placing a chattel mortgage on the
certificate representing such shares

HELD: NO. The only safe way to accomplish the hypothecation of shares of stock of a Philippine
corporation is for the creditor to insist on the assignment and delivery of the certificate and to obtain
the transfer of the legal title to him on the books of the corporation by the cancellation of the
certificate and the issuance of a new one to him.

Sec. 35 of the Corporation Law enacts that shares of stock may be transferred by deliver of the
certificate endorsed by the owner or his attorney in fact or other person legally authorized to make the
transfer. The use of the verb "may" does not exclude the possibility that a transfer may be made in a
different manner, thus leaving the creditor in an insecure position even though he has the certificate in
his possession.

PAGDETT v BABCOCK & TEMPLETON, INC.

DOCTRINE: The restriction in the word “non transferrable” appearing on the 12 certificates is
illegal on the ground that it constitutes an undue limitation of the right of ownership and is in restraint
of trade. It should, therefore, be eliminated.

FACTS: Appelle was an employee of respondent corporation. During his employment he became an
owner of 44 shares of stock for which 12 certificates were issued. The word “non-transferrable”
appears on each and every one of the certificates.

ISSUE: WON the restriction imposed on the right to transfer shares is valid

HELD: NO. 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. Shares of
corporate stock being regarded as property, the owner of such shares may, as a general rule, dispose
them as he sees fit, unless the corporation has been dissolved, or unless the right to do os is properly
restricted, or the owner’s privilege of disposing his shares has been hampered by his own action.

LAMBERT v FOX

DOCTRINE: where the suspension of the right to sell stock in a corporation has a beneficial purpose
and results in the protection of the corporation as well as of the individual parties to the contract and is
reasonable as to time, the suspension is legal.

FACTS: John R. Edgar & Co., found itself in the condition financially that its creditors, together with
many others, agreed to take over the business, incorporate it and accept stock therein in payment of
their respective credits. Lambert and Fox became the biggest stockholders in R. Edgar & Co., Inc.
They entered into an agreement wherein they mutually agreed to sell, transfer or otherwise dispose of
a part of the stock until after 1 year from the agreement date, unless consented in writing.The
agreement provided that the parties shall mutually and reciprocally agree not to sell, transfer, or
otherwise dispose of any part of their present holdings of stock until one year from the date thereof.
Fox sold his stock to E.C. McCullough & Co., a strong competitor.

ISSUE: WON Fox should be penalized

HELD: Yes. The parties expressly stipulated that the contract should last one year regardless of the
objective it should be applied. The parties who are competent to contract may make such agreements
within the limitations of the law and public policy as they desire, and the courts will enforce them
according to their terms. A penalty imposed for the breach of contract not to sell shares of stock for
one year will be enforced if the agreement is broken, not matter whether the person is seeking to
enforce the penalty has suffered damages or not.

EMBASSY FARMS v CA

FACTS: Alexander Asuncion and Eduardo Evangelista entered into an Agreement with a few
conditions. The effective control of the piggery at Embassy Farms, Inc., was transferred by
Evangelista to Asuncion pursuant to the MOA. Evangelista served as president and Chief Executive
of Embassy Farms. Evangelista also endorsed in blank all his shares of stock including that of his wife
and the three nominees with minor holdings but retained possession of said shares and opted to
deliver to Asuncion
DE SILVA v ABOITIZ

DOCTRINE: he defendant corporation being an artificial entity created by virtue of the Corporation
Law, Act No. 1459, and the plaintiff having failed to pay a part of his subscription, the board of
directors not only made use of its discretionary power granted by section 2 of said Act in declaring his
subscription due and his shares delinquent, and ordering the sale thereof, as their value was not paid
by him, but far from violating the provisions of section 46 of the by-laws of the corporation in not
applying a part of the profits obtained by the corporation upon the payment of said subscription, it
complied with said provision, which expressly prohibits the payment of dividends to a shareholder
whose subscription was not fully paid up.||| (de Silva v. Aboitiz & Co., Inc., G.R. No. 19893, [March
31, 1923], 44 PHIL 755-763)

LINGAYEN GULF v BALTAZAR

DOCTRINE: if the corporation involved in insolvent, all unpaid stock subscriptions become payable
on demand and are immediately recoverable in an action instituted by the assignee. But when the
corporation is a solvent concern, the law requires that notice of any call for the payment of unpaid
subscription should be made not only personally but also by publication||| (Lingayen Gulf Electric
Power Co. Inc. v. Baltazar, G.R. No. L-4824, L-6344, [June 30, 1953], 93 PHIL 404-413)

APOCADA v NLRC

DOCTRINE: The unpaid subscriptions are not due and payable until a call is made by the
corporation for payment. Private respondents have not presented a resolution of the board of directors
of respondent corporation calling for the payment of the unpaid subscriptions. It does not even appear
that a notice of such call has been sent to petitioner by the respondent corporation.

LUMANLAN v CURA

DOCTRINE: It is established doctrine that subscriptions to the capital of a corporation constitute a

fund to which the creditors have a right to look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid subscription in order to realize assets for the
payment of its debts.||| (Lumanlan v. Cura, G.R. No. 39681, [March 21, 1934], 59 PHIL 746-750)

EDWARD KELLER v COB GROUP

DOCTRINE:

GARCIA v SUAREZ

DOCTRINE: The subscription to the capital stock of a corporation, unless otherwise stipulated, is
not payable at the moment of the subscription but on a subsequent date which may be fixed by the
corporation. Hence, section 38 of the Corporation Law, amended by Act No. 3518, provides that:
"The board of directors or trustees of any stock corporation formed, organized, or existing under this
Act may at any time declare due and payable to the corporation unpaid subscriptions to the capital
stock
 W.G. PHILPOTTS v PHIL. MFG. CORP.

DOCTRINE:

FACTS: The petitioner, W. G. Philpotts, a stockholder in the Philippine Manufacturing Company,

seeks to obtain a writ of mandamus to compel the respondents to permit the plaintiff, in person or by
some authorized agent or attorney, to inspect and examine the records of the business transacted by
said
company. In the argument in support of the demurrer, it is conceded by counsel
for the respondents that there is a right of examination in the stockholder granted under section 51 of
the Corporation Law, but it is insisted that this right must be exercised in person.

ISSUE: WON the right of a stockholder to inspect records can be exercised by an agent

HELD: YES. The right of examination into corporate affairs which is conceded to the stockholder by
Sec. 51 of the Corporation Law may be exercised either by the stockholder in person or by any duly
authorized representative. There is no pretense that the respondent corporation or any of its officials
has refused to allow the petitioner himself to examine anything relating to the affairs of the company
and the petition prays for a peremt=ptory order commanting the respondents to place the records of all
busuness transactions of the company, during a specified period, at the disposal of the plaintiff or his
duly authorized agent or attorney, it being evident that the petitioner desires to exercise said right
through an attorney.

The right of inspection given to a stockholder can be exercised either by himself or by any proper
representative or attorney in fact, and either with or without the attendance of the stockholder. This is
in conformity with the general rule that what a man may do in person he may do through another.

PARDO v HERCULES LUMBER

DOCTRINE:

FACTS: The petitioner is in fact a stockholder in the Hercules Lumber Company, Inc., and that the
respondent, Ignacio Ferrer, as acting secretary of the said company, has refused to permit the
petitioner or his agent to inspect the records and business transactions of the said Hercules Lumber
Company, Inc., at times desired by the petitioner. At the directors' meeting of the respondent
corporation held on February 16, 1924, the board passed a resolution that the books of the company
are at the shareholder’s disposition from the 15th to 25th of March for examination, in appropriate
hours. The contention for the respondent is that this resolution of the board constitutes a lawful
restriction on the right conferred by statute; and it is insisted that as the petitioner has not availed
himself of the permission to inspect the books and transactions of the company within the ten days
thus defined, his right to inspection and examination is lost, at least for this year.

ISSUE: WON the resolution to restrict the right to inspection is valid

HELD: NO. The general right given by the statute may not be lawfully abridged to the extent
attempted in this resolution. It may be admitted that the officials in charge of a corporation may deny
inspection when sought at unusual hours or under other improper conditions; but neither the executive
officers nor the board of directors have the power to deprive a stockholder of the right altogether. A
by-law unduly restricting the right of inspection is undoubtedly invalid. It will be noted that our
statute declares that the right of inspection can be exercised "at reasonable hours." This means at
reasonable hours on business days throughout the year, and not merely during some arbitrary period
of a few days chosen by the directors.
 EUGENIO VEGARUTH v ISABELA SUGAR CO.

DOCTRINE: a director or shareholder can make copies, abstracts, and memoranda of documents,
books and papers as an incident to the right of inspection, but cannot, without an order of a court, be
permitted to take books from the office of the corporation. A director or stockholder has no
absolute right to secure certified copies of the minutes of the corporation until these minutes
have been written up and approved by the directors.

FACTS: The respondents refuse to notify the petitioner, as director, of the regular and special
meetings of the board of directors, and to place at his disposal at reasonable hours, the minutes, and
documents, and books of the aforesaid corporation, for his inspection as director and stockholder, and
to issue, upon payment of the fees, certified copies of any documentation in connection with said
minutes, documents, and books of the corporation. The secretary made answer by letter stating that,
since the minutes of the meeting in question had not been signed by the directors present, a certified
copy could not be furnished and that as to other proceedings of the stockholders a request should be
made to the president of the Isabela Sugar Company, Inc. It further appears that the board of directors
adopted a resolution providing for inspection of the books and the taking of copies "by authority of
the President of the corporation previously obtained in each case."

ISSUE: WON a director has the unqualified right to inspect the books and records of the corporation/
WON the refusal of the secretary to furning a certified copy of the BOD’s resolution is valid

HELD: YES. Section 51 of the Corporation Law, provides that: “All business corporations shall keep
and carefully preserve a record of all business transactions, and a minute of all meetings of directors,
members, or stockholders, in which shall be set forth in detail the time and place of holding the
meeting was regular or special, if special its object, those present and absent, and every act done
orordered done at the meeting. . . . The record of all business transactions of the corporation and
theminutes of any meeting shall be open to the inspection of any director, member, or stockholder of
thecorporation at reasonable hours.” Thus, Directors of a corporation have the unqualified right
toinspect the books and records of the corporation at all reasonable times. However, a director
orstockholder has no absolute right to secure certified copies of the minutes of the corporation
untilthese minutes have been written up and approved by the directors.

GOKONGWEI v SEC

DOCTRINE:

FACTS: On October 28, 1976, petitioner filed with the Securities and Exchange Commission an
"Urgent Motion for Production and Inspection of Documents", alleging that the Secretary of
respondent corporation refused to allow him to inspect its records despite request made by petitioner
for production of certain documents, and that respondent corporation had been attempting to suppress
information from its stockholders despite a negative reply by the SEC to its query regarding their
authority to do so. Subsequently, a Joint Omnibus Motion for the striking out of the motion for
production and inspection of documents was filed by all the respondents. The Securities and
Exchange Commission denied the petition to produce and inspect the balance sheet of San Miguel
International, Inc., as well as the list of salaries, allowances, bonuses, compensation and/or
remuneration received by respondent Jose M. Soriano, Jr. and Andres Soriano from SMII and/or its
successors-in-interest, as petitioner- movant is not a stockholder of SMII and has no inherent right to
inspect the said documents. Dissatisfied with the Order, petitioner moved for its reconsideration.
Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act,
hence petitioner came to this Court.

ISSUE: WON SEC gravely abused its discretion in denying petitioner’s request for an examination of
the records of San Miguel International, Inc.
HELD: Where a right is granted by statute to the stockholder, it is given to him as such and must be
exercised by him with respect to his interest as stockholder and for some purpose germane thereto or
in the interest of the corporation. In other words, the inspection has to be germane to the petitioner’s
interest as a stockholder, and has to be proper and lawful in character and not inimical to the interest
of the corporation. It must be exercised in good faith, for specific and honest purpose, and not to
gratify curiosity, or for speculative or vexatious purposes.

On application for mandamus to enforce the right to examine the books of a corporation, it is proper
for the court to inquire into and consider the stockholder’s good faith and his purpose and motives in
seeking inspection. The right given by the statute is not absolute and may be refused when the
information is not sought in good faith or is used to the detriment of the corporation. While the right
of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of
law, the right of such stockholder to examine the books and records of a wholly-owned subsidiary of
the corporation in which he is a stockholder is a different thing. Where a foreign subsidiary is wholly
owned by respondent corporation and, therefore, under its control, it would be in accord with equity,
good faith and fair dealing to construe the statutory right of a stockholder to inspect the books and
records of the corporation as extending to books and records of such wholly owned subsidiary which
are in respondent corporation’s possession and control.

In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel
Corporation and, therefore, under Its control, it would be more in accord with equity, good faith and
fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records
of the corporation as extending to books and records of such wholly owned subsidiary which are in
respondent corporation’s possession and control.

GONZALES v PNB

DOCTRINE: As may be noted, among the changes introduced in the new Code with respect to the
right of inspection granted to a stockholder are the following: the records must be kept at the principal
office of the corporation; the inspection must be made on business days; the stockholder may demand
a copy of the excerpts of the records or minutes; and the refusal to allow such inspection shall subject
the erring officer or agent of the corporation to civil and criminal liabilities. However, while
seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same. It is
now expressly required as a condition for such examination that the one requesting it must not have
been guilty of using improperly any information secured through a prior examination, and that the
person asking for such examinations must be "acting in good faith and for a legitimate purpose in
making his demand.”

FACTS: The petitioner requested from the respondent that he be allowed to examine the records of
the latter. Petitioner claimed that he wanted to determine the veracity of reports that the respondent
has guaranteed the obligation of another corporation in the purchase of a sugar mill and that the
respondent financed the construction of a bridge and a sugar mill. When the respondent denied his
request, the petitioner sought mandamus from the CFI of Manila, adding that he acquired one (1)
share of stock in PNB and was thus entitled to examine the respondent’s records. The CFI dismissed
the petition on the ground that the petitioner had improper motives and his purpose was not germane
to his interest as a stockholder. The petitioner argued that his right was unconditional.

ISSUE: WON petitioner could examine the records of the respondent

HELD: NO. The former Corporation Law was already replaced by the Corporation Code which
requires that the person requesting the examination of a corporation’s records must be acting in good
faith and for a legitimate purpose. Examination could not be granted on the ground of mere curiosity.
The petitioner acquired only one share of stock and did so only after making a request to examine acts
done by the respondent when the former was still a stranger to the same. The circumstances showed
that the petitioner’s purpose was not germane to his interest as a stockholder. Lastly, the right to
examine the records of a corporation under the Corporation Code was violative of the PNB’s charter.
The petition was dismissed.

PASAR v LIM

DOCTRINE: an action for injunction and, consequently, a writ of preliminary injunction filed by a
corporation is generally unavailable to prevent stockholders form exercising the right to inspection.
Specifically, stockholders cannot be prevented from gaining access to the (a) records of all business
transactions of the corporation; and (b) minutes of any meeting of stockholders or the board of
directors, including their various committees and subcommittees.

A corporation may raise their objections to the right of inspection through affirmative defense in an
ordinary civil action for specific performance or damages, or through a comment in a petition for
mandamus. The corporation or defendant or respondent still carries the burden of proving (a) that the
stockholder has improperly used information before; (b) lack of good faith; or (c) lack of legitimate
purpose.

FACTS: Philippine Associated Smelting and Refining Corporation (PASAR) filed a petition for
injunction to restrain respondents (former senior officers and present shareholders of PASAR) from
demanding inspection of its confidential records and inexistent records.

The RTC issued an order granting PASAR’s prayer for a writ of preliminary injunction stating that
the right to inspect should not be denied to the stockholders, however, the same may be restricted.
Petitioners then filed a Motion for Dissolution with a writ for preliminary injunction claiming that the
right to inspect should be on the stockholders and not on PASAR.

CA held that there was no basis to issue an injunctive writ. Petitioner argues that the right of a
stockholder to inspect corporate books and records is limited in that any demand must be made in
good faith and for a legitimate purpose. Respondents, however, have no legitimate purpose in the
case. If respondents were to access petitioner’s confidential records, petitioner’s trade secrets and
other confidential information will be used by its former officers to give undue commercial advantage
to third parties.

ISSUE: WON injunction properly lies to prevent respondents form invoking their right to inspect

HELD: NO. The Court has held that the corporation’s objections to the right to inspect must be raised
as a defense. The petition is a pre-emptive action unjustly intended to impede and restrain the
stockholder’s rights. If a stockholder demands for inspection, the Corporation could refuse to heed
such demand. The stockholder could then go to the court to enforce their rights. It is then that the
corporation could set up its defenses and the reasons for the denial of such right. Thus, the proper
remedy is undoubtedly the writ of mandamus to be filed by the stockholders and not a petition for
injunction filed by the corporation.

W.G. PHILPOTTS v PHIL. MANUFACTURING: cannot support petitioners contention since it

involved a petition for mandamus where the stockholder prayed to be allowed to exercise its right to
inspect, and the respondent’s objections were raised as a defense. Nothing in W.G. Philpotts grants a
corporation a cause of action to enjoin the exercise of the right of inspection by a stockholder.

GOKONGWEI v SEC:
 ASSOCIATED BANK v COURT OF APPEALS

DOCTRINE:

FACTS: