Escolar Documentos
Profissional Documentos
Cultura Documentos
SUPREME COURT
Manila
EN BANC
G.R. No. L-42135
sum of P2,300 with interest and costs. To satisfy said judgment, the
sheriff sold said shares at public auction in accordance with law on
March 20, 1933. The plaintiff Toribia Uson was the highest bidder and
said shares were adjudicated to her. (See Exhibit K.) 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 February 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 P7,500, and
that on February 3, 1931, he sold said shares to Emeterio Barcelon and
delivered to the latter the corresponding certificates Nos. 2 and 19. But
Barcelon did not present these certificates to the corporation for
registration until the 16th of September, 1932, when they were cancelled
and a new certificate, No. 29, was issued in favor of Barcelon, who
transferred the same of the defendant H.P.L. Jollye to whom a new
certificate No. 25 was issued on February 13, 1933.
It will be seen, therefore, that the transfer of said shares by Vicente
Diosomito, the judgment debtor in suit No. 2525, to Barcelon was not
registered and noted on the books of the corporation until September 16,
1932, which was some nine months after the attachment had been
levied on said shares in civil case No. 2525 as above stated.
Thus arises in this case one of the most vexing questions in the law of
corporations, namely, whether a bona fidetransfer 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. This is the first case in which this question has been
squarely presented to us for decision. The case of Uy Piaco vs.
McMicking (10 Phil., 286), decided in 1908, arose before the Philippine
Corporation Law, Act No. 1459, took effect (April 1, 1906). The cases of
Fua Cun vs. Summer and China Banking Corporation, 44 Phil., 705
[1923] and Fleischer vs. Botica Nolasco Co., 47 Phil., 583 [1925] are not
in point.
Water and Mining Company (9 Cal., 78), and Naglee vs. Pacific Wharf
Company (20 Cal., 529), which are frequently cited in other jurisdictions
as sustaining the theory of the superiority of the attachment lien over
the unregistered stock transfer. (See Lyndonville National Bank vs.
Folsom, 7 N.M., 611 [1894]; 38 Pac., 253.) The California decision leaves
us unconvinced that the statutes which fall in the second group above
mentioned should be given the same effect as the statute in the third
group without any necessity for legislative amendment.
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.
In the latter case the court had under consideration a statute identical
with our own section 35, supra, and the court said:
We think the true meaning of the language is, and the obvious
intention of the legislature in using it was, that all transfers of
shares should be entered, as here required, on the books of the
corporation. And it is equally clear to us that all transfers of
shares not so entered are invalid as to attaching or execution
creditors of the assignors, as well as to the corporation and 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.
Some of the states, including Wisconsin, which has held to the rather,
strict but judicial interpretation of the statutory language here in
question have amended the statute so as to fall in line with the more
liberal and rational doctrine of the third group referred to above. This
court still adheres to the principle that its function is jus dicere non jus
dare. 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
The present case, which was instituted by Antonio Escao against the
Filipinas Mining Corporational and the Standard Investment of the
Philippines, relates to the escrow shares involved in the garnishment
proceeding above mentioned. It appears that after the complaint in the
original case of Escao vs. Salvosa was filed but before judgment we as
rendered therein, that lis to say, on November 21, 1936, Silverio Salvosa
sold to Jose P. Bengzon all his right, title, and interest in and to 18,580
shares of stock of the Filipinas Mining Corporation held in escrow which
the said Salvosa was entitled to receive, and which Bengzon in turn
subsequently sold and transferred to the present defendant-appellant,
Standard Investment of the Philippines. Neither Salvosa's sale to
Bengzon nor Bengzon's sale to the Standard Investment of the
Philippines was notified to and recorded in the books of the Filipinas
Mining Corporation until December 7, 1940, that is to say, more than
three years after the escrow shares in question were attached by
garnishment served on the Filipinas Mining Corporation as hereinbefore
set forth. On January 24, 1941, the defendant Filipinas Mining
Corporation issued in favor of the defendant Standard Investment of the
Philippines certificate of stock for the 18,580 shares formerly held in
escrow by Silverio Salvosa and which had been adversely by the present
plaintiff-appellee on the one hand and the Standard Investment of the
Philippines on the other, the first by virtue of garnishment proceedings
and the second by virtue of the sale made to it by Jose P. Bengzon as
aforesaid.
find no factual basis for the alleged laches and abandonment. The trial
court found that the secretary of the defendant Filipinas Mining
Corporation had repeatedly promised the plaintiff that he would notify
the latter as soon as the escrow shares pertaining to Silverio Salvosa
were released so that he ((plaintiff) might take the proper action for the
execution of his judgment. The Filipinas Mining Corporation having
advised the sheriff that it was holding the escrow shares of the judgment
debtor Silverio Salvosa, the plaintiff as execution creditor had the right
to wait for the release or issuance of said shares before having the same
sold at public auction, so long as the period of five years within which to
execution his judgment had not yet lapsed. Moreover, the judgment itself
provided "that the escrow shares shall be transferred and delivered to
the plaintiff only after they have been released by the company." It is
stated in the stipulation of facts that it was only after shares in favor of
the Standard Investment of the Philippines that the plaintiff Antonio
Escao came to know that Jose P. Bengzon and the Standard Investment
of the Philippines had acquired Silverio Salvosa's rights to the shares in
question. Upon these facts, together with the consideration that the
delay had not in any way misled the appellant to its prejudice, we find
appellant's second assignment of error untenable.
The judgment appealed from is affirmed, with costs.
PONCE, petitioner,
CORPORATION,
and
vs.
petitioners complaint. Also assailed is the CAs resolution [4] of August 10,
1999, denying petitioners motion for reconsideration.
On January 25, 1996, plaintiff (now petitioner) Vicente C. Ponce,
filed a complaint[5] with the SEC for mandamus and damages against
defendants (now respondents) Alsons Cement Corporation and its
corporate secretary Francisco M. Giron, Jr. In his complaint, petitioner
alleged, among others, that:
xxx
5. The late Fausto G. Gaid was an incorporator of Victory Cement
Corporation (VCC), having subscribed to and fully paid 239,500 shares
of said corporation.
6. On February 8, 1968, plaintiff and Fausto Gaid executed a Deed of
Undertaking and Indorsement whereby the latter acknowledges that the
former is the owner of said shares and he was therefore
assigning/endorsing the same to the plaintiff. A copy of the said
deed/indorsement is attached as Annex A.
7. On April 10, 1968, VCC was renamed Floro Cement Corporation (FCC
for brevity).
SECOND DIVISION
VICENTE
ALSONS
FRANCISCO
M.
CEMENT
GIRON,
JR., respondents.
DECISION
QUISUMBING, J.:
This petition for review seeks to annul the decision
[1]
of the Court of
Appeals, in CA-G.R. SP No. 46692, which set aside the decision[2] of the
Securities and Exchange Commission (SEC) En Banc in SEC-AC No. 545
name.[6]
Attached to the complaint was the Deed of Undertaking and
Indorsement[7] upon
which
petitioner
based
his
mandamus. Said deed and indorsement read as follows:
petition
for
DEED OF UNDERTAKING
KNOW ALL MEN BY THESE PRESENTS:
I, VICENTE C. PONCE, is the owner of the total subscription of Fausto
Gaid with Victory Cement Corporation in the total amount of TWO
HUNDRED THIRTY NINE THOUSAND FIVE HUNDRED (P239,500.00)
PESOS and that Fausto Gaid does not have any liability whatsoever on
the subscription agreement in favor of Victory Cement Corporation.
(SGD.) VICENTE C. PONCE
February 8, 1968
CONFORME:
(SGD.) FAUSTO GAID
INDORSEMENT
I, FAUSTO GAID is indorsing the total amount of TWO HUNDRED
THIRTY NINE THOUSAND FIVE HUNDRED (239,500.00) stocks of
Victory Cement Corporation to VICENTE C. PONCE.
(SGD.) FAUSTO GAID
With these allegations, petitioner prayed that judgment be rendered
ordering respondents (a) to issue in his name certificates of stocks
covering the 239,500 shares of stocks and its legal increments and (b) to
pay him damages.[8]
Instead of filing an answer, respondents moved to dismiss the
xxx
courts.[13]
In the present case, there is not even any indorsement of any stock
certificate to speak of. What the plaintiff possesses is a document by
which Gaid supposedly transferred the shares to him. Assuming the
document has this effect, nevertheless there is neither any allegation nor
any showing that it is recorded in the books of the defendant
corporation, such recording being a prerequisite to the issuance of a
The Commission En Banc also found that the Hearing Officer erred
in holding that petitioner is not the real party in interest.
[12]
xxx
As appearing in the allegations of the complaint, plaintiff-appellant is
the transferee of the shares of stock of Gaid and is therefore entitled to
avail of the suit to obtain the proper remedy to make him the rightful
owner and holder of a stock certificate to be issued in his
name. Moreover, defendant-appellees failed to show that the transferor
nor his heirs have refuted the ownership of the transferee. Assuming
these allegations to be true, the corporation has a mere ministerial duty
to register in its stock and transfer book the shares of stock in the name
of the plaintiff-appellant subject to the determination of the validity of
the deed of assignment in the proper tribunal. [14]
Their motion for reconsideration having been denied, herein
respondents appealed the decision[15] of the SEC En Banc and the
resolution[16] denying their motion for reconsideration to the Court of
Appeals.
In its decision, the Court of Appeals held that in the absence of any
allegation that the transfer of the shares between Fausto Gaid and
Vicente C. Ponce was registered in the stock and transfer book of
ALSONS, Ponce failed to state a cause of action. Thus, said the CA, the
complaint for mandamus should be dismissed for failure to state a cause
of action.[17] petitioners motion for reconsideration was likewise denied in
does not mean that the transferee cannot ask for the issuance of stock
certificates.
We find the instant petition without merit. The Court of Appeals did
not err in ruling that petitioner had no cause of action, and that his
petition for mandamus was properly dismissed.
There is no question that Fausto Gaid was an original subscriber of
respondent corporations 239,500 shares. This is clear from the
numerous pleadings filed by either party. It is also clear from the
10
transferee even when there has been compliance with the requirements
of Section 64[24] of the Corporation Code. This is the import of Section 63
which states that No transfer, however, shall be valid, except between the
parties, until the transfer is recorded in the books of the corporation
showing the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of
shares transferred. The situation would be different if the petitioner was
himself the registered owner of the stock which he sought to transfer to a
third party, for then he would be entitled to the remedy of mandamus.[25]
From the corporations point of view, the transfer is not effective
until it is recorded. Unless and until such recording is made the demand
for the issuance of stock certificates to the alleged transferee has no legal
basis. As between the corporation on the one hand, and its shareholders
and third persons on the other, the corporation looks only to its books
for the purpose of determining who its shareholders are. [26] In other
words, the stock and transfer book is the basis for ascertaining the
persons entitled to the rights and subject to the liabilities of a
stockholder. Where a transferee is not yet recognized as a stockholder,
the corporation is under no specific legal duty to issue stock certificates
in the transferees name.
It follows that, as held by the Court of Appeals:
x x x until registration is accomplished, the transfer, though valid
between the parties, cannot be effective as against the
corporation. Thus, in the absence of any allegation that the transfer of
the shares between Gaid and the private respondent [herein petitioner]
was registered in the stock and transfer book of the petitioner
corporation, the private respondent has failed to state a cause of action.
[27]
11
that this petitioner is not the registered owner of the stock which he
seeks to have transferred, and except in so far as he alleges that he is
the owner of the stock and that it was "indorsed" to him on February 5
by the Bryan-Landon Company, in whose name it is registered on the
books of the Visayan Electric Company, there is no allegation that the
petitioner holds any power of attorney from the Bryan-Landon Company
authorizing him to make demand on the secretary of the Visayan
Electric Company to make the transfer which petitioner seeks to have
made through the medium of the mandamus of this court.
Without discussing or deciding the respective rights of the parties which
might be properly asserted in an ordinary action or an action in the
nature of an equitable suit, we are all agreed that in a case such as
that at bar, a mandamus should not issue to compel the secretary
of a corporation to make a transfer of the stock on the books of
the company, unless it affirmatively appears that he has failed or
refused so to do, upon the demand either of the person in whose
name the stock is registered, or of some person holding a power of
attorney for that purpose from the registered owner of the
stock. There is no allegation in the petition that the petitioner or anyone
else holds a power of attorney from the Bryan-Landon Company
authorizing a demand for the transfer of the stock, or that the BryanLandon Company has ever itself made such demand upon the Visayan
Electric Company, and in the absence of such allegation we are not able
to say that there was such a clear indisputable duty, such a clear legal
obligation upon the respondent, as to justify the issuance of the writ to
compel him to perform it.
Under the provisions of our statute touching the transfer of stock (secs.
35 and 36 of Act No. 1459),[29] the mere indorsement of stock certificates
does not in itself give to the indorsee such a right to have a transfer of
the shares of stock on the books of the company as will entitle him to
the writ of mandamus to compel the company and its officers to make
such transfer at his demand, because, under such circumstances the
duty, the legal obligation, is not so clear and indisputable as to justify
the issuance of the writ. As a general rule and especially under the
above-cited statute, as between the corporation on the one hand, and its
12
shareholders and third persons on the other, the corporation looks only
to its books for the purpose of determining who its shareholders are, so
that a mere indorsee of a stock certificate, claiming to be the owner, will
not necessarily be recognized as such by the corporation and its officers,
in the absence of express instructions of the registered owner to make
such transfer to the indorsee, or a power of attorney authorizing such
transfer.[30]
In Rivera vs. Florendo, 144 SCRA 643, 657 (1986), we reiterated that
a mere indorsement by the supposed owners of the stock, in the absence
of express instructions from them, cannot be the basis of an action for
mandamus and that the rights of the parties have to be threshed out in
an ordinary action. That Hager and Rivera involved petitions for
mandamus to compel the registration of the transfer, while this case is
one for issuance of stock, is of no moment. It has been made clear, thus
far, that before a transferee may ask for the issuance of stock
certificates, he must first cause the registration of the transfer and
thereby enjoy the status of a stockholder insofar as the corporation is
concerned. A corporate secretary may not be compelled to register
transfers of shares on the basis merely of an indorsement of stock
certificates. With more reason, in our view, a corporate secretary may
not be compelled to issue stock certificates without such registration.[31]
Petitioners reliance on our ruling in Abejo vs. De la Cruz, 149 SCRA
654 (1987), that notice given to the corporation of the sale of the shares
and presentation of the certificates for transfer is equivalent to
registration is misplaced. In this case there is no allegation in the
complaint that petitioner ever gave notice to respondents of the alleged
transfer in his favor. Moreover, that case arose between and among the
principal stockholders of the corporation, Pocket Bell, due to the refusal
of the corporate secretary to record the transfers in favor of Telectronics
of the corporations controlling 56% shares of stock which were covered
by duly endorsed stock certificates. As aforesaid, the request for the
recording of a transfer is different from the request for the issuance of
stock certificates in the transferees name. Finally, in Abejo we did not
say that transfer of shares need not be recorded in the books of the
corporation before the transferee may ask for the issuance of stock
certificates. The Courts statement, that there is no requirement that a
13
considering that the law does not prescribe a period within which the
registration should be effected, the action to enforce the right does not
accrue until there has been a demand and a refusal concerning the
transfer. In the present case, petitioners complaint for mandamus must
fail, not because of laches or estoppel, but because he had alleged no
cause of action sufficient for the issuance of the writ.
WHEREFORE, the petition is DENIED for lack of merit. The
decision of the Court of Appeals, in CA-G.R. SP No. 46692, which set
aside that of the Securities and Exchange Commission En Banc in SECAC No. 545 and reinstated the order of the Hearing Officer, is
hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
14
PARAS, J.:
Petitioner filed a petition for certiorari against the public respondent
Securities and Exchange Commission and its co-respondents, after the
former in an en banc Order, overturned with modification, the decision
of its Cebu SEC Extension hearing officer, Felix Chan, in SEC Case No.
C-0096, dated May 23, 1989, on October 10, 1990, under SEC-AC No.
263. (Rollo, pp. 3 and 4)
Sought to be reversed by petitioner, is the ruling of the Commission,
specifically declaring that:
1. Confirming the validity of the resolution of the board of
directors of the Visayan Educational Supply Corporation
so far as it cancelled Stock Certificate No. 2 and split the
15
1981 (b), which was passed and approved while petitioner was still a
member of the Board of Directors of the respondent corporation. (Rollo,
p. 6)
Due to the withdrawal of the aforesaid incorporators and in order to
complete the membership of the five (5) directors of the board, petitioner
sold fifty (50) shares out of his 400 shares of capital stock to his brother
Angel S. Tan. Another incorporator, Alfredo B. Uy, also sold fifty (50) of
his 400 shares of capital stock to Teodora S. Tan and both new
stockholders attended the special meeting, Angel Tan was elected
director and on March 27, 1981, the minutes of said meeting was filed
with the SEC. These facts stand unchallenged. (Rollo, p. 43)
Accordingly, as a result of the sale by petitioner of his fifty (50) shares of
stock to Angel S. Tan on April 16, 1981, Certificate of Stock No. 2 was
cancelled and the corresponding Certificates Nos. 6 and 8 were issued,
signed by the newly elected fifth member of the Board, Angel S. Tan as
Vice-president, upon instruction of Alfonso S. Tan who was then the
president of the Corporation.(Memorandum of the Private Respondent,
p. 15)
With the cancellation of Certificate of stock No. 2 and the subsequent
issuance of Stock Certificate No. 6 in the name of Angel S. Tan and for
the remaining 350 shares, Stock Certificate No. 8 was issued in the
name of petitioner Alfonso S. Tan, Mr. Buzon, submitted an Affidavit
(Exh. 29), alleging that:
9. That in view of his having taken 33 1/3 interest, I was
personally requested by Mr. Tan Su Ching to request Mr.
Alfonso Tan to make proper endorsement in the cancelled
Certificate of Stock No. 2 and Certificate No. 8, but he did
not endorse, instead he kept the cancelled (1981)
Certificate of Stock No. 2 and returned only to me
Certificate of Stock No. 8, which I delivered to Tan Su
Ching.
10. That the cancellation of his stock (Stock No. 2) was
known by him in 1981; that it was Stock No. 8, that was
16
The case of Nava vs. peers Marketing corporation (74 SCRA 65) was cited
by petitioner making the reference to commentaries taken from 18 C.J.S.
928-930, that the transfer by delivery to the transferee of the certificate
should be properly indorsed, and that "There should be compliance with
the mode of transfer prescribed by law." Using Section 35, now Section
63 of the Corporation Code, the provision of the law, reads:
SEC. 63. Certificate of stock and transfer of shares. The
capital stock and stock and corporations shall be divided
into shares for which certificates signed by the president
and vice president, countersigned by the secretary or
assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the bylaws. 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 stocks against which the corporation holds
any unpaid claim shall be transferable in the books of the
corporations.
There is no doubt that there was delivery of Stock Certificate No. 2 made
by the petitioner to the Corporation before its replacement with the
Stock Certificate No. 6 for fifty (50) shares to Angel S. Tan and Stock
Certificate No. 8 for 350 shares to the petitioner, on March 16, 1981. The
problem arose when petitioner was given back Stock Certificate No. 2 for
him to endorse and he deliberately witheld it for reasons of his own. That
the Stock Certificate in question was returned to him for his purpose
was attested to by Mr. Buzon in his Affidavit, the pertinent portion of
which has been earlier quoted.
17
The proof that Stock Certificate No. 2 was split into two (2) consisting of
Stock Certificate No. 6 for fifty (50) shares and Stock Certificate No. 8 for
350 shares, is the fact that petitioner surrendered the latter stock (No. 8)
1
(Decision, p. 6)
It is not remote that if petitioner could have cashed in on Stock
Certificate No. 2 with the remainder of the goods that he padlocked, he
would have done so, until the respondent corporation was bled entirely.
Along this line, petitioner put up the argument that he was responsible
for the growth of the corporation by the alleging that during his
incumbency, the corporation grew, prospered and flourished in the court
of business as evidenced by its audited financial statements, and
grossed the following incomes from: 1980 P8,658,414.10, 1981
P8,039,816.67, 1982 P7,306,168.67, 1983 P5,874,453.55, 1984
P3,911,667.76. (Ibid., Rollo, p. 24)
Moreover, petitioner asserted that he was ousted from the corporation by
reason of his efforts to establish fiscal controls and to demand an
accounting of corporate funds which were accordingly being transferred
and diverted to certain of private respondents' personal accounts which
were allegedly misapplied, misappropriated and converted to their own
personal use and benefit. (Ibid., p. 125)
2. Petitioner further 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. (Rollo, p. 10)
These arguments are all motivated by self-interest, using foreign
authorities that are slanted in his favor and even misquoting local
authorities to prop up his erroneous posture and all these attempts are
intended to stifle justice, truth and equity.
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
18
19
order to impress upon the Court that the unendorsed and uncancelled
stock certificate No. 17, was unconditionally declared null and void,
flagrantly omitting the justifying circumstances regarding its acquisition
and the reason given by the Court why it was declared so. The history of
certificate No. 17 is quoted below, showing the reason why the certificate
in question was considered null and void, as follows:
(P)etitioner Hodges did not cause to be entered in the
books of the corporation as he had his stock certificate
No. 17 which, therefore had not been endorsed by him to
anybody or cancelled and which he considered still
subsisting. On September 18, 1958, petitioner Hodges
again sold his aforesaid 2,230 shares of stock covered by
his stock certificate No. 17 on installment basis to his copetitioner Ricardo Gurrea, but continued keeping the stock
certificate in his possession without endorsing it to Gurrea
or causing the sale to be entered in the books of the
corporation, believing that said shares of stock were his
until fully paid for. Up to the present, petitioner Hodges has
in his possession and under his control his aforesaid stock
certificate No. 17, unendorsed and uncancelled (Exhs. A &
A-1), a fact known to the respondents. (14 SCRA p. 1032)
The pertinent misquoted portion follows:
Before the stockholders' meeting of the La Paz ice Plant &
Cold Storage Co., Inc., hereinafter referred to as the
Corporation - which was scheduled to be held on August
6, 1959, petitioners C.N. Hodges and Ricardo Gurrea filed
with the CFI of Iloilo, a petition docketed as Civil Case
No. 5261 of said court for a writ of prohibition with
preliminary injunction, to restrain respondents Jose
Manuel Lezama, as president and secretary, respectively,
of said Corporation from allowing their brother-in-law and
brother, respectively, respondent Benjamin L. Borja, to
vote in said meeting on the aforementioned 2,230 shares
of stock. Upon the filing of said petition and of a bond in
the sum of P1,000, the writ of preliminary injunction
20
21
EN BANC
[G.R. No. L-6230. March 21, 1911.]
A.R. HAGER, Petitioner, v. ALBERT J. BRYAN, Respondent.
SYLLABUS
22
CARSON, J.:
This is an original action brought in this court under section 515 of the
Code of Civil Procedure to secure a writ of mandamus against the
respondent, to compel him, as secretary of the Visayan Electric
Company, to transfer upon the books of the company certain shares of
stock mentioned in the petition.
The original petition and statement of the facts sufficiently definite for
the purposes of this decision will be found in the decision of this court
filed January 18, 1911, 1 sustaining a demurrer to the original petition
on the ground that it not state facts constituting a cause of action.
Were the petitioner the registered owner or the stock, we think that the
additional allegations contained in the amended petition, taken together
with the allegations in the original petition, would undoubtedly take his
case out of the class of "ordinary cases" in which Judge Sanborn, in his
article on Mandamus in the Cyclopedia of Law and Procedure (26 Cyc.,
347), says mandamus, by the weight of authority, will not lie; because as
it appears and is clearly alleged in the amended petition, first, an
ordinary action against the corporation for damages would in this case
be wholly inadequate; second, an action of the nature of a suit in equity
to secure a decree ordering the transfer would also be inadequate, in
view of the delay involved in the trial and possible appeal of such action,
which under the allegations of the amended petition would defeat the
principal purpose for which this action is brought, that is to say, to
secure to the purchaser the right to vote this stock at the regular and
special meetings of the stockholders; and third, because we think that
23
the statute if not expressly, at least impliedly, imposes the duty upon a
corporation, organized under Act No. 1459, and the officer in charge of
the books of such corporation, to provide for the entry and noting upon
the books of the corporation of lawful transfers of stock when the entry
of such transfer is lawfully demanded.
Mandamus will lie, where the right is clear, to compel a transfer of stock
to the purchaser of the same at a judicial sale, as required by statute. In
no case will the writ be granted if the title to the stock is disputed and
the right to the relief asked for is not clear, or where the relators claim
rests on a mere equitable right, or equitable issues are involved."cralaw
virtua1aw library
24
the shares of stock on the books of the company as will entitle him to
the writ of mandamus to compel the company and its officers to make
such transfer at his demand, because, under such circumstances the
duty, the legal obligation, is not so clear and indisputable as to justify
the issuance of the writ. As a general rule and especially under the
above-cited statute, as between the corporation on the one hand, and its
shareholders are, so that a mere indorsee of a stock certificate, claiming
to be the owner, will not necessarily be recognized as such by the
corporation and its officers, in the absence of express instructions of the
registered owner to make such transfer to the indorsee, or a power of
attorney authorizing such transfer.
The usual practice in the United States in effecting transfers by
indorsement and delivery of certificate with power of attorney in blank is
thus stated in 10 Cyc., 594, 595:jgc:chanrobles.com.ph
"The usual share certificate contains on its back a printed assignment or
indorsement and also a power of attorney in blank, like the following:
"For value received I hereby assign the within named shares to . . . . . . . .
. . . . ., and appoint my, . . . . . . . . . . . . . . . attorney to make the transfer
on the books of the company." This is signed by the person to whom the
shares are issued. In this manner, by the usages of business, of which
the courts take judicial notice, the certificate may be passed from hand
to hand indefinitely by the person to whom the certificate is issued
simply signing this indorsement and delivering the certificate with the
blanks unfilled to his assignee. When it reaches the hands of some one
who desires to assume the legal rights of a shareholder, so as to be
entitled to vote at corporate elections and to receive dividends, he fills up
the blanks by inserting his own name as transferee, just as the holder of
a promissory note indorsed in blank is entitled by the law merchant to
insert any name he pleases above the indorsement as the payee. He also
inserts in the second blank the name of the attorney in fact whom he
wishes to make the transfer for him on the books of the corporation.
This person is usually the secretary or some other officer of the
company, although he may insert the name of whomsoever he pleases.
The attorney so appointed does exactly what the original shareholder
would have done had he gone to the companys office to make the
transfer of the shares to his vendee. He makes an entry on the book kept
by the company for that purpose, usually the stock ledger, to the effect
that the shares have been transferred to the new purchaser. Then the
certificate is surrendered, as hereafter indicated, and a new certificate is
issued to the transferee."cralaw virtua1aw library
It may be that such method as this was adopted in making the transfer
in the case at bar, and that this is what is meant by the allegation of the
petition that the stock certificates were "indorsed" to the petitioner, but
the point having been raised, and there being no express allegation to
this effect in the petition, we think the demurrer must be sustained and
the petition dismissed with costs, unless within ten days from the receipt
of notice of this decision petitioner files an amended complaint.
It may be proper to add, in conclusion, that the specific point on which
the demurrer to the amended petition is sustained was not directly
brought to the attention of the court in the discussion of the demurrer
on the original petition, and for this reason, apparently, was not
discussed in the former opinion, that demurrer being sustained on a
different ground.
25
PARAS, J.:
This is a petition to review the decision dated August 27, 1976 of the
Court of Appeals (CA) in CA-G.R. No. 51313-R which modified the
decision of the then Court of First Instance (CFI) of Manila, Branch 11 in
Civil Case No. 79183 Also sought for review are the resolutions of the
aforenamed court dated October 21, 1976 and November 12, 1976 which
denied petitioner's motion for reconsideration of the subject decision and
petition and/or motion for new trial, respectively.
The dispositive portion of the CFI judgment reads:
WHEREFORE, the Court renders judgment enjoining the defendants
to effect the transfer of the shares covered by Stock Certificate No.
16807 to and in the name of plaintiff INCORPORATED Mining
Corporation, and the writ of preliminary mandatory injunction issued
on March 16, 1970 is hereby declared permanent.
Republic of the Philippines
SO ORDERED.
SUPREME COURT
Manila
Upon the other hand, the decretal portion of the CA decision states:
SECOND DIVISION
26
March 5, 1970 until full payment; and dismissing the complaint with
respect to defendant Del Rosario and Company. Defendant Batong
Buhay shall pay the costs.
IT IS SO ORDERED.
(pp. 67-68, Rollo)
The antecedent facts, as found by the Court of Appeals, are as follows:
The defendant Batong Buhay Gold Mines, Inc. issued Stock
Certificate No. 16807 covering 62,495 shares with a par value of
P0.01 per share to Francisco Aguac who was then legally married
to Paula G. Aguac, but the said spouses had lived separately for
more than fourteen (14) years prior to the said date. On
December 16, 1969, Francisco Aguac sold his 62,495 shares
covered by Stock Certificate No. 16807 for the sum of P9,374.70
in favor of the plaintiff, the said transaction being evidenced by a
deed of sale (Exhibit D). The said sale was made by Francisco
Aguac without the knowledge or consent of his wife Paula G.
Aguac.
On the same date of the sale, December 16, 1969, Paula G.
Aguac wrote a letter to the president of defendant Batong Buhay
Gold Mines, Inc. asking that the transfer of the shares sold by
her husband be withheld, inasmuch as the same constituted
conjugal property and her share of proceeds of the sale was not
given to her (Exhibit 1).
On January 5, 1970, under a covering letter dated December 26,
1969, plaintiff's counsel presented Stock Certificate No. 16807
duly endorsed by Francisco Aguac for registration and transfer of
the said stock certificate in the name of the plaintiff (Exhibit F).
The said letter was addressed to defendant Del Rosario and
Company which was the transfer agent of Batong Buhay at that
time. In a letter dated February 24, 1970 also addressed to Del
Rosario and Company, plaintiff's counsel requested information
as to the action taken on the transfer of Stock Certificate No.
27
its case, but would also show the untenability and illegality of private
respondent's position?
We answer the first issue in the negative.
The petitioner alleges that the appellate court gravely and categorically
erred in awarding damages by way of unrealized profit (or lucro cesante)
to private respondent. Petitioner company also alleges that the claim for
unrealized profit must be duly and sufficiently established, that is, that
the claimant must submit proof that it was in fact damaged because of
petitioner's act or omission.
The stipulation of facts of the parties does not at all show that private
respondent intended to sell, or would sell or would have sold the stocks
in question on specified dates. While it is true that shares of stock may
go up or down in value (as in fact the concerned shares here really rose
from fifteen (15) centavos to twenty three or twenty four (23/24) centavos
per share and then fell to about two (2) centavos per share, still whatever
profits could have been made are purely SPECULATIVE, for it was
difficult to predict with any decree of certainty the rise and fall in the
value of the shares. Thus this Court has ruled that speculative damages
cannot be recovered.
It is easy to say now that had private respondent gained legal title to the
shares, it could have sold the same and reaped a profit of P5,624.95 but
it could not do so because of petitioner's refusal to transfer the stocks in
the former's name at the time demand was made, but then it is also true
that human nature, being what it is, private respondent's officials could
also have refused to sell and instead wait for expected further increases
in value.
In view of what has been said, We find no necessity to discuss the
second issue.
WHEREFORE, the assailed decision and resolutions of the Court of
Appeals are hereby SET ASIDE, and a new one is hereby rendered
REINSTATING the decision of the trial court. No costs. SO ORDERED.
28
29
30
The learned trial court decided the case in favor of the defendant upon
the ground that the intention of the parties as it appeared from the
contract in question was to the effect that the agreement should be good
and continue only until the corporation reached a sound financial basis,
and that that event having occurred some time before the expiration of
the year mentioned in the contract, the purpose for which the contract
was made and had been fulfilled and the defendant accordingly
discharged of his obligation thereunder. The complaint was dismissed
upon the merits.
It is argued here that the court erred in its construction of the contract.
We are of the opinion that the contention is sound. The intention of
parties to a contract must be determined, in the first instance, from the
words of the contract itself. It is to be presumed that persons mean what
they say when they speak plain English. Interpretation and construction
should by the instruments last resorted to by a court in determining
what the parties agreed to. Where the language used by the parties is
plain, then construction and interpretation are unnecessary and, if
used, result in making a contract for the parties. (Lizarraga Hermanos
vs. Yap Tico, 24 Phil. Rep., 504.)
In the case cited the court said with reference to the construction and
interpretation of statutes: "As for us, we do not construe or interpret this
law. It does not need it. We apply it. By applying the law, we conserve
both provisions for the benefit of litigants. The first and fundamental
duty of courts, in our judgment, is to apply the law. Construction and
interpretation come only after it has been demonstrated that application
is impossible or inadequate without them. They are the very last
functions which a court should exercise. The majority of the law need no
interpretation or construction. They require only application, and if there
were more application and less construction, there would be more
stability in the law, and more people would know what the law is."
What we said in that case is equally applicable to contracts between
persons. In the case at bar the parties expressly stipulated that the
contract should last one year. No reason is shown for saying that it shall
last only nine months. Whatever the object was in specifying the year, it
was their agreement that the contract should last a year and it was their
31
It is also urged by the appelle 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.
The judgment is reversed, the case remanded with instructions to enter
a judgment in favor of the plaintiff and against the defendant for P1,000,
with interest; without costs in this instance.
EN BANC
G.R. No. L-23241 March 14, 1925
HENRY FLEISCHER, Plaintiff-Appellee, vs. BOTICA NOLASCO CO.,
INC., Defendant-Appellant.
Antonio Gonzalez for appellant.
Emilio M. Javier for appellee.
JOHNSON, J.:
This action was commenced in the Court of First Instance of the
Province of Oriental Negros on the 14th day of August, 1923, against the
board of directors of the Botica Nolasco, Inc., a corporation duly
organized and existing under the laws of the Philippine Islands. The
plaintiff prayed that said board of directors be ordered to register in the
books of the corporation five shares of its stock in the name of Henry
Fleischer, the plaintiff, and to pay him the sum of P500 for damages
sustained by him resulting from the refusal of said body to register the
shares of stock in question. The defendant filed a demurrer on the
ground that the facts alleged in the complaint did not constitute
sufficient cause of action, and that the action was not brought against
the proper party, which was the Botica Nolasco, Inc. The demurrer was
sustained, and the plaintiff was granted five days to amend his
complaint.chanroblesvirtualawlibrary chanrobles virtual law library
On November 15, 1923, the plaintiff filed an amended complaint against
the Botica Nolasco, Inc., alleging that he became the owner of five shares
of stock of said corporation, by purchase from their original owner, one
Manuel Gonzalez; that the said shares were fully paid; and that the
defendant refused to register said shares in his name in the books of the
corporation in spite of repeated demands to that effect made by him
upon said corporation, which refusal caused him damages amounting to
P500. Plaintiff prayed for a judgment ordering the Botica Nolasco, Inc. to
register in his name in the books of the corporation the five shares of
stock recorded in said books in the name of Manuel Gonzalez, and to
indemnify him in the sum of P500 as damages, and to pay the costs. The
defendant again filed a demurrer on the ground that the amended
complaint did not state facts sufficient to constitute a cause of action,
and that said amended complaint was ambiguous, unintelligible,
uncertain, which demurrer was overruled by the
court.chanroblesvirtualawlibrary chanrobles virtual law library
The defendant answered the amended complaint denying generally and
specifically each and every one of the material allegations thereof, and,
as a special defense, alleged that the defendant, pursuant to article 12 of
its by-laws, had preferential right to buy from the plaintiff said shares at
the par value of P100 a share, plus P90 as dividends corresponding to
the year 1922, and that said offer was refused by the plaintiff. The
defendant prayed for a judgment absolving it from all liability under the
complaint and directing the plaintiff to deliver to the defendant the five
shares of stock in question, and to pay damages in the sum of P500, and
the costs.chanroblesvirtualawlibrary chanrobles virtual law library
Upon the issue presented by the pleadings above stated, the cause was
brought on for trial, at the conclusion of which, and on August 21, 1924,
the Honorable N. Capistrano, judge, held that, in his opinion, article 12
of the by-laws of the corporation which gives it preferential right to buy
its shares from retiring stockholders, is in conflict with Act No. 1459
(Corporation Law), especially with section 35 thereof; and rendered a
32
33
xxx
(7) To make by-laws, not inconsistent with any existing law, for the fixing
or changing of the number of its officers and directors within the limits
prescribed by law, and for the transferring of its stock, the administration
of its corporate affairs, etc.
xxx
xxx
SEC. 35. The capital stock of stock corporations shall de divided into
shares for which certificates signed by the president or the vicepresident, countersigned by the secretary or clerk and sealed with the
seal of the corporation, shall be issued in accordance with the bylaws. 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, that
date of the transfer, the number of the certificate, and the number of
shares transferred. chanrobles virtual law library
No share of stock against which the corporation holds any unpaid claim
shall be transferable on the books of the corporation.
Section 13, paragraph 7, above-quoted, empowers a corporation to
make by-laws, not inconsistent with any existing law, for the transferring
of its stock. It follows from said provision, that a by-law adopted by a
corporation relating to transfer of stock should be in harmony with the
law on the subject of transfer of stock. The law on this subject is found
in section 35 of Act No. 1459 above quoted. Said section specifically
provides that the shares of stock "are personal property and may be
transferred by delivery of the certificate indorsed by the owner, etc." Said
34
Am. St. Rep., 147; Ireland vs. Globe Milling Co., 79 Am. St. Rep.,
769.)chanrobles virtual law library
The power to enact by-laws restraining the sale and transfer of stock must
be found in the governing statute or the charter. Restrictions upon the
traffic in stock must have their source in legislative enactment, as the
corporation itself cannot create such impediments. By-law are intended
merely for the protection of the corporation, and prescribe regulation
and not restriction; they are always subject to the charter of the
corporation. The corporation, in the absence of such a power, cannot
ordinarily inquire into or pass upon the legality of the transaction by
which its stock passes from one person to another, nor can it question
the consideration upon which a sale is based. A by-law cannot take away
or abridge the substantial rights of stockholder.Under a statute
authorizing by- laws for the transfer of stock, a corporation can do no more
than prescribe a general mode of transfer on the corporate books and
cannot justify an unreasonable restriction upon the right of sale. (4
Thompson on Corporations, sec. 4137, p.
674.chanroblesvirtualawlibrary chanrobles virtual law library
The foregoing authorities go farther than the stand we are taking on this
question. They hold that the power of a corporation to enact by-laws
restraining the sale and transfer of shares, should not only be in
harmony with the law or charter of the corporation, but such power
should be expressly granted in said law or
charter.chanroblesvirtualawlibrary chanrobles virtual law library
And moreover, the by-laws now in question cannot have any effect on the
appellee. He had no knowledge of such by-law when the shares were
assigned to him. He obtained them in good faith and for a valuable
consideration. He was not a privy to the contract created by said by-law
between the shareholder Manuel Gonzalez and the Botica Nolasco, Inc.
Said by-law cannot operate to defeat his rights as a purchaser.
35
36
SECOND DIVISION
[G.R. No. 38684. December 21, 1933.]
CYRUS PADGETT, Plaintiff-Appellee, v. BABCOCK & TEMPLETON,
37
IMPERIAL, J.:
DECISION
By resolution approved on November 25, 1933, this court set aside its
decision in this case, which was promulgated on October 13th of the
same year, and thereby granted a rehearing before the second division.
The defendant W. R. Babcock and his counsel J. F. Boomer, both of
whom were present during the said rehearing again argued the merits of
the case. Nobody appeared for the plaintiff.
The facts of the case have not suffered any change. They remain the
same as those which we stated in the original decision as follows: "The
appellee 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 P100 a share at the suggestion of
the president of said corporation. He was also the recipient of 9 shares
by way of bonus during Christmas seasons. In this way the said appellee
became the owner of 44 shares for which the 12 certificates, Exhibits F
to F-11, were issued in his favor. The word nontransferable 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 that 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 appellees
shares first at P85 each and then at P80. The appellee did not agree
thereto."cralaw virtua1aw library
The defendants admit that the 44 shares in question have become the
property of the plaintiff. They likewise grant that under the law the said
appellee has the right to have the restriction" nontransferable" appearing
on the 12 certificates eliminated therefrom. However, they vigorously
contend that there is no existing law nor authority in support of the
38
proposition that they are bound to redeem or buy said shares at par
value. Their admission is only limited to the proposition that after the
restriction appearing thereon is eliminated, the plaintiff may sell the
said shares to anybody, at their market value or at any price he sees fit.
We have not had the opportunity of hearing the opinion of the counsel
for the plaintiff. We have again studied the laws applicable thereto and
have searched for more authorities on the subject under discussion, but
we have not found anything that bears directly on the question whether
or not the defendants may be compelled, in this case, to buy the shares
in question at par value. However, 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 an 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, unless the
corporation has been dissolved, or unless the right to do so is properly
restricted, or the owners 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 stockholders 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 v. 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:jgc:chanrobles.com.ph
"The only restraint imposed by the Corporation Law upon transfer of
shares is found in section 35 of Act No. 1459, quoted above, as follows:
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. 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.
As we have hereinbefore stated, there is no existing law nor authority in
support of the plaintiffs claim to the effect that the defendants are
obliged to buy his shares of stock 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.
Wherefore, the judgment appealed from is hereby reversed, and the
restriction consisting in the word "non-transferable" appearing on the 12
certificates of shares of stock, is declared null and void. The defendants
herein are hereby ordered to cancel the certificates in question and to
issue in lieu thereof new ones without any restriction whatsoever, with
the costs of both instances against the said defendants-appellants. So
ordered.
39
40
amount of P2,250.
At the time of the delivery of a stock Certificate No. 517 to R.J.
Campos & Co., Inc. this certificate was in the same condition as
that when Mrs. Santamaria received from Woo, Uy-Tioco &
Naftaly, with the sole difference that her name was later written
in lead pencil on the upper right hand corner thereof.
Two days later, on March 11, Mrs. Santamaria went to R.J.
Campos & Co., Inc. to pay for her order of 10,000 Crown Mines
shares and to get back Certificate No. 517. Cosculluela then
informed her that R.J. Campos & Co., Inc. was no longer allowed
to transact business due to a prohibition order from Securities
and Exchange Commission. She was also inform that her Stock
certificate was in the possession of the Hongkong and Shanghai
Banking Corporation.
Certificate No. 517 came into possession of the Hongkong and
Shanghai Banking Corporation because R.J. Campos & Co., Inc.
had opened an overdraft account with this bank and to this
effect it had executed on April 16, 1936 a document of
hypothecation, Exhibit 1, by the term of which R.J. Campos &
Co., Inc. pledged to the said bank "all stocks, shares and
securities which I/we may hereafter come into their possession of
my/our account and whether originally deposited for safe
custody only or for any other purpose whatever or which may
hereinafter be deposited by me/us in lieu of or in addition to the
Stocks Shares and Securities now deposited or for any other
purposes whatsoever."
On March 11, 1937, as shown by Exhibit G. Certificate No. 517,
already indorsed by R.J. Campos Co. Inc. to the Hongkong &
Shanghai Banking Corporation, was sent by the latter to the
office of the Batangas Minerals, Inc. with the request that the
same be cancelled and a new certificate be issued in the name of
R.W. Taplin as trustee and nominee of the banking corporation.
Robert W. Taplin was an officer of this institution in charge of the
securities belonging to or claimed by the bank. As per this
41
of stock No. 517 was made out in the name of Wo, Uy-Tioco & Naftaly,
brokers, and was duly indorsed in bank by said brokers. This certificate
of stock was delivered by plaintiff to R.J. Campos & Co., Inc. to comply
with a requirement that she deposit something on account if she wanted
to buy 10,000 shares of Crown Mines Inc. In making said deposit,
plaintiff did not take any precaution to protect herself against the
possible misuse of the shares represented by the certificate of stock.
Plaintiff could have asked the corporation that had issued said
certificate to cancel it and issue another in lieu thereof in her name to
apprise the holder that she was the owner of said certificate. This she
failed to do, and instead she delivered said certificate, as it was, to R.J.
Campos & Co., Inc., thereby clothing the latter with apparent title to the
shares represented by said certificate including apparent authority to
negotiate it by delivering it to said company while it was indorsed in
blank by the person or firm appearing on its face as the owner thereof.
The defendant Bank had no knowledge of the circumstances under
which the certificate of stock was delivered to R.J. Campos & Co., Inc.,
and had a perfect right to assume that R.J. Campos & Co., Inc. was
lawfully in possession of the certificate in view of the fact that it was a
street certificate, and was in such form as would entitle any possessor
thereof to a transfer of the stock on the books of the corporation
concerned. There is no question that, in this case, plaintiff made the
negotiation of the certificate of stock to other parties possible and the
confidence she placed in R.J. Campos & Co., Inc. made the wrong done
possible. This was the proximate cause of the damage suffered by her.
She is, therefore, estopped from claiming further title to or interest
therein as against a bona fide pledge or transferee thereof, for it is a wellknown rule that a bona fide pledgee or transferee of a stock from the
apparent owner is not chargeable with knowledge of the limitations
placed on it by the real owner, or of any secret agreement relating to the
use which might be made of the stock by the holder (Fletcher, Cyclopedia
of Corporations, section 5562, Vol. 12, p. 521).
On the other hand, it appears that this certificate of stock, indorsed as it
was in blank by Woo, Uy-Tioco & Naftaly, stock brokers, was delivered to
The Hongkong and Shanghai Banking Corporation by R.J. Campos &
Co., Inc., duly indorsed by the latter, pursuant to a letter of
hypothecation executed by R.J. Campos & Co., Inc., in favor of said
42
Bank (Exhibit "1"). The said certificate was delivered to the Bank in the
ordinary course of business, together with many other securities, and at
the time it was delivered, the Bank had no Knowledge that the shares
represented by the certificate belonged to the plaintiff for, as already
said, it was in the form of street certificate which was transferable by
mere delivery. The rule is "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 wrong doer and put in his hands the means of
inflicting such loss" (Fletcher Cyclopedia of Corporations, supra).
It is therefore clear that plaintiff, in failing to take the necessary
precautions upon delivering the certificate of stock to her broker, was
chargeable with negligence in the transaction which resulted to her own
prejudice, and as such, she is estopped from asserting title to it as
against the defendant Bank.
2. The next contention of the defendant is that the trial court erred in
holding that it was the obligation of the defendant Bank to have inquired
into the ownership of the certificate when it received it from R.J. Campos
& Co., Inc. and in concluding that the Bank was negligent for not having
done so, contrary to the claim of the plaintiff that defendant Bank acted
negligently, if not in bad faith, in accepting delivery of said certificate
from RJ. Campos & Co., Inc.
Let us now see the material facts on this point. Certificate No. 517 came
into the possession of the defendant Bank because R.J. Campos & Co.,
Inc. had opened an overdraft account with said Bank and to this effect it
had executed on April 16, 1946, a letter of hypothecation by the terms of
which R.J. Campos & Co., Inc. pledged to the said Bank "all Stocks,
Shares and Securities which I/we may hereafter come into their
possession on my/our account and whether originally deposited for safe
custody only or for any other purpose whatever or which may hereafter
be deposited by me/us in lieu of or in addition to the Stocks, Shares,
and Securities now deposited or for any other purpose whatsoever." On
March 13, 1937, plaintiff went to the office of the Bank to claim for her
certificate. In her interview with one Robert W. Taplin, the officer in
charge of the securities of that institution, she informed him that the
certificate belonged to her and she demanded that it be returned to her.
Taplin then replied that the Bank did not know anything about the
transaction had between her and that he could not do anything until the
case of the Bank with R.J. Campos & Co., Inc. had been terminated. It
further appears that when the certificate of stock was delivered by
plaintiff to R.J. Campos & Co., Inc., the manager thereof, Sebastian
Cosculluela, wrote in pencil on the right margin the name of Josefa T.
Santamaria, pursuant to the practice followed by said firm to write on
that part of the certificate the name of the owner for purposes of
identification. Upon the facts thus stated, the question that asserts itself
is: was the defendants Bank obligated to inquire who was the real owner
of the shares represented by the certificate of stock, and could it be
charged with negligence for having failed to do so?
It should be noted that the certificate of stock in question was issued in
the name of the brokerage firm-Woo, Uy-Tioco & Naftaly and that it was
duly indorsed in blank by said firm, and that said indorsement was
guaranteed by R.J. Campos & Co., Inc., which in turn indorsed it in
blank. This certificate is what it is known as street certificate. Upon its
face, the holder was entitled to demand its transfer into his name from
the issuing corporation. The Bank was not obligated to look beyond the
certificate to ascertain the ownership of the stock at the time it received
the same from R.J. Campos & Co., Inc., for it was given to the Bank
pursuant to their letter of hypothecation. Even if said certificate had
been in the name of the plaintiff but indorsed in blank, the Bank would
still have been justified in believing that R.J. Campos & Co., Inc. had
title thereto for the reason that it is a well-known practice that a
certificate of stock, 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 (Heyman vs. Hamilton National Bank, 266 S.W.
1043; Fletcher, Cyclopedia of Corporations, Vol. 12, pp. 521-524, 525527; McNeil vs. Tenth National Bank, 7 Am. Rep. 341).
The only evidence in the record to show that the certificate of stock in
question may not have belonged to R.J. Campos & Co., Inc. is the
testimony of the plaintiff to the effect that she had approached Robert
W. Taplin on March 13, 1937, and informed him that she was the true
owner of said certificate and demanded the return thereof, or its value,
but even assuming for the sake of argument that what plaintiff has
43
stated is true, such an incident would merely show that plaintiff has an
adverse claim to the ownership of said certificate of stock, but that
would not necessarily place the Bank in the position to inquire as to the
real basis of her claim, nor would it place the Bank in the obligation to
recognize her claim and return to her the certificate outright. A mere
claim and of ownership does not establish the fact of ownership. The
right of the plaintiff in such a case would be against the transferor. In
fact, this is the attitude plaintiff has adopted when she filed a charge for
estafa against Rafael J. Campos, which culminated in his prosecution
and conviction, and it is only when she found him to be insolvent that
she decided to go against the Bank. The fact that on the right margin of
the said certificate the name of the plaintiff appeared written, granting it
to be true, can not be considered sufficient reason to indicate that its
owner was the plaintiff considering that said certificate was indorsed in
blank by her brokers Woo, Uy-Tioco & Naftaly, was guaranteed by
indorsement in blank by R.J. Campos & Co., Inc., and was transferred in
due course by the latter to the Bank under their letter of hypothecation.
Said indicium could at best give the impression that the plaintiff was the
original holder of the certificate.
The Court has noticed that the defendant Bank was willing from the very
beginning to compromise this case by delivering to the plaintiff
certificate of stock No. 715 that was issued to said Bank by the issuer
corporation in lieu of the original as alleged and prayed for in its
amended answer to the complaint dated April 2, 1941. Considering that
in the light of the law and precedents applicable in this case, the most
that plaintiff could claim is the return to her of the said certificate of
stock (Howson vs. Mechanics Sav. Bank, 183 Atl., p. 697), the Court,
regardless of the conclusions arrived at as above stated, is inclined to
grant the formal tender made by the defendant to the plaintiff of said
certificate.
Wherefore, the decision of the lower court is hereby modified in the
sense of ordering the defendant to deliver to the plaintiff certificate of
stock No. 715, without pronouncement as to costs.
44
EN BANC
[G.R. No. L-4818. February 28, 1955.]
APOLINARIO G. DE LOS SANTOS and ISABELO
ASTRAQUILLO, Plaintiffs-Appellees, v. J. HOWARD MCGRATH
ATTORNEY GENERAL OF THE UNITED STATES, SUCCESSOR TO
THE PHILIPPINE ALIEN PROPERTY ADMINISTRATION OF THE
UNITED STATES, defendant and appellant. REPUBLIC OF THE
PHILIPPINES, Intervenor-Appellant.
Jose P. Laurel, M. Almario, Adolfo A. Scheerer, Antonio Quirino, and
J. C. Orendain, forAppellees.
Harold I. Baynton, Stanley Gilbert, Juan T. Santos, and Lino M.
Patajo, and Perkins, Ponce Enrile & Associates, for Appellant.
Solicitor General Pompeyo Diaz and Solicitor Pacifico P. de Castro
for intervenor and appellant.
SYLLABUS
45
DECISION
CONCEPCION, J.:
This action involves the title to 1,600,000 shares of stock of the Lepanto
Consolidated Mining Co., Inc., a corporation duly organized and existing
under the laws of the Philippines, hereinafter referred to, for the sake of
brevity, as the Lepanto. Originally, one-half of said shares of stock were
claimed by plaintiff, Apolinario de los Santos, and the other half, by his
co-plaintiff Isabelo Astraquillo. During the pendency of this case, the
latter has allegedly conveyed and assigned his interest in and to said half
claimed by him to the former. The shares of stock in question are covered
by several stock certificates issued in favor of Vicente Madrigal, who is
registered in the books of the Lepanto as owner of said stocks and whose
indorsement in blank appears on the back of said certificates, all of
which, except certificates No. 2279 marked Exhibit 2 covering
55,000 shares, are in plaintiffs possession. So was said Exhibit 2, up to
sometime in 1945 or 1946 when said possession was lost under the
conditions set forth in subsequent pages.
Briefly stated, plaintiffs contend that De los Santos bought 500,000
shares from Juan Campos, in Manila, early in December 1942; that he
bought 300,000 shares from Carl Hess, in the same city, several days
later; and that, before Christmas of 1942, be bought 800,000 shares
from Carl Hess, this time for the account and benefit of Astraquillo. By
virtue of vesting order P-12, dated February 18, 1945, title to the
1,600,000 shares of stock in dispute was, however, vested in the Alien
Property Custodian of the U. S. (hereinafter referred to as the Property
Custodian) as Japanese property. Hence, plaintiffs filed their respective
claims with the Property Custodian. In due course, the Vested Property
Claims Committee of the Philippine Alien Property Administration made
a "determination," dated March 9, 1948, allowing said claims, which
were considered and heard jointly as Claim No. 535, but, upon personal
review, the Philippine Alien Property Administrator (hereinafter referred
to as "Administrator"), in an opinion dated November 26, 1948, reversed
the determination made by said Committee and decreed that "title to the
shares in question shall remain in the name of the Philippine Alien
46
47
Mitsuis, from time to time, some more shares of stock, in small lots; that
Madrigal bought 200,000 additional shares of the Lepanto for the
Mitsuis; that, late in November or early in December, 1941, the stock
certificates of the aforementioned 2,100,000 shares were returned to the
Mitsuis, which had decided to stop buying, in view of the strained
international situation then prevailing; that, as branch manager of the
Mitsuis, he was the only official authorized to dispose of the shares in
question, none of which was alienated by him; and that he had the
aforementioned stock certificates in his possession continuously until
early in April 1943, when he delivered the same to his successor in
office, Kingy Miwa.
Apart from corroborating Kitajimas testimony relative to said delivery of
stock certificates in April 1943, Kingy Miwa testified that he kept the
latter in his possession, as branch manager of the Mitsuis; that said
shares of stock were never sold or otherwise disposed of by the Mitsuis;
that, late in September 1944, he bade his assistant, one Miyazima, to
transfer all important documents to their residence and headquarters, at
Taft Avenue, Manila, although he did not know personally whether or not
the transfer was actually carried out; and that in January 1945, when
the Japanese were about to evacuate Manila, he told his Assistant
Manager, one Shinoda, to burn all important papers before leaving the
city.
Miguel Simon, brother of Carl Hess, from whom plaintiffs claim to have
purchased 1,100,000 shares of stock, affirmed that Hess lived in front of
his (Simons) house; that they were close to each other and had long
been associated in business; that he was the office manager of "Hess
and Zeitling" before the war; that Hess used to tell him his daily
transactions during the occupation; that at that time, Hess did not have
in his possession any certificate of stock of the Lepanto in the name of
Vicente Madrigal; that neither did Hess, during that period, operate as a
broker, for, being American, he was under Japanese surveillance; and
that Hess had made, during the occupation, no transaction involving
mining shares, except when he sold 12,000 shares of the Benguet
Consolidated, inherited from his mother, sometime in 1943.
E. A. Perkins, a member of the law firm DeWitt, Perkins & Ponce Enrile
48
that, rejecting the theory of the defense, the court of origin was guided,
not by the conduct of the witnesses in the course of their testimony, but
by what His Honor, the trial Judge, regarded as the inherent weakness
thereof, in the evaluation of which said court does not enjoy the
advantage already adverted to.
Moreover, the decision appealed from appears to have assumed that
plaintiffs pretense must necessarily be relied upon, owing to the
infirmities said to have been found in the theory of the defense. This
view suffers from a fatal defect. It overlooks the fact that the burden of
proof is upon the plaintiffs, and that, accordingly, a decision in their
favor is not in order unless a preponderance of the evidence supports
their claim. To put it differently, the alleged improbabilities in the
testimony of the witnesses for the defense will not justify a judgment
against the latter, if the evidence for the plaintiffs is more improbable
than, or, at least, as improbable as, that of the defense. Such is the
situation obtaining in the case at bar. Indeed, upon careful examination
of the record before us, we find it impossible to share the conclusions,
made in the decision appealed from, relative to the alleged flaws in the
version of the defense.
Let us, first, examine the evidence for the plaintiffs, consisting, mainly,
of their own testimony and that of Primitivo Javier and Leonardo Recio.
According to De los Santos, on or about December 8, 1942, he
purchased from Juan Campos, in Manila, 500,000 shares of stock of the
Lepanto, for the aggregate sum of P30,000.00, or at P0.06 each share,
paid in cash, in exchange for the corresponding stock certificates, which
were delivered to him. Several days later, he bought from Carl Hess, in
Manila, 300,000 shares of the Lepanto, at the same rate. Soon after, he
visited his daughter in Baguio, where he, likewise, saw his co-plaintiff,
and former secretary, Isabelo Astraquillo. Before leaving Astraquillos
house, De los Santos happened to mention his aforesaid purchases of
Lepanto shares, at P0.06 each, whereupon, Astraquillo expressed the
wish to buy 800,000 shares at the same price, the amount of which he
delivered to De los Santos the next day. Upon his return to Manila, De
los Santos purchased from Hess said 800,000 shares, the certificates of
which were turned over by the former to Astraquillo, in Baguio, at about
49
50
51
Philippines, of the shares of stock in question and, thus, place the same
beyond the reach of the Mitsuis.
It has been intimated that Kitajima and Kingy may have testified as they
did, either to protect themselves, because they might have disposed of
the shares of stock in question for their personal benefit, or because
there had been undue influence or pressure from the authorities
presumably officers of the government of the United States. But these
are mere speculations, without sufficient actual basis. Besides, judicial
notice may be taken of the circumstance that, during the occupation,
even minor Japanese officials could easily make money, in the
Philippines, if they wanted to, without misappropriating Japanese
properties. Again, in December, 1942, the Japanese in the Philippines
appeared to have no doubts that, in effect, Japan had already won the
war. In short, Kitajima and Kingy must have thought that, sooner or
later, Japan would own the Lepanto and that, therefore, they would have
to account for the shares of stock under consideration. Consequently, it
is most unlikely that either would have misappropriated said shares of
stock as suggested by the plaintiffs.
The benefits which the Mitsuis and Japan may derive from a decision
against the plaintiffs inasmuch as the value of the shares of stock in
question would then be credited in payment of the reparations which
may be demanded by the Philippines and/or the United States has
been pointed out, in the dissenting opinion, as a possible motive for the
commission of perjury by Kitajima and Kingy. Besides being purely
conjectural in nature, this line of thought which not even the
plaintiffs have taken would have no leg to stand on, unless we assume
that the Mitsuis had sold or otherwise disposed of said stocks during the
year 1942, but before the alleged transactions between Campos and
Hess, on the one hand, and the plaintiffs on the other, in December of
that year. It is inconceivable, however, that the Mitsuis would part with
the stocks in question, precisely when Japan was at the crest of its
military and political victories. Indeed, even if its officers had already
foreseen, at that time, the eventual defeat of the axis powers and
everything then appeared to indicate the contrary the Mitsuis could
not have disposed of said stocks without thereby revealing their own lack
of faith in the ability of Japan to achieve final victory. Thus, the Mitsuis
52
would have caused a grave injury upon the Japanese propaganda and
thereby earned severe punishment from the Imperial Government.
Nothing, absolutely nothing, in the record, or in contemporary history,
warrants the belief that the Mitsuis, who were closely associated with
the Japanese Government, could be guilty of such folly.
Let us now turn our attention to the evidence for the defense, beginning
with the testimony of Victor E. Lednicky. It will be recalled that this
witness claimed to have gone to the premises of the Mitsuis, sometime in
February 1945, and to have seen many documents scattered about the
place, including two (2) Lepanto certificates of stock, one of which was in
the name of Vicente Madrigal, whose blank indorsement appeared
thereon. Thus, the defense sought to prove that the certificates of the
shares of stock involved in this case have probably been looted. The
lower court found Lednickys story inherently improbable and then
concluded that the theory of the looting must, consequently, be "ruled
out." To our mind, however, the testimony of Lednicky is not inherently
improbable. Besides, it is a matter of common knowledge, of which
judicial notice may be taken, that many offices and dwellings were looted
during the liberation of Manila. The possibility that possession of the
stock certificates in question may have been secured by looting should
not be "ruled out," therefore, irrespective of the credence and weight
given to the testimony of Lednicky. Actually, said certificates are included
in the list of stocks certificates of the Lepanto which, soon after
liberation, were reported and considered looted from the Mitsuis, and,
accordingly, "blocked" or "frozen" by the authorities. Irrespective of the
foregoing, De los Santos could not have obtained those certificates from
Campos and Hess in December 1942, inasmuch as, from December
1941 to April 1943, Kitajima had been continuously in possession of
said documents, none of which had been held by Hess during the
occupation.
The lower court considered against the defense the circumstance that
Lednicky, Simon and Perkins had not testified before the Vested Property
Claims Committee. There is no evidence, however, that any of them knew
of the proceedings before said committee. Furthermore, none of them
has any personal interest in the outcome of this action. Consequently,
they have no possible motive to distort the truth, unlike De los Santos,
who, as the present claimant of all the shares of stock in dispute, will be
directly affected by the outcome of the case at bar. His testimony,
therefore, cannot be more weighty than that of the aforementioned
witnesses for the defense.
The decision appealed from criticizes the testimony of Perkins upon the
following grounds:chanrob1es virtual 1aw library
(1) Having taken no part in the alleged looting of Exhibit 2, Recio had
nothing to fear in connection therewith and, so, he could not have left
the office of Mr. DeWitt, while the latter was talking over the telephone
with a representative of the Alien Property Custodian;
(2) Inasmuch as DeWitt had stated that Exhibit 2 was included in the
list of looted stock certificates, Perkins should have known that, as
holder of the certificate, Recio is presumed to be the one who stole the
same. Why then plaintiffs inquire did Perkins fail to prevent Recio
from leaving said office?
As regards the first observation, suffice it to say that, as bearer of the
Exhibit 2, Recio who, according to the lower court, is an intelligent
man must have realized the danger, probably unforeseen by him, of
being considered a privy to the looting of said stock certificate, of which
he might have been unaware before the conference with Mr. DeWitt.
Hence, Recios fright and virtual flight. Verily, the testimony of Perkins
on this point is borne out by the undisputed fact that Exhibit 2 was left
by Recio in the hands of DeWitt, and that neither Astraquillo, nor his
alleged successor in interest, De los Santos, has ever demanded from
DeWitt the return of said certificate, or even recriminated Recio for
having voluntarily parted with its possession, as he would have us
believe, without authority therefor, as a broker or agent who was
supposed merely to find a buyer.
As to the second observation, Perkins knew that Recio was acting solely
as a broker or agent. As such, he was not the real holder of Exhibit 2,
and, consequently, the presumption adverted to did not apply to him.
Even if it did, however, what could Perkins have done? Use force or
violence upon the person of Recio, or ask a policeman to detain him?
53
Neither step, however, could have been taken without some risks. To
begin with, Perkins could not have properly taken the law in his own
hands. Had he done so, Recio could have legally used force against force.
Moreover, said presumption is rebuttable and would have easily been
offset by the undeniable fact that Recio had acted merely in a
representative capacity. Again, why should Perkins take the initiative in
the matter? Was it not being handled by his associate in the law firm,
Mr. DeWitt, one of the most able members of the Philippine Bar? It may
not be amiss to add that the record before us discloses absolutely
nothing that may cast even a shadow of doubt upon the honesty of Mr.
Perkins.
The language of the lower court in commenting on the testimony of Miwa
was:chanrob1es virtual 1aw library
. . . In general, the testimony of Miwa is unreliable. His behaviour in
Court in denying first and then in accepting later his own signature
throws him to a position where the Court must look upon him with
suspicion and distrust. His prevarication before the Court as to the
genuineness of his own signature was probably due to the conscience of
a man who came to Court with a mental reservation, but who may have
been compelled under the circumstances to play the role of a willing
tool." (p. 54, R. A.)
The following portion of Miwas testimony illustrates the point referred to
in the decision appealed from:jgc:chanrobles.com.ph
"ATTY. QUIRINO:chanrob1es virtual 1aw library
Q. Will you please go over this paper which for purposes of identification
we request that it be marked as Exhibit M for the plaintiffs and which
was marked as Exhibit 6-b before the Vested Property Claims
Committee, and tell us if you know that document? A. No. I do not
remember this paper.
Q. Mr. Miwa, at the bottom of this certificate or Exhibit M, which was
Exhibit 6-b in the Committee and submitted by the Alien Property
Administration, there is a typewritten name, Kingy Miwa, and above it is
a signature. Will you kindly tell the Court if that is your signature or
not? Please look over it again. A. No. It is not mine.
Q. Please examine it carefully and tell the Court afterwards if you
recognize that signature. Examine it carefully. A. It looks very similar
to my signature.
Q. But would you want or are you willing to go on record and say that it
is not your signature? A. I can not say. I dont exactly remember that I
signed this, but it looks very similar to my signature.
Q. You will not testify under oath that this is your signature? A. Yes,
sir.
Q. What do you mean to say by yes, sir? Do you swear that this is your
signature or not your signature? A. I think this is my signature.
Q. So you are willing to go on record now that that signature appearing
in Exhibit M is your signature? A. Yes, I think so." (pp. 125-126, t. s.
n.)
We do not agree with its appraisal by the lower court. It is clear that, as
he did not remember the execution of Exhibit M several years before the
hearing of this case, Miwa had doubts about the genuineness of the
signature thereon, but the appearance thereof, similar or identical to
that of his own signature, prevented him from denying its authenticity.
This does not indicate lack of veracity on his part. At any rate, plaintiffs
claim to have bought the shares of stock in question in December, 1942,
or during the management of Kitajima, who held the corresponding
stock certificates continuously from December, 1941, to April, 1943,
when Miwa substituted him, so that neither Campos nor Hess could
have delivered those certificates to De los Santos in December 1942.
Apart from this, if there are flaws in the proof for the defense, those of
the evidence for the plaintiffs are much bigger and more substantial and
vital. Consequently, we hold that plaintiffs have not established their
pretense by a preponderance of the evidence.
Even, however, if Juan Campos and Carl Hess had sold the shares of
54
Campos and Carl Hess in their favor is "not valid, except as between"
themselves. It does not bind either Madrigal or the Mitsuis, who are not
parties to said alleged transaction. What is more, the same is "not valid,"
or, in the words of the Supreme Court of Wisconsin (Re Murphy, 51
Wisc. 519, 8 N. W. 419) which were quoted approval in Uson v.
Diosomito (61 Phil., 535) "absolutely void" and, hence, as good as
non-existent, insofar as Madrigal and the Mitsuis are concerned. For
this reason, although a stock certificate is sometimes regarded as quasinegotiable, in the sense that it may be transferred by endorsement,
coupled with delivery, it is well settled that the instrument is nonnegotiable, because the holder thereof takes it without prejudice to such
rights or defenses as the registered owner or creditor may have under
the law, except insofar as such rights or defenses are subject to the
limitations imposed by the principles governing estoppel.
"Certificates of stock are not negotiable instruments (post, Par. 102),
consequently, a transferee under a forged assignment acquires no title
which can be asserted against the true owner, unless his own negligence
has been such as to create an estoppel against him (Clarke on
Corporations, Sec. Ed. p. 415). If the owner of the certificate has
endorsed it in blank, and it is stolen from him, no title is acquired by on
innocent purchaser for value (East Birmingham Land Co. v. Dennis, 85
Ala. 565, 2 L.R.A. 836; Sherwood v. Mining Co., 50 Calif. 412). As was
said by the Supreme Court of the United States in a leading case
(Western Union Telegraph Co. v. Davenfort, 97 U. S. 369; 24 L. Ed. 1047)
Neither the absence of blame on the part of the officers of the company
in allowing an unauthorized transfer of stock, nor the good faith of the
purchaser of stolen property, will avail as an answer to the demand of
the true owner. The great principle that no one can be deprived of his
property without his assent, except by processes of the law, requires, in
the case mentioned, that the property wrongfully transferred or stolen
should be restored to its rightful owner." (The Philippine Law of Stock
Corporations by Fisher, p. 132.) (Italics ours.) .
In the language of Fletchers Cyclopedia Corporations (Vol. 12, pp. 521534):jgc:chanrobles.com.ph
55
"A reason often given for the rule is that it is a case for the application of
the maxim that where one of two innocent parties must suffer by reason
of a wrongful or unauthorized act, the loss must fell 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 a
proximate cause of the purchase or advancement of money by the holder
of the property, and must enter into the transaction itself; the
negligence must be in or immediately connected with the transfer itself.
Furthermore, to establish this estoppel it must appear that the true
owner had conferred upon the person who has diverted the security the
indicia of ownership, or an apparent title or authority to transfer the
title. So the owner is not guilty of negligence in merely intrusting
another with the possession of his certificate of stock, if he does not, by
assignment or otherwise, clothe him with the apparent title. Nor is he
deprived of his title or his remedy against the corporation because he
intrusts a third person with the key of a box in which the certificate are
kept, where the latter takes them from the box and by forging the
owners name to a power of attorney procures their transfer on the
corporate books. Nor is the mere indorsement of an assignment and
power of attorney in blank on a certificate of stock, which is afterwards
lost or stolen, such negligence as will estop the owner from asserting his
title as against a bona fide purchaser from the finder or thief, or from
holding the corporation liable for allowing a transfer on its books, where
the loss or theft of the certificate was not due to any negligence on the
part of the owner, although there is some dangerous and wholly
unjustifiable dictum to the contrary. So it has been held that the fact
that stock pledged to a bank is indorsed in blank by the owner does not
estop him from asserting title thereto as against a bona fide purchaser
for value who derives his title from one who stole the certificate from the
pledges. And this has also been held to be true though the thief was on
officer of the pledges, since his act in wrongfully appropriating the
certificate cannot be regarded as a misappropriation by the bank to
whose custody the certificate was intrusted by the owner, even though
the bank may be liable to the pledgor. . . . A person is not guilty of
negligence in leaving a certificate of stock indorsed in blank in a safe
deposit box used by himself and another jointly, so as to be estopped
from asserting his title after the certificate has been stolen by the other,
and sold or pledged to a bona fide purchaser or pledgee. Nor is he
negligent in putting a certificate so indorsed in a place to which an
employee had access, where he has no reason to doubt the latters
honesty, . . ." (Italics ours.)
In the leading case of Knox v. Eden Muscee American Co. (42 N. E. 988,
992-993), the rule has been forcefully stated as
follows:jgc:chanrobles.com.ph
"The courts have been frequently importuned to extend the qualities of
negotiability of stock certificates beyond the limits mentioned, and clothe
them with the same character of complete negotiability as attaches to
commercial paper, so as to make a transfer to a purchaser in good faith
for value equivalent to actual title, although there was no agency in the
transferror, and the certificate had been lost without the fault of the true
owner, or had been obtained by theft or robbery. But the courts have
refused to accede to this view, and we have found no case entitled to be
regarded as authority which denies to the owner of a stock certificate
which has been lost without his negligence, or stolen, the right to
reclaim it from the hands of any person in whose possession it
subsequently comes, although the holder may have taken it in good faith
and for value. The precise question has not often been presented to the
courts, for the reason, probably, that they have with greet uniformity
held that stock certificates were not negotiable instruments in the broad
meaning of that phrase; but whenever the question has arisen it has
been held that the title of the the owner of a lost or stolen certificate may
be asserted against any one subsequently obtaining its possession
although the holder may be a bona fide purchaser. Anderson v. Nicholas,
28 N. Y. 600; Power Co. v. Robinson, 52 Fed. 520; Biddle v. Bayard, 13
56
Pa. St. 150; Barstow v. Mining Co., 64 Cal. 388, 1 Pac. 349. See Shaw v.
Railroad Co., 101 U. S. 557. . . It is plain, we think, that the argument in
support of the judgment in this case, based on the complete negotiability
of stock certificates, is not supported by, but is contrary to, the
decisions. If public policy requires that a further advance should be
made in more completely assimilating them to commercial paper in the
qualities of negotiability, the legislature, and not the courts, should so
declare. Under the law as it has hitherto prevailed there does not seem
to have been any serious hindrance in dealing with property of this
character. It may, perhaps, be doubted, taking into consideration the
interests of investors as well as dealers, whether it would be wise to
remove the protection which the true owner of a stock certificate now
has against accident, theft, or robbery. The system of registry of
negotiable bonds, which prevails to a considerable extent, authorized by
statutes of some of the states and of the United States, seems to indicate
a tendency to restrict, rather than to extend, the range of negotiable
instruments." (Italics ours.)
The status of quasi-negotiability generally accorded to, and at present
enjoyed by, certificates of stock, under the Philippine law, is in itself a
recognition of the fact that the certificates are non-negotiable. Instead of
sustaining appellees claim, section 5 of the Uniform Stock Transfer Act,
which "gives full negotiability to certificates of stock," refutes said claim
and confirms the non-negotiable character of stock certificates in the
absence of said Uniform Act, for, obviously, the same could not have
given, negotiability to an instrument already possessing this attribute
prior thereto. Again, apart from being distinct from the general
Corporation Law, the aforementioned Uniform Act is not in force in the
Philippines. In this connection, it should be noted that this special piece
of legislation was adopted in some states of the union as early as the
year 1910. The failure of the Philippine government to incorporate its
provisions in our statute books, for a period of almost 45 years, is, to our
mind, clear proof of the unwillingness of our legislative department to
change the policy set forth in section 35 of Act No. 1459. Needless to say,
this fact negates our authority which is limited to the interpretation of
the law, and its application, with all its imperfections to abandon
what the dissenting opinion characterizes as the "civil law standpoint,"
and substitute, in lieu thereof, the commercial viewpoint, by applying
said section 6 of the Uniform Stock Transfer Act, although not a part of
the law of the land. Indeed, even in matters generally considered as
falling within "commercial territory", the Roman Law concept has not
given way in the Philippines to the Common Law approach, except when
there is explicit statutory provision to the contrary.
In the case at bar, neither Madrigal nor the Mitsuis had alienated the
shares of stock in question. It is not even claimed that either had,
through negligence, given occasion for an improper or irregular
disposition of the corresponding stock certificates. Plaintiffs merely
argue without any evidence whatsoever thereon that Kitajima might
have, or must have, assigned the certificates on or before December
1942, although, as above stated, this is, not only, improbable, under the
conditions, then obtaining, but, also, impossible, considering that, in
April 1943, Kitajima delivered the instruments to Miwa, who kept them
in its possession until 1945. At any rate, such assignment by Miwa
granting for the sake of argument the accuracy of the surmise of
plaintiffs herein was unauthorized by the Mitsuis, who, in the light of
the precedents cited above, are not chargeable with negligence. In other
words, assuming that Kitajima had been guilty of embezzlement, by
negotiating the stock certificates in question for his personal benefit, as
claimed by the plaintiffs, the title of his assignees and successors in
interest would still be subject to the rights of the registered owner,
namely, Madrigal, and, consequently, of the party for whose benefit and
account the latter held the corresponding shares of stock, that is to say,
the Mitsuis.
At any rate, at the time of the alleged sales in their favor, plaintiffs 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 the supposed
vendors. Indeed, the certificates of stock in question were in the name of
Madrigal. Obviously, therefore, the alleged sellers (Campos and Hess)
were not registered owners of the corresponding shares of stock. Being
presumed to know the law particularly the provisions of section 35 of
Act No. 1459 and, also, as experienced traders in shares of stock,
plaintiffs must have, accordingly, been conscious of the consequent
infirmities in the title of the supposed vendors, or of the handicaps
thereof. Moreover, the aforementioned sales were admittedly hostile to
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the Japanese, who had prohibited it and plaintiffs had actual knowledge
of these facts and of the risks attendant to the alleged transaction. In
other words, plaintiffs advisely assumed those risks and, hence, they
can not validly claim, against the registered stockholder, the status of
purchasers in good faith.
The lower court held, and plaintiffs maintain that, not being the
registered owners of the shares of stock in question, the Mitsuis can not
assert a better right than said plaintiffs. This pretense is untenable.
Inasmuch as Madrigal, the registered owner of said shares of stock, has
always acknowledged that he held the same merely as an agent of, or
trustee for, the Mitsuis and this is not denied it follows that the
latter are entitled to invoke such rights as Madrigal had as registered
stockholder. Upon the other hand, even the alleged sale by Juan Campos
and Carl Hess to plaintiffs herein is contested by the defense and, to our
mind, has not been established by a preponderance of the evidence.
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