Hybrid Securities

Government v. Phil Sugar Estates

Facts:
 An action of quo warranto was brought by the Attorney General in behalf of the
Republic of the Philippines against the Philippine Sugar for its dissolution on the
ground that the latter had misused its corporate authority and had engaged in the
business of buying and selling real estate which was not part of its franchise
 Philippine Sugar entered into a contract with the Tayabas Land Company for the
purpose of engaging in the business of purchasing lands along the right of way of
the Manila Railroad Company through the province of Tayabas with a view of
reselling the same to the Manila Railroad Company at a profit

Issue: Whether the Philippine Sugar should be dissolved—Yes

Held:
 The contract in this is case was not one of partnership nor a loan, but was a
contract of cuentas en participacion
 The court found that the defendant had interested itself in the Tayabas Land
Company to such an extent that it was effected in carrying on the business of
buying and selling land
 It was difficult to construe the contract as a loan because of the following
reasons:
o There was no fixed date for the return of the money
o There was no fixed return to be made for the use of the money
o The return was dependent solely upon the profits of the business
o It is possible for the defendant to receive a return from the business even
after all of the “capital” has been returned
o The defendant was not to receive anything for the use of said sum until
after the capital has been fully repaid, which is not consistent with the
idea of a loan

Quasi Reorganization

Section 38. Power to increase or decrease capital stock; incur, create or increase
bonded indebtedness. - No corporation shall increase or decrease its capital stock or
incur, create or increase any bonded indebtedness unless approved by a majority vote
of the board of directors and, at a stockholder's meeting duly called for the purpose, two-
thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the
capital stock, or the incurring, creating or increasing of any bonded indebtedness.
Written notice of the proposed increase or diminution of the capital stock or of the
incurring, creating, or increasing of any bonded indebtedness and of the time and place
of the stockholder's meeting at which the proposed increase or diminution of the capital
stock or the incurring or increasing of any bonded indebtedness is to be considered,
must be addressed to each stockholder at his place of residence as shown on the books
of the corporation and deposited to the addressee in the post office with postage
prepaid, or served personally.

A certificate in duplicate must be signed by a majority of the directors of the corporation

and countersigned by the chairman and the secretary of the stockholders' meeting,
setting forth:
(1) That the requirements of this section have been complied with;

(2) The amount of the increase or diminution of the capital stock;

(3) If an increase of the capital stock, the amount of capital stock or number of shares of
no-par stock thereof actually subscribed, the names, nationalities and residences of the
persons subscribing, the amount of capital stock or number of no-par stock subscribed
by each, and the amount paid by each on his subscription in cash or property, or the
amount of capital stock or number of shares of no-par stock allotted to each stock-holder
if such increase is for the purpose of making effective stock dividend therefor authorized;

(4) Any bonded indebtedness to be incurred, created or increased;

(5) The actual indebtedness of the corporation on the day of the meeting;

(6) The amount of stock represented at the meeting; and

(7) The vote authorizing the increase or diminution of the capital stock, or the incurring,
creating or increasing of any bonded indebtedness.

Any increase or decrease in the capital stock or the incurring, creating or increasing of
any bonded indebtedness shall require prior approval of the Securities and Exchange
Commission.

One of the duplicate certificates shall be kept on file in the office of the corporation and
the other shall be filed with the Securities and Exchange Commission and attached to
the original articles of incorporation. From and after approval by the Securities and
Exchange Commission and the issuance by the Commission of its certificate of filing, the
capital stock shall stand increased or decreased and the incurring, creating or increasing
of any bonded indebtedness authorized, as the certificate of filing may declare:
Provided, That the Securities and Exchange Commission shall not accept for filing any
certificate of increase of capital stock unless accompanied by the sworn statement of the
treasurer of the corporation lawfully holding office at the time of the filing of the
certificate, showing that at least twenty-five (25%) percent of such increased capital
stock has been subscribed and that at least twenty-five (25%) percent of the amount
subscribed has been paid either in actual cash to the corporation or that there has been
transferred to the corporation property the valuation of which is equal to twenty-five
(25%) percent of the subscription: Provided, further, That no decrease of the capital
stock shall be approved by the Commission if its effect shall prejudice the rights of
corporate creditors.

Non-stock corporations may incur or create bonded indebtedness, or increase the same,
with the approval by a majority vote of the board of trustees and of at least two-thirds
(2/3) of the members in a meeting duly called for the purpose.

Bonds issued by a corporation shall be registered with the Securities and Exchange
Commission, which shall have the authority to determine the sufficiency of the terms
thereof. (17a)

Subscription Agreements
Section 60. Subscription contract. - Any contract for the acquisition of unissued stock in
an existing corporation or a corporation still to be formed shall be deemed a subscription
within the meaning of this Title, notwithstanding the fact that the parties refer to it as a
purchase or some other contract. (n)

Section 72. Rights of unpaid shares. - Holders of subscribed shares not fully paid which
are not delinquent shall have all the rights of a stockholder. (n)

Bayla v. Silang Traffic Co., Inc.

Facts:

 Petitioner instituted this action against respondent Silang Traffic Co., Inc to
recover certain sums of money which they had paid severally to the corporation
on account of shares of stock they individually agreed to take and pay for under
specified terms and conditions
 These terms and conditions were embodied in the “Agreement for Installment
Sale of Shares in the Silang Traffic Company, Inc.” The agreement consisted of
the following:
o Naval as the subscriber and Silang, a corporation duly organized, as the
seller
o Naval promises to pay personally or by his duly authorized agent to the
seller at the Municipality of Silang the sum of P1,500 as purchase price
for 15 shares of capital stock
o The purchase price is to be paid 5% upon the execution of the contract
and the remainder in installments of 5%, payable within the firs month of
each and every quarter thereafter, commencing on the 1st day of July
1935 with interest on deferred payments at the rate of 6% per annum until
paid
o If Naval fails to pay any of said installment when due, or to perform any of
the aforesaid conditions, or if said shares shall be attached or levied upon
by creditors of the said subscriber, then the said shares are to revert to
the seller and the payments already made are to be forfeited in favor of
said seller, and the latter may then take possession without resorting to
court proceedings
o Silang Traffic Co. upon receiving full payment, agrees to execute and
deliver to said Naval, or to his heirs and assigns, the certificate of title of
said shares, free and clear of all encumbrances
 In August 1, 1937, there was a BOD resolution rescinding the agreement
 Petitioners filed an action in the CFI against Silang Traffic to recover certain
sums of money
 The respondent corporation set up the following defenses:
o That the resolution is not applicable to the petitioners Bayla, Naval and
Toledo because on the date thereof, their subscribed shares of stock had
already automatically reverted to the defendant and the installments paid
by them were already forfeited
o The resolution was revoked and cancelled by a subsequent resolution of
the BOD of the defendant corporation

Issue: Whether the contract is a subscription contract—No

Held:

 Whether a particular contract is a subscription or sale of stock is a matter

of construction and depends upon the terms and conditions of the parties
 A subscription to stock in an existing corporation is, as between the
subscriber and the corporation
 In the case at bar, it seems from the terms of the contracts in question that they
are contracts of sale and NOT of subscription
o The lower courts erred in overlooking the distinction between subscription
and purchase
 A subscription is a mutual agreement of the subscribers to take and pay for
the stock of a corporation
 While a purchase is an independent agreement between the individual and
the corporation to buy shares of stock from it at stipulated price
 In some particulars the rules governing subscriptions and sales of shares
are different
 In the case at bar, given that this was a sale, the rescission was valid

Consideration

Section 62. Consideration for stocks. - Stocks shall not be issued for a consideration
less than the par or issued price thereof. Consideration for the issuance of stock may be
any or a combination of any two or more of the following:

1. Actual cash paid to the corporation;

2. Property, tangible or intangible, actually received by the corporation and necessary or

convenient for its use and lawful purposes at a fair valuation equal to the par or issued
value of the stock issued;

3. Labor performed for or services actually rendered to the corporation;
 4. Previously

incurred indebtedness of the corporation;
 5. Amounts transferred from unrestricted
retained earnings to stated capital; and
 6. Outstanding shares exchanged for stocks in
the event of reclassification or conversion.

Where the consideration is other than actual cash, or consists of intangible property
such as patents of copyrights, the valuation thereof shall initially be determined by the
incorporators or the board of directors, subject to approval by the Securities and
Exchange Commission.

Shares of stock shall not be issued in exchange for promissory notes or future
service.
 The same considerations provided for in this section, insofar as they may be
applicable, may be used for the issuance of bonds by the corporation.

The issued price of no-par value shares may be fixed in the articles of incorporation or
by the board of directors pursuant to authority conferred upon it by the articles of
incorporation or the by-laws, or in the absence thereof, by the stockholders representing
at least a majority of the outstanding capital stock at a meeting duly called for the
purpose. (5 and 16)
Watered Stocks

Section 65. Liability of directors for watered stocks. - Any director or officer of a
corporation consenting to the issuance of stocks for a consideration less than its par or
issued value or for a consideration in any form other than cash, valued in excess of its
fair value, or who, having knowledge thereof, does not forthwith express his objection in
writing and file the same with the corporate secretary, shall be solidarily, liable with the
stockholder concerned to the corporation and its creditors for the difference between the
fair value received at the time of issuance of the stock and the par or issued value of the
same. (n)

Unpaid Subscriptions

Section 66. Interest on unpaid subscriptions. - Subscribers for stock shall pay to the
corporation interest on all unpaid subscriptions from the date of subscription, if so
required by, and at the rate of interest fixed in the by-laws. If no rate of interest is fixed in
the by-laws, such rate shall be deemed to be the legal rate. (37)

Section 67. Payment of balance of subscription. - Subject to the provisions of the

contract of subscription, the board of directors of any stock corporation may at any time
declare due and payable to the corporation unpaid subscriptions to the capital stock and
may collect the same or such percentage thereof, in either case with accrued interest, if
any, as it may deem necessary.

Payment of any unpaid subscription or any percentage thereof, together with the interest
accrued, if any, shall be made on the date specified in the contract of subscription or on
the date stated in the call made by the board. Failure to pay on such date shall render
the entire balance due and payable and shall make the stockholder liable for interest at
the legal rate on such balance, unless a different rate of interest is provided in the by-
laws, computed from such date until full payment. If within thirty (30) days from the said
date no payment is made, all stocks covered by said subscription shall thereupon
become delinquent and shall be subject to sale as hereinafter provided, unless the board
of directors orders otherwise. (38)

Lingayen Gulf Electric Power v. Baltazar

Facts:

 The Company’s president subscribed to shares and paid partially

 The Board mad a call for payment through a resolution with the first 50% payable
within 60 days beginning August 1, 1946 and the remaining 50% payable within
60 days beginning October 1, 1946
 The resolution provided that all unpaid subscriptions after the due dates would be
subject to a 12% interest per annum, and if after February 1947 they remain
unpaid they would revert to the corporation
 This resolution was set aside about a year later by Resolution No. 17 which
stated that the company was in no position to absorb unpaid shares
 Resolution No. 4 was passed a year later directing for the reevaluation of shares
 The president, however, refused to pay, prompting the corporation to sue
 The defense was that the call was invalid for lack of publication, and that the
defendant was released from liability by virtue of Resolution No. 17 and 4
Issue: Whether the respondent is liable for unpaid subscription despite publication – No

Held:

 Notice of any call for the payment of unpaid subscription should be made
not only personally but also by publication once a week, for 4 consecutive
weeks in some newspapers in accordance with Sec. 40 of the Corporation
Code
 Section 40 is mandatory as regards publication, using the word “must”
 The claim that Baltazar was released from liability of paying under Resolution No.
17 an 4 does not hold water because the release attempted in the said
Resolutions was not valid for lack of a unanimous vote
 The court found that at least 7 stockholders were absent from the meeting when
said resolution was approved
 In conclusion we hold that under the Corporation Law, notice of call for
payment for unpaid subscribes stock must be published, except when the
corporation is insolvent, in which case, payment is immediately
demandable
 release from payment must be made by all the stockholders

Tan v. Sycip
Facts:

 Grace Christian High School (GCHS) is a non-stock, non-profit educational

corporation with 15 regular members, who also constitute a board of trustees
 During the annual members’ meeting held on April 6, 1998, there were only 11
living member-trustees, as 4 had already died
 Out of the eleven, only 7 members attended the meeting through their respective
proxies
 The meeting was convened and chaired by Atty. Padilla, Jr. over the objection of
Atty. Antonio Pacis, who argued that there was no quorum
 In the meeting, petitioner Tanchi, Ngo, Khoo and Tan were voted to replace the 4
deceased member trustees

Issue: Whether there was a quorum during the meeting—Yes

Held:

 Under Sec. 52 of the Corporation Code, the majority of the members

representing the actual member of the voting rights, not the number or numerical
constant that may be originally be specified in the articles of incorporation,
constitutes the quorum
 Under the By-Laws of GCHS, membership in the corporation shall, among
others, be terminated by the death of the member
 The dead members who are dropped from the membership roster in the manner
and for the cause provided for in the By-Laws of GCHS are not to be counted in
determining the requisite vote in corporate matters or the requisite quorum for the
annual members’ meeting
 With the 11 remaining members of the quorum in the present case should be 6
  Therefore, there being a quorum, the annual members meeting, conducted with
the 6 members present, was valid
 HOWEVER, the election of the 4 trustees cannot be legally upheld for the
obvious reason that it was held in an annual meeting of the members (where a
majority of the Board were present), not of the board of trustees
 In the case at bar, the GCHS by-laws provide that vacancies in the board must
be filled up by the remaining trustees who must sit as a board in order to validly
elect the new ones
 Membership in and all rights arising from a non-stock corporation are
personal and non-transferable, unless the AoI or the by-laws of the
corporation provide otherwise
 The determination of whether dead members are entitled to exercise their
voting rights (through their executor or administrator) depends on the AoI
or the by-laws

Section 68. Delinquency sale. - The board of directors may, by resolution, order the sale
of delinquent stock and shall specifically state the amount due on each subscription plus
all accrued interest, and the date, time and place of the sale which shall not be less than
thirty (30) days nor more than sixty (60) days from the date the stocks become
delinquent.

Notice of said sale, with a copy of the resolution, shall be sent to every delinquent
stockholder either personally or by registered mail. The same shall furthermore be
published once a week for two (2) consecutive weeks in a newspaper of general
circulation in the province or city where the principal office of the corporation is located.

Unless the delinquent stockholder pays to the corporation, on or before the date
specified for the sale of the delinquent stock, the balance due on his subscription, plus
accrued interest, costs of advertisement and expenses of sale, or unless the board of
directors otherwise orders, said delinquent stock shall be sold at public auction to such
bidder who shall offer to pay the full amount of the balance on the subscription together
with accrued interest, costs of advertisement and expenses of sale, for the smallest
number of shares or fraction of a share. The stock so purchased shall be transferred to
such purchaser in the books of the corporation and a certificate for such stock shall be
issued in his favor. The remaining shares, if any, shall be credited in favor of the
delinquent stockholder who shall likewise be entitled to the issuance of a certificate of
stock covering such shares.

Should there be no bidder at the public auction who offers to pay the full amount of the
balance on the subscription together with accrued interest, costs of advertisement and
expenses of sale, for the smallest number of shares or fraction of a share, the
corporation may, subject to the provisions of this Code, bid for the same, and the total
amount due shall be credited as paid in full in the books of the corporation. Title to all the
shares of stock covered by the subscription shall be vested in the corporation as
treasury shares and may be disposed of by said corporation in accordance with the
provisions of this Code. (39a-46a)

Section 69. When sale may be questioned. - No action to recover delinquent stock sold
can be sustained upon the ground of irregularity or defect in the notice of sale, or in the
sale itself of the delinquent stock, unless the party seeking to maintain such action first
pays or tenders to the party holding the stock the sum for which the same was sold, with
interest from the date of sale at the legal rate; and no such action shall be maintained
unless it is commenced by the filing of a complaint within six (6) months from the date of
sale. (47a)

Section 70. Court action to recover unpaid subscription. - Nothing in this Code shall
prevent the corporation from collecting by action in a court of proper jurisdiction the
amount due on any unpaid subscription, with accrued interest, costs and expenses.
(49a)

Section 71. Effect of delinquency. - No delinquent stock shall be voted for or be entitled
to vote or to representation at any stockholder's meeting, nor shall the holder thereof be
entitled to any of the rights of a stockholder except the right to dividends in accordance
with the provisions of this Code, until and unless he pays the amount due on his
subscription with accrued interest, and the costs and expenses of advertisement, if any.
(50a)

Certificate of Stock
Section 63. Certificate of stock and transfer of shares. - The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president or
vice president, countersigned by the secretary or assistant secretary, and sealed with
the seal of the corporation shall be issued in accordance with the by-laws. Shares of
stock so issued are personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation
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.

No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation. (35)

Tan v. SEC
Facts:
Alfonso Tan was the president of Visayan Educational Supply Corporation when it was
incorporated. Initially, 400 shares of stock was in his name, represented by Stock
Certificate Number 2. But when two other incorporators, Young and Ong assigned to
the corporation their shares, Alfonso sold 50 shares to his brother Angelo, and another
incorporator, Alfredo Uy, sold 50 shares to Teodora S. Tan. The above sale was
necessary in order to complete the membership requirement of the Board of Directors.
Because of the mentioned transactions, Stock Certificate Number 2 was cancelled,
and the corresponding stock certificates 6 and 8 were issued, with certificate 6
representing 50 shares sold to Angelo, and certificate 8 representing the 350 shares for
the petitioner Alfonso Tan.

A certain Mr. Buzon, was requested by Mr. Tan Su Ching to ask that Alfonso Tan
endorse the cancelled Stock Certificate Number 2. However, Alfonso did not sign
Stock Certificate Number 2 and only returned Stock Certificate Number 8.
Later on, Alfonso Tan withdrew from the corporation because he was dislodged by
respondent Tan Su Ching as president. Part of the condition of his withdrawal was that
he be paid with stocks-in- trade equivalent to 33% in lieu of stock value of his shares in
the amount of P35,000.00. Due to the withdrawal, the cancellation of Stock Certificate 2
and 8 was effected and recorded in the stock and transfer book. Alfonso then filed a
case with Cebu SEC, questioning the cancellation of his aforesaid Stock Certificates 2
and 8.

Petitioner argues that he was deprived of his shares despite the non-endorsement or
surrender of Stock Certificates 2 and 8 which is contrary to Section 63 of the Corporation
Code which requires:

“...No transfer, however, shall be valid, except as between the parties, until the transfer
is recorded to the books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, and the number of the certificates and the number
of shares transferred.”

Issue: Whether or not the cancellation of Stock Certificate 2 and the subsequent
issuance of Stock Certificate Number 8 was null and void because of the non-
endorsement of Stock Certificate Number 2 by Alfonso Tan.—No

Held:
The cancellation and the transfers of stock were valid.
There was a delivery of Stock Certificate No. 2 made by Alfonso Tan to the corporation
before it was replaced with Stock Certificate No. 6 for 50 shares to Angel Tan and Stock
Certificate No. 8 for 350 shares to the Alfonso.

From the facts deduced in the case, there was already delivery of the unendorsed Stock
Certificate No. 2, which made the issuance of Stock Certificate Nos. 6 and 8 valid. All the
acts required for the transferee to exercise its rights over the acquired stocks were
attendant and even the corporation was protected from other parties, considering that
the said transfer was earlier recorded or registered in the corporate stock and transfer
book.

Furthermore, it is necessary to delineate the function of the stock itself form the actual
delivery or endorsement of the certificate of stock itself because a certificate of stock is
not necessary to render one a stockholder in a corporation. The certificate is not stock
in the corporation but is merely evidence of the holder’s interest and status in the
corporation, his ownership of the share represented thereby, but is not in law the
equivalent of such ownership. It expresses the contract between the corporation and
the stockholder, but is not essential to the existence of a share in stock or the nation of
the relation of the shareholder to the corporation.

The fact of the matter is, the new holder, Angel S. Tan has already exercised his rights
and prerogatives as stockholder and was even elected as member of the board of
directors in the respondent corporation with the full knowledge and acquiescence of
petitioner. Due to the transfer of 50 shares, Angel S. Tan was clothed with rights and
responsibilities in the board of the respondent corporation when he was elected as
officer thereof.
Bitong v. CA
Facts:

Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co. filed a derivative suit
before the SEC against respondent spouses Apostol, who were officers in said
corporation, to hold them liable for fraud and mismanagement in directing its affairs.

Respondent spouses moved to dismiss on the ground that petitioner had no legal
standing to bring the suit as she was merely a holder-in-trust of shares of JAKA
Investments which continued to be the true stockholder of Mr. & Ms.

Petitioner contends that she was a holder of proper stock certificates and that the
transfer was recorded. She further contends that even in the absence of the actual
certificate, mere recording will suffice for her to exercise all stockholder rights, including
the right to file a derivative suit in the name of the corporation.

The SEC Hearing Panel dismissed the suit. On appeal, the SEC En Banc found for
petitioner. CA reversed the SEC En Banc decision.

Issue: Whether or not petitioner is the true holder of stock certificates to be able institute
a derivative suit—No

Held:

Sec 63 of the Corporation Code envisions a formal certificate of stock, which can be
issued only upon compliance with certain requisites:
 First, the certificates must be signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed with the seal
of the corporation. A mere typewritten statement advising a stockholder of the
extent of his ownership in a corporation without qualification and/or
authentication cannot be considered as a formal certificate of stock.
 Second, delivery of the certificate is an essential element of its issuance. Hence,
there is no issuance of a stock certificate where it is never detached from the
stock books although blanks therein are properly filled up if the person whose
name is inserted therein has no control over the books of the company.
 Third, the par value, as to par value shares, or the full subscription as to no par
value shares, must first be fully paid.
 Fourth, the original certificate must be surrendered where the person requesting
the issuance of a certificate is a transferee from a stockholder.

The certificate of stock itself once issued is a continuing affirmation or representation

that the stock described therein is valid and genuine and is at least prima facie evidence
that it was legally issued in the absence of evidence to the contrary. However, this
presumption may be rebutted. Aside from petitioner’s own admissions, several corporate
documents disclose that the true party-in-interest is not petitioner but JAKA. It should be
emphasized that JAKA executed, a deed of sale over 1,000 Mr. & Ms. shares in favor of
respondent Eugenio D. Apostol. On the same day, respondent Apostol signed a
declaration of trust stating that she was the registered owner of 1,000 Mr. & Ms. shares
covered by a Certificate of Stock. And, there is nothing in the records which shows that
JAKA had revoked the trust it reposed on respondent Eugenia D. Apostol. Neither was
there any evidence that the principal had requested her to assign and transfer the
shares of stock to petitioner. In fine, the records are unclear on how petitioner
allegedly acquired the shares of stock of JAKA.

Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be
delivery of the stock certificate; (b) The certificate must be endorsed by the owner
or his attorney-in-fact or other persons legally authorized to make the transfer;
and, (c) to be valid against third parties, the transfer must be recorded in the
books of the corporation. At most, in the instant case, petitioner has satisfied only the
third requirement. Compliance with the first two requisites has not been clearly and
sufficiently shown.

De los Santos v. Republic

Facts:

 This case involves the title to 1,600,000 shares of stock of the Lepanto
Consolidated Mining Co., Inc. (Lepanto), a domestic corporation
 Originally, half of the said shares were claimed by Apolinario de los Santos and
the other half by Isabelo Astroquillo
 During the pendency of the case, Astraquillo has allegedly conveyed and
assigned his interest in his shares to de los Santos
 The shares in question are covered by several stock certificates issued in favor
of Vicente Madrigal, who is registered in the books of Lepanto as owner of said
stocks and whose indorsement in blank appears on the back of the said
certificates
 De los Santos contends that he:
o Bought 55,000 shares from Juan Campos
o Bought 1,200,000 shares from Carl Hess
 On the other hand, the US Attorney General contends that prior to the outbreak
of the war in the Pacific, said shares of stock were brought by Vicente Madrigal in
trust for, and for the benefit of, the Mitsui Bussan Kaisha (Mitsui), a corporation
organized in accordance with the laws of Japan, with branch office in the
Philippines
o Respondents further contend that Madrigal delivered the corresponding
stock certificates to Mitsui, which kept them in its office in Manila, until
liberation of the city by the American forces early in 1945
o They add that Mitsui had never sold, or otherwise disposed of the shares
and that these must have been looted during the liberation
 After the war, pursuant to all the property vested in the US, or any of its officials,
under the Trading with the Enemy Act, located in the Philippines at the time of
such vesting, or the proceeds thereof, shall be transferred to the Republic (this is
the reason why the Republic is impleaded in this case)

Issue: Whether the plaintiffs had purchased the shares of stock—No

Held:
  It appears that the only evidence on the alleged sale of the shares of stock in
question is the testimony of de los Santos
 Campos and Hess, the alleged vendors, could not take the witness stand
because both are already dead
 The record shows that Madrigal had never disposed of the said shares of stock in
any manner, except by turning over the corresponding stock certificates to Mitsui,
the beneficial and true owners
 At any rate, at the time of the alleged sales, 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
o Indeed, the certificates of stock in question were in the name of Madrigal
 Campos and Hess were not the registered owners of the corresponding shares
of stock
 Being presumed to know the law and, as experienced traders in shares of stock,
plaintiffs must have been conscious of the consequent infirmities in the title of the
supposed vendors, or handicaps
 Moreover, the aforementioned sales were admittedly hostile to the Japanese,
who had prohibited it and plaintiffs had actual knowledge of these facts and of
the risks attendant to the alleged transactions
o In other words, plaintiffs advisedly assumed those risks, hence, they
cannot validly claim, against the registered stockholder, the status of
good faith
 Sec. 35 of the Corp Code reads that “A share of stock may be transferred
by endorsement of the corresponding stock certificate, coupled with its
delivery. However, the transfer shall not be valid, except as between the
parties until it is entered and noted upon the books of the corporation
 In the case at bar, there being no such entry in the name of the plaintiffs, it
follows that the transfer allegedly effected by the seller in their favor is “not valid,
except as between themselves”
o It does not bind either Madrigal or the Mitsuis, who are not parties to the
said alleged transaction

Section 64. Issuance of stock certificates. - No certificate of stock shall be issued to a

subscriber until the full amount of his subscription together with interest and expenses
(in case of delinquent shares), if any is due, has been paid. (37)

Baltazar v. Lingayen Gulf Electric Power Co.,

Facts:

 Plaintiffs Baltazar and Rose (Baltazar Group) were incorporators of Lingayen

Gulf Electric Power Co., subscribed to 600 and 400 shares of capital stock,
respectively
 Of the 600 shares of capital stock subscribed by Baltazar, he had fully paid 535
shares of stock, and the Corporation issued to him several certificates of stock,
corresponding to the 535 shares
 Of the 400 shares of stock subscribed by Rose, he had 375 shares of stock fully
paid, duly covered by certificates of stock issued to him
 The respondents, Ungson, Estrada, Fernandez and Yuson (Ungson Group) were
 stockholders of the Corporation, all holding a total number of fully paid-up shares
of stock, of less than 100 shares, and the defendant Acent (part of the Ungson
Group), was an incorporator and a stockholder, holding 600 shares of stock
 Ungson, Estrada, Fernandez and Yuzon were directors of the corporation
 The Ungson Group passed 3 resolutions which essentially says that:
o All watered stocks issued to Acena, Baltazar and Rose and Jubenville,
were of no value and were consequently cancelled
o All unpaid subscriptions will have interest, payments should be applied to
interest first
o That shares of stock, issued to stockholder, but still had unpaid
subscribed shares, all of his stock even those paid are not entitled to vote
(this prohibited Baltazar et al to exercise their power to vote until their
susbscriptions are paid)
 Baltazar and Rose filed a complaint to allow them to vote their fully paid up
shares of stock, and to declare said 3 resolutions illegal and invalid
 The parties were able to have a tentative settlement. The lower court rendered a
decision approving the agreement. The Ungsons did not agree with the decision
of the court hence this appeal

Issue: Whether a shareholder, who subscribes to a number of shares over which he

partially pays and is issued certificates of stock, is entitled to vote the latter—Yes

Held:

 Where the corporation issued par value shares, the stockholder can vote the
shares fully paid by him, irrespective of the unpaid delinquent shares
 The corporation had chosen to apply payments by its stockholders to definite
shares of the capital stock of the corporation and had fully paid capital stock
shares of certificate for said payments
 Its call for payment of unpaid subscriptions and its declaration of delinquency for
non-payment of said call affecting only the remaining number of shares of its
capital stock for which not fully paid capital stock shares certificates have been
issued, and only do not have voting rights by said declaration of delinquency
 The present law requires as a condition before a shareholder can vote his
shares, that his full subscription be paid in case of no par value stock
o And in case of stock corporation with par value, the stockholder can
vote the shares fully paid by him only, irrespective of the unpaid
delinquent shares
 A corporation may now, in the absence of provisions in their by-laws to the
contrary, apply payment made by subscribers-stockholders either as:
o Full payment for the corresponding number of shares of stock, the
par value of each of which is covered by such payment
o As payment pro-rata to each and all the entire number of each
shares subscribed for

Section 73. Lost or destroyed certificates. - The following procedure shall be followed
for the issuance by a corporation of new certificates of stock in lieu of those which have
been lost, stolen or destroyed:

1. The registered owner of a certificate of stock in a corporation or his legal

representative shall file with the corporation an affidavit in triplicate setting forth, if
possible, the circumstances as to how the certificate was lost, stolen or destroyed, the
number of shares represented by such certificate, the serial number of the certificate and
the name of the corporation which issued the same. He shall also submit such other
information and evidence which he may deem necessary;

2. After verifying the affidavit and other information and evidence with the books
of the corporation, said corporation shall publish a notice in a newspaper of general
circulation published in the place where the corporation has its principal office, once a
week for three (3) consecutive weeks at the expense of the registered owner of the
certificate of stock which has been lost, stolen or destroyed. The notice shall state the
name of said corporation, the name of the registered owner and the serial number of
said certificate, and the number of shares represented by such certificate, and that after
the expiration of one (1) year from the date of the last publication, if no contest has been
presented to said corporation regarding said certificate of stock, the right to make such
contest shall be barred and said corporation shall cancel in its books the certificate of
stock which has been lost, stolen or destroyed and issue in lieu thereof new certificate of
stock, unless the registered owner files a bond or other security in lieu thereof as may be
required, effective for a period of one (1) year, for such amount and in such form and
with such sureties as may be satisfactory to the board of directors, in which case a new
certificate may be issued even before the expiration of the one (1) year period provided
herein: Provided, That if a contest has been presented to said corporation or if an action
is pending in court regarding the ownership of said certificate of stock which has been
lost, stolen or destroyed, the issuance of the new certificate of stock in lieu thereof shall
be suspended until the final decision by the court regarding the ownership of said
certificate of stock which has been lost, stolen or destroyed.

Except in case of fraud, bad faith, or negligence on the part of the corporation and its
officers, no action may be brought against any corporation which shall have issued
certificate of stock in lieu of those lost, stolen or destroyed pursuant to the procedure
above-described. (R.A. 201a)

J. Santamaria v. Hongkong and Shangai Banking Corp.

Facts:

 Mrs. Josefa Santamaria bought 10,000 shares of the Batangas Minerals, Inc.,
through the offices of Woo, Uy-Tioco and Natalphy (a stock brokerage firm). The
certificates were endorsed in blank to her
 She then used the certificate as security for the purchase of 10,000 shares of the
Crown Mines, Inc. with R.J. Campos & Co. to pay for the shares and redeem her
certificate only to find out that the firm was prohibited by the SEC from
transacting business
 Also, her stocks that were used as security has been transferred to HSBC, who
had come into possession of the certificates because RJ Campos & Co. Inc. had
opened an overdraft account with this bank and to this effect it had executed a
document where they 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 Stock and Shares and Securities now deposited or for any other purposes
whatsoever”
Issue: Whether the stock certificate should be returned to Mrs. Santamaria—No

Held:

 Santarmia was negligent in the transaction

 Mrs. Santamaria 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 had failed to do, and
instead she delivered said certificate to RJ Campos and Co. indorsed in blank,
thereby clothing the latter with apparent title to the shares represented by said
certificate including apparent authority to negotiate it
o This was the proximate cause of the damage suffered by her
o She is therefore, estopped from claiming further title to or interest therein
as against a bona fide pledgee or transferee thereof
 HSBC was justified in believing RJ Campos and Company had title thereto
considering it was indorsed in blank, and, therefore, deemed quasi-negotiable
o Thus, HSBC cannot be blamed for believing that such belonged to the
holder and transferor
o Furthermore, 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
RJ Campos and Company
 A bonafide 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
o Where one of 2 innocent parties must suffer by reason of a wrongful
or unauthorized act, the loss must fall on the one who first trusted
the wrongdoer and put in his hands the means of inflicting such loss

Neugene Marketing, Inc. v. CA

Facts:
 Neugene had authorized capital stock of P3M (eventually became P7M), P600K
of which is subscribed and P150k of those subscribed were paid up
 October 24, 1987: the private respondents, Sy, Yang Jr., and Lok Chun Suen,
constituting 2/3 of the total shares, sent notice to the directors of Neugene for a
board meeting to be held on November 30, 1987
o They also sent notice for a special stockholder’s meeting on the same
day to consider the dissolution of Neugene in which they voted in the
affirmative
 Tan et al brought an action to annul or set aside the said SEC Certification on the
Dissolution of Neugene on the ground that Yang, Jr et al could not validly vote for
dissolution of Neugene because they had divested themselves of their
stockholdings when they endorsed their stock certificates in blank and delivered
the same to the Uy Family who subsequently transferred the certificates to
Johnny Uy and late to Tan et al
 Yang Jr., et al contends that there never was any agreement entered into by the
Uy family to award Neugene’s stock certificates, because subject certificates
were endorsed in blank by Yang et al to the Uy family for safekeeping
Issue: Whether there was a valid transfer of shares, divesting Yang Jr. et al of their
stockholdings as of the date of the meeting when they voted for the resolution dissolving
Neugene—No

Held:
 The Court found that the certificates of stock were stolen and therefore not validly
transferred, and the transfers of the stock relied upon by Tan et al were
fraudulently recorded in the STB of Neuegene under the column “Certificates
Cancelled”
 As nominees of the Uy family, the approval by the Sy, Lok Chu Suen and Yang
Jr. was necessary for the validity and effectivity of the transfer of the stock
certificates registered under their (Yang Jr. et al) names
 In the case under consideration, not only did the transfers of stock in question
lack the requisite approval, Yang Jr. et al categorically declared under oath that
subject certificates of stock of theirs were stolen from the confidential vault of the
Uy family and illegally transferred to the names of the petitioners in the STB of
Neugene
o There is no reliable showing of any valuable consideration for the
supposed transfer of subject stocks to Tan et al
 To constitute a valid transfer, a stock certificate must be delivered and its
delivery must be coupled with an intention of constituting the person to
whom the stock is delivered, the transferee thereof
 In order that there is a valid transfer, the person must be a bona fide
transferee and for value