rules in Sec 43
Chapter XV – Transfer of Shares transferability of units of ownership in a corporate setting is one of — Free transferability the attractive features of the corporation — Shares of stock in a corporation are personal property and the owner thereof has an inherent right, as an incident of his ownership, to transfer the same at will — SEC has allowed reasonable restrictions on transfer of shares in the AOI if the restrictions comply with Section 93: that the restriction must appear in the AOI, by-laws and certificates o of stock o restrictions must not be more onerous than granting the existing SHs or the corporation the option to purchase the shares under reasonable terms
Nature of stock certificate — De los santos: stock certificate is not a negotiable instrument, but is considered quasi-negotiable: it may be transferred by endorsement + delivery but… o o … is not negotiable because the holder take it without prejudice to such rights or defenses as registered owners or transferor’s creditor may have under the law, subject to limitations imposed by law on estoppel — SEC: evidence of ownership of shares and that a person may own shares without possessing a stock certificate, provided as he is duly recorded in the books as a subscriber and owner, he is entitled to all the rights of a SH
Manner and effectivity of transfer
Probative value — The stock certificate, once issued, is a continuing affirmation or representation that the stock described is valid and genuine and is at least prima facie evidence of ownership of stock as long as the subscriber is duly recorded in the books as the o owner of the shares, he is considered a SH of record and entitled to all rights of a SH
— Shares of stock, though intangible, are personal property, and are freely transferable by the owner thereof Sec 63
— Endorsement and delivery of the certificate and the registration of the transfer in the book of the corporation is only one of the modes recognized by law by which to legally and effectively sale and assign shares that would be binding not only on the parties but also to the corporation and to third parties who will deal with the covered shares Magsaysay-Labrador case: the sale or assignment must be registered in — Magsaysay-Labrador the stock and transfer book of the corporation in order to be binding on third parties. A transferee cannot claim a right to intervene as SH in corporate issues on the strength of the transfer of shares allegedly executed by a registered SH
Issuance of the stock certificate — Issuance of shares must have the signature of the president or VP, countersigned by the corporate secretary or assistant secretary, and sealed with the corporate seal — Issuance is NOT necessary to constitute the subscriber a SH of the corporation… — … but delivery of the certificate is an essential element of the issuance — 63: Every SH has the right to have a proper certificate issued to him upon demand: o provided he complies with the requirements/conditions in 64 i. e. FULL payment of subscription — SEC: remedies available to a SH if a corporation wrongfully refuses to issue a certificate: o File a suit for specific performance o File for alternative relief by way of damages File a petition for mandamus to compel the issuance o Rescind the contract of subscription and sue to recover payment o
The Stock Certificate
— 63: capital shall be divided into shares for which certificates signed by the president or VP, countersigned by secretary, sealed with the corporate seal shall be issued in accordance with the by-laws — 64: no certificate shall be issued until the full amount of his subscription + interest + expenses shall be paid therefore a subscriber must pay his subscription totally before a o certificate can be issued to him… … but an unpaid and not declared delinquent subscription can be o vote for and upon in corporate meetings o delinquent shares, however, are entitled to dividends subject to the
Negotiation of the certificate of stock
— Endorsement + delivery = quasi-negotiability
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Endorsement: essential requisite SEC: AOI cannot do away with the endorsement requisite for a valid negotiation o 63 is mandatory — Three (3) purposes: Sale and assignment o Pursuant to a trust or nominee arrangement o o Pledge or other encumbrance of the shares
noted on the books of the corporation until after 9 months after the attachment was levied and later (9 months after) transferred transferred to HPE Jollye. HPL Jollye claims to be owner of the 75 shares and presents a certificate of stock issued by North Electric.
o o
I: W/n a bona fide transfer of shares of a corporation, not registered or noted on the books, is valid as against a subsequent lawful attachment of said shares, regardless of whether the attaching creditor had actual notice of the transfer or not .
1. Indorsement of stock certificate; certificate; registration registration in in corporate corporate books
H: GR: NO> No transfer is valid except as between between the parties unless it is duly registered. All transfers of shares must be entered on the books of the corporation. All transfers not so validly entered are invalid as to attaching or execution creditors of the assignors, of the corporation, and as to all subsequent purchasers in GF, and even to all parties interested. All transfers not so entered on the books are absolutely void, not because they are without notice or fraudulent in law, but because they are made void by the statute. Courts in the Phils adhere to the principle that the right of the owner of the shares to transfer to same by delivery of the certificate, whether it be regarded as statutory or common law right, is limited and restricted by the express provision that “no transfer shall be valid except as between the parties, until the transfer is entered and noted upon the books of the corporation.
— At the back of ever stock certificate is a transfer form with blank spaces for the transferee’s name — When a SH wants to transfer his shares, all he has to do is to sign the form. He need not fill the blanks as this may be done by the transferee — Sec 74: The stock and transfer book shall be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be open for inspection to any director or SH at reasonable hours on business days 2. Effect Effect of lack lack of of registra registration tion
— Until registration is accomplished, the transfer, though valid between the parties, cannot be effective as against the corporation Unrecorded transferees cannot enjoy the status of a SH—he cannot vote — Unrecorded or be voted for and will not be entitled to dividends — Until challenged in a proper proceeding, a SH of record has the right to participate in any meeting — In order to be recognized as SH for voting purposes, his transfer must be recorded on the books — If refused, he can go to court to prove his right — Until transfer is registered, transferee is not a SH but an outsider, and any action he may wish to bring against the corporation must be brought before the regular courts and not the SEC — An unregistered transfer, not being effective against persons other than the parties thereto, cannot prevail over the rights of a subsequent attaching creditor
The right of the owner of the shares of a corporation to transfer the same by delivery of the certificate, whether it be regarded by the express provision that “no transfer however shall be valid except as between the parties, until the transfer is entered and noted upon the books of the corporation.” --The --The transfer of 75 shares in the NEC, made by Diosomito to Barcelon was not valid as to Uson, on Jan 18, 1932, the date on w/c they still stood in the name of Diosomito on the books of the corp.
Nautica Canning Corp v Yumul. F: Roberto C. Yumul was appointed COO/General Manager of Nautica. On the same date, First Dominion Prime Holdings, Inc., Nautica’s parent company, through its Chairman Alvin Y. Dee, granted Yumul an Option to Purchase up to 15% of the total stocks it subscribed from Nautica. A Deed of Trust and Assignment was executed between First Dominion Prime Holdings, Inc. and Yumul whereby the former assigned 14,999 of its subscribed shares in Nautica to the latter. The deed stated that the 14,999 “shares were acquired and paid for in the name of the ASSIGNOR only for convenience, but actually executed in behalf of and in trust for the ASSIGNEE.” ASSIGNEE.” After Yumul’s resignation from Nautica on August 5, 1996, he wrote a letter to Dee requesting the latter to formalize his offer to buy Yumul’s 15% share in Nautica on or before August 20, 1996; and demanding the issuance of
Uson v Diasomoto. F: Unson is the creditor of Diosomoto, who is original owner of 75 shares of North Electric which were levied by a writ of attachment to satisfy the judgment creditor. creditor. Uson obtained judgment against Diosomoto and the shares were sold at public auction to the judgment creditor Uson. --Diosomoto sold the shares attached to Barcelon and delivered the corresponding certificates. The transfer to Barcelon was not registered and
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the corresponding certificate of shares in his name should Dee refuse to buy the same. Dee, through Atty. Atty. Fernando R. Arguelles, Jr., Nautica’s corporate secretary, denied the request claiming that Yumul was not a stockholder of Nautica. Yumul requested that the Deed of Trust and Assignment be Assignment be recorded in the Stock and Transfer Transfer Book of Nautica, and that he, as a stockholder, be allowed to inspect its books and records. Yumul’s requests were denied allegedly because he neither exercised the option to purchase the shares nor paid for the acquisition price of the 14,999 shares. Atty. Atty. Arguelles maintained that the cash dividend received by Yumul Yumul is held by him only in trust for First Dominion Prime Holdings, Inc. Nautica et al contend that Yumul Yumul was not a stockholder of Nautica; that he was just a nominal owner of one share as the beneficial ownership belonged to Dee who paid for said share when Nautica was incorporated. They also allege that Yumul Yumul was given the option to purchase shares of stocks i n Nautica under the Option to Purchase, Purchase, and since he failed to exercise the option, there was thus no cause or consideration for the Deed of Trust and Assignment , which makes it void for being simulated or fictitious.
certificate for 1,500 shares of stock of E Razon Inc was issued in the name of Juan T. Chuidian. Chuidian. On the basis of the 1,500 shares of stock, the late Juan T. Chuidian and after him, Vicente Chuidian, were elected as directors of E. Razon, Inc. Enrique Razon had not questioned the ownership by Juan T. Chuidian of the shares of stock in question and had not brought any action to have the certificate of stock over the said shares cancelled. The certificate of stock was in the possession of defendant Razon who refused to deliver said shares to the plaintiff, until the same was surrendered by defendant Razon and deposited in a safety box in Philippine Bank of Commerce. 1,500 shares of stook under Stock Certificate No. 003 were delivered by the late Chuidian to Enrique because it was the latter who paid for all the subscription on the shares of stock in the defendant corporation and the understanding was that he (defendant Razon) was the owner of the said shares of stock and was to have possession thereof until such time as he was paid therefor by the other nominal incorporators/ stockholders. Since then, Enrique Razon was in possession of said stock certificate even during the lifetime of the late Chuidian, from the time the late Chuidian delivered the said stock certificate to Razon. By agreement of the parties delivered it for deposit with the bank under the joint custody of the parties. TC ruled Razon owns the shares, IAC reverses.
H: The SEC and CA correctly found Yumul Yumul to be a stockholder of Nautica, of one share of stock recorded in Yumul’s name, although allegedly held in trust for Dee. Nautica’s Articles of Incorporation and By-laws, By-laws, as well as the General Information Sheet filed with the SEC indicated that Yumul was an incorporator and subscriber of one share. Even granting that there was an agreement between Yumul Yumul and Dee whereby the former is holding the share in trust for Dee, the same is binding only as between them. them. From From the corporation’s vantage point, Yumul Yumul is its stockholder with one share, considering that there is no showing that Yumu Yumull transferred his subscription to Dee, the alleged real owner of the share, after Nautica’s incorporation. Other than petitioners’ self-serving assertion that the beneficial ownership belongs to Dee, they failed to show that the subscription was transferred to Dee after Nautica’s incorporation. incorporation. The conduct of the parties also constitute constitute sufficient proof of Yumul’s Yumul’s status as a stockholder. On April 4, 1995, Yumul was elected during the regular annual stockholders’ meeting as a Director of Nautica’s Board of Directors. Thereafter, he was elected as president of Nautica. Thus, Nautica and its stockholders knowingly held respondent out to the public as an officer and a stockholder of the corporation.
Razon claims that the shares of stock were registered in the name of Chuidian only as nominal s tockholder and with the agreement that the said shares of stock were owned and held by the petitioner but Chuidian was given the option to buy the same. Vicente B. Chuidian insists that the appellate court's decision declaring his deceased father Juan T. Chuidian as owner of the 1,500 shares of stock of E. Razon, Inc. should have included all cash and stock dividends and all the pre-emptive rights accruing to the said 1,500 shares of stock. I: Who owns the shares? Does ownership of the said shares include all cash and dividends? H: (1) Chuidian owns the shares. For an effective, transfer of shares of stock the mode and manner of transfer as prescribed by law must be followed. As provided under the Corporation Code of the Philippines, shares of stock may be transferred by delivery to the transferee of the certificate properly indorsed. Title may be vested i n the transferee by the delivery of the duly indorsed certificate of stock. However, no transfer shall be valid, except as between the parties until the transfer is properly recorded in the books of the corporation. In the instant case, there is no dispute that the questioned 1,500 shares of stock of E. Razon, Inc. are in the name of the late Juan Chuidian in the books of the corporation. Moreover, the records show that during his lifetime Chuidian was elected member of the Board of Directors of the corporation which clearly shows that he was a stockholder of the corporation. From the point of view of
The SC refrained from ruling on whether or not Yumul can compel the corporate secretary to register said deed. It held it to be a question which is civil in nature and thus beyond the ambit of the SEC, the court of origin of the current action. It is only after an appropriate case is filed and decision rendered thereon by the proper forum can the issue be resolved.
Razon v IAC. F: Enrique Razon organized the E. Razon, Inc. for the purpose of bidding for the arrastre services in South Harbor. Vicente Chuidian is the administrator of the intestate estate of Juan Telesforo Telesforo Chuidian. A stock
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the corporation, therefore, Chuidian was the owner of the 1,500 shares of stock. In such a case, the petitioner who claims ownership over the questioned shares of stock must show that the same were transferred to him by proving that all the requirements for the effective transfer of shares of stock in accordance with the corporation's by laws, if any, were followed or in accordance with the provisions of law. Razon however did not present any by-laws which could show that the 1,500 shares of stock were effectively transferred to him. In the absence of the corporation's by-laws or rules governing effective transfer of shares of stock, the provisions of the Corporation Law are made applicable to the instant case.
title to such certificate of stock is vested in the transferee by delivery of the duly indorsed stock certificate.
3. No registra registratio tion n of transfer transfer of unpaid unpaid shares shares
— Any unpaid balance on the subscription—there can be no stock certificate on which an indorsement may be made. Shares are thus not transferable on the books — The words “unpaid claim” in Sec 63 does not necessarily mean that there should have been a previous call by the board As long as any portion remains unpaid, a corporation has a claim o on the shares, and may demand for the same — Corporation may agree to record a transfer even if there is still an unpaid balance, provided the transferee assumes the obligation to pay the balance — Under 63 no shares of stock against which the corporation hold any unpaid claim shall be transferable in the books of the corporation o A corporation may refuse to register a sale or assignment of shares not fully paid o China Banking Corp case: principle of non-registration of unpaid shares not applicable in pledged shares sold at public auction o Unpaid claims refers to any unpaid claims arising from unpaid subscription, and not to any indebtedness which a subscriber may owe a corporation from other transactions — Baltazar: since it was the practice and procedure of the corporation to issue certificates of stock to its individual subscribers, it may not take away the right to vote granted by the certificates 64: provides a legal basis for the corporation through its board to o refuse any claim by a subscriber to issue stock certificates covering the extent of share as that have been paid-up while leaving the remaining balance unpaid 64 does not prohibit the corporation from dividing the o subscription of a subscriber by considering the portion thereof as fully paid and issuing a corresponding certificate over the paid-up shares; such option is only granted to the corporation Thus a corporation may apply payments made by subscribers on o their subscriptions either as: Full payment for the corresponding number of shares, the par value of which is covered by such payment, (Baltazar) or… Payment pro-rata to each and all the entire number of shares subscribed for (Nava and Fua Cun) — Sale of portion of not fully paid shares o SH cannot transfer part of his subscription—indivisibility of subscription of contract (Nava and Fua Cun)
The law is clear that in order for a transfer of stock certificate to be effective, the certificate must be properly indorsed and indorsed and that title to such certificate of stock is vested in the transferee by the delivery of the duly indorsed certificate of stock. (Section 35, Corporation Code) Since the certificate of stock covering the questioned 1,500 shares of stock registered in the name of the late Juan Chuidian was never indorsed to the petitioner, the inevitable conclusion is that the questioned shares of stock belong to Chuidian. The petitioner's asseveration that he did not require an indorsement of the certificate of stock in view of his intimate friendship with the late Juan Chuidian can not overcome the failure to follow the procedure required by law or the proper conduct of business even among friends. To To reiterate, indorsement of the certificate of stock is a mandatory requirement of law for an effective transfer of a certificate of stock. The preponderance of evidence also supports the findings that the shares of stock were given to Juan T. Chuidian for value. Juan T. Chuidian was the legal counsel who handled the legal affairs of the corporation. We give credence to the testimony of the private respondent that the shares of stock were given to Juan T. Chuidian in payment of his legal services to the corporation. Razon failed to overcome this testimony. (2) The cash and stock dividends and all the pre-emptive rights are all incidents of stock ownership. The rights of stockholders are generally enumerated as follows: [F]irst, to have a certificate or other evidence of his status as stockholder issued to him; second, to vote at meetings of the corporation; third, to receive his proportionate share of the profits of the corporation; and lastly, to participate proportionately in the distribution of the corporate assets upon the dissolution or winding up.
— Oral testimony to show that one is the principal or beneficial owner of shares for which he has allowed a certificate of stock to be issued in the name of his alleged nominee will not be sufficient basis to claim rightful ownership over the shares of stock. — The law is clear that in order for a transfer of stock certificate to be effective, the certificate must be properly indorsed and that
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Difficult to determine whether or not partial payments made should be applied as full payment — Sale of entire not fully paid shares Entire subscription not fully paid may be transferred to a single o transferee Must secure the consent of the corporation since the transfer contemplates a novation of contract But cannot be forced upon the corporation — When shares fully paid Shares of stock issued with stock certificates become personal o property and may be transferred by deliver of the certificate endorsed by the owner
register in its stock and transfer book the transfer of 473 shares of stock to private respondents. H: Section 5 (b) of P.D. P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide cases involving intracorporate controversies. An intracorporate controversy has been defined as one which arises between a stockholder and the corporation. There is no distinction, qualification, nor any exception whatsoever. The case at bar involves shares of stock, their registration, cancellation and issuances thereof by petitioner Rural Bank of Salinas. It is therefore within the power of respondent SEC to adjudicate. Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation Code]) contemplates no restriction as to whom the stocks may be transferred. It does not suggest that any discrimination may be created by the corporation in favor of, or against a certain purchaser. purchaser. The owner of shares, as owner of personal property, is at liberty, under said section to dispose them in favor of whomever he pleases, without limitation in this respect, than the general provisions of law, the only limitation imposed by Section 63 of the Corporation Code being any unpaid claim held by the corporation against the shares intended to be transferred, which is absent in this case. The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks. Whenever a corporation refuses to transfer and register stock i n cases like the present, mandamus will lie to compel the officers of the corporation to transfer said stock in the books of the corporation" (Fleisher vs. Botica Nolasco). The corporation's obligation to register is ministerial. In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to decide the question of ownership. The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction without good cause, it may be compelled to do so by mandamus. mandamus. For the petitioner Rural Bank of Salinas to refuse registration of the transferred shares in its stock and transfer book, which duty is ministerial on its part, is to render nugatory and ineffectual the spirit and intent of Section 63 of the Corporation Code.
o
4. Remedy Remedy if if registr registratio ation n refused refused Transferee may petition the court for a writ of mandamus to compel — Transferee registration or the issuance of a new certificate There must be no other plain, speedy and adequate remedy o There are no unpaid claims against stocks whose transfer sought to o be recorded — Right to have transfer registered exists from the ti me of the transfer and it is to the transferee’s benefit that the right be exercised early — Mere blank indorsement of the certificate of stock by itself does not clearly and unequivocally indicate that the registered owner’s wish to have the certificate cancelled and a new one issued in the name of the holder.
Rural Bank of Salinas v. CA. F: Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power of Attorney in Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the latter full power and authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the Bank registered in his name. Pursuant to said Special Power of Attorney, private respondent Melania Guerrero, Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for Assignment for 472 shares out of the 473 shares, in favor of private respondents, and executed a Deed of Assignment for Assignment for the remaining one (1) share of stock in favor of private respondent Francisco Guerrero, Guerrero, Sr. Melania Guerrero presented to petitioner Rural Bank of Salinas the two (2) Deeds of Assignment for registration with a request for the transfer in the Bank's stock and transfer book of the 473 shares of stock so assigned, the cancellation of stock certificates in the name of Clemente G. Guerrero, Guerrero, and the issuance of new stock certificates covering the transferred shares of stocks in the name of the new owners thereof. thereof. However, petitioner Bank denied the request of respondent Melania Guerrero.
Restrictions on transfer; close corporations Underlying doctrine on transfer restrictions
— Public policy against “restraint of trade”; shares of stock are considered species of trade and occupation through the participation in the business enterprise of the corporate entity A contract “in restraint of trade” is valid provided there is a o limitation upon either time or place; restraint must be reasonable necessary for the protection of the contracting parties (Villa Rey v Ferrer) Reasonable restrictions recognized by the SEC: o
I: W/n the courts can compel by Mandamus the Rural Bank of Salinas to
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option to buy such shares which a SH wished to transfer as ultra vires because it is violative and in restraint of property rights of SHs — Restrictions on transfer must be reasonable under the circumstances to justify their exception to the rule of free transferability — An absolute prohibition to transfer shares, even when contained i n the AOI, would be void since it would violate 63
Not more onerous than granting existing SHs or the corporation the option to purchase the shares Not valid if absolute prohibition against sale or transfer of shares without consent of the existing SHs Reasonable option period: 30-60 days After expiration, SH should be free to dispose his shares to anyone — Non-competition clause SEC: valid stipulation in the AOI or BLs as a condition for being a SH o Based on the inherent right of the corporation to preserve and protect itself by excluding competitors or hostile interests
(1) consent restriction or right of prior
— def’n: restriction which requires consent of the directors or of other SHs before any transfer may be made — would not be valid under the Corpo Code because it is more onerous than the option restriction allowed by the Code
1.
general general rule: rule: free free transfera transferability bility of shares shares
(2) option restriction or right of first refusal; valid if
— free transferability: one of the most important advantages of the corporation over a partnership o furnishes a SH a convenient means of raising funds whenever the need arises (i.e. can sell or use shares as collateral) when SH is dissatisfied with management, he can get out of the o business by selling his share subject to no restriction 2.
reasonable
— right of first refusal: provides that a SH who may wish to sell or assign his shares must first offer the shares to the corporation or to the other existing SHs of the corporation under reasonable terms and conditions when corporation or the other SHs fail to exercise can the o offering SH dispose of his shares to third parties — def’n: restriction which requires a SH who wishes to sell or transfer his shares to first offer the same to the corporation or to the other SHs and give the latter an opportunity to acquire the same should they wish to do so — basis: share of stock are not mere property, but contracts which create personal relations between the parties thereto — may be ifo the corporation (right of first option), or of the other SHs or of both successively Campos: must be ifo corporation and SHs successively to o be more effective Option ifo corporation cannot be enforced if it has no o unrestricted retained earnings (Sec 41) — allowed under Sec 98 — may also apply to non-voting stocks — length of time during which option may be exercised must be reasonable — must justifiable and reasonable under the circumstances SEC policy: option period limited to one (1) month o When its terms are ambiguous or not specific or vague, o construction should be ifo free transferability — Not limited to transfer for value under Sec 99
exceptio exception: n: in close corporatio corporations ns
— reason: ownership and management are vested in the same peoplem and there is wariness about any stranger coming in — restrictions on transfer a means for SHs of close corporations to protect themselves from future conflicts so that outsiders cannot come in Sec 96-99
— can a corporation not closed place restrictions on the transfer of its stocks? Campos: transfer restrictions are exceptions to the general rule of o free transferability; thus would only apply to closed corporations because of their peculiar nature 3.
consent
intrinsic intrinsic validity validity of variou various s kinds of restric restrictions tions
— dual nature of the share of stock as both a contract and property as property: stock transfer restrictions invalid since alienation of o property cannot be subjected to any restriction as contract: parties should have freedom to impose such terms and o conditions deemed fit — Fleischer v Botica Nolasco : SC held a by-law giving the corporation an
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May include donation Transfer price: may be fixed by the transfer stipulation
o
—
— (3) prescribing qualifications of SHs, a transfer restriction restriction
— — AOI of a close corp may provide that only persons meeting specified qualifications may become SHs o Would prevent a transfer of stocks to anyone who does not qualify under its articles o “Subject to the provisions of the ff section” in Sec 97(1) should be interpreted to qualify only “restrictions on their transfers” and not “qualifications for owning or holding the same” agreements”: shares are given or assigned to officers — “buy-back agreements”: or employees under the condition that should they resign or be terminated from employment, the corporation shall be granted the right to buy-back the shares; these are valid provided the terms and consideration therefor are reasonable
—
— —
prescribe relation, not restriction, and are always subject to the AOI or charter of the corporation If certificate of stock conspicuously shows restriction and is in AOI: transferee is presumed to have notice If it does not conspicuously appear in stock certificate: transferee may be presumed to have notice of the restriction Where presumption of notice arises: corporation may o refuse to register the transfer, unless all SHs consent thereto or AOI is amended In any case, transferee has the right to rescind the o transfer to him If restriction is not in AOI or in by-laws but appears in a private agreement between the SHs: should be binding among them but not anyone not a party to the agreement Restriction may be done away with by amendment to the AOI and the by-laws: 2/3 vote of OCS SH agreement will be binding on all parties to it and cannot be changed against the objection of even only one of them
unauthorized transfers
(4) redeemabl redeemable e common common stock stock
1.
— gives the corporation the power to redeem common stock — allowed under Section 8 of the Code
certificate certificates s indorsed indorsed in blank; blank; when quasi-neg quasi-negotiab otiable le
— stock certificate possess certain attributes of quasi-negotiability based on the policy to give stability to transactions to encourage their commercial use — if certificate indorsed in blank and places it in the hands of another for purposes other than transfer, such possessor may transfer good title to a bona fide purchaser who relied on the indorsement and believed him the be the real owner — real owner is estopped from claiming shares as against such bona fide purchasers which he has clothed the possessor with apparent authority (Santamaria case) — negotiable character is limited to the situation where the owner is guilty of estoppel in making other persons believe that the possessor has the right to transfer the same o if not entrusted to anyone: not guilty of estoppel ex finder or thief o
(5) formal formal validity validity of restrictions restrictions
— Code requires restrictions on transfer to appear in the ff: o AOI By-laws o Stock certificate o
— Fleischer v Botica Nolasco: If only in AOI or
only in by-laws: binding only on the corporation and the SH o SC voided the by-law provision which granted to SHs an RFR over shares sought to be disposed by other SHs o RFR in by-laws not void per se, but that it is not the function of by-laws to take away or abridge the substantial rights of SHs o By-laws are essentially intramural documents not binding upon the public
2. forg forged ed tra trans nsfe fers rs
— Salinas case: the only limitation imposed by Sec 63 is
when the corporation holds any unpaid claim against against the shares to be transferred, and that the corporation through i ts board, by-laws, or officers, cannot create restrictions in stock transfers, because restrictions must have their source in l egislative enactments o By-laws are merely for the protection of the corporation, and
— GR: stock certificates, since they are only quasi-negotiable, do not afford the same protection to a holder in GF and for value who receives them in the course of their being negotiated, and that the true owner will be preferred — Exception: when the true owner was guilty of negligence in
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causing the loss — if corporation issues a new certificate in pursuance of a forged transfer: no liability incurred o if it comes into the hands of a bona fide purchaser for value: corporation will be estopped from denying validity thereof o but corporation will have right of action against the person who made false representations and in whose favor it issued a new certificate — duty of purchaser to determine that indorsement of the owner is genuine
ordinary course of business, together with many other securities, and at the time of delivery, HSBC had no knowledge that the shares belonged to Santamaria. She was thus chargeable with negligence in failing to take the necessary precautions upon delivering the certificate to her broker. broker. I: w/n HSBC was obligated to inquire who was the real owner of the shares, and w/n it could be charged with negligence for failure to do so. H: Upon its face, the holder of the certificate was entitled to demand its transfer into his name from the issuing corporation. HSBC was not obligated to look beyond the certificate to ascertain the ownership of the stock because it was given pursuant to its contract of hypothecation. A stock certificate, indorsed in blank, is deemed quasi-negotiable, and as such the transferee thereof is justified in believing that it belongs to the holder and transferor. transferor. The fact that her name was penciled on the certificate cannot be considered sufficient reason to indicate that she was the owner, considering that certificate was indorsed in blank by her brokers and guaranteed by indorsement in blank by Campos.
J Santamaria v HSBC . F: Josefa Santamaria is the owner of 10000 shares of Batangas Minerals Inc thru the offices of the Woo stockbrokerage firm. She then placed an order for 10000 shares of Crown Mines thru RJ Campos & Co stockbrokerage stockbrokerage firm and delivered the certificate of stock of her shares in Batangas Minerals as security. Her name was penciled on the certificate she delivered. The certificate then came into the possession of HSBC by virtue of a document of hypothecation, wherein Campos pledged all shares and securities in its possession to HSBC because of an overdraft account it had with the bank. The certificate was indorsed by Campos to HSBC. HSBC then requested the Batangas Minerals to cancel the same and a new certificate was issued in the name of HSBC’s nominee Robert Taplin. Mrs Santamaria then tendered payment for the Crown Mine shares with Campos, but the latter was now prohibited from transacting business due to its insolvency proceedings. She demanded that HSBC return her certificate, but Taplin replied that the bank did not know anything about her transaction with Campos. She sues HSBC.
— a bona fide pledgee or transferee of a stock from the apparent owner is not chargeable with knowledge of the limitations placed on said certificates by the real owner, or of any secret agreement relating to the use which might be made of stock by the holder. holder. — When a stock certificate is endorsed in blank, it constitutes what is termed as a “street certificate” so that upon its face, the holder is entitled to demand its transfer into his name from the issuing corporation. Such certificate is quasinegotiable. — Santamaria could not recover the certificates since she could have asked that the corporation that issued it to cancel and issue another. Her negligence was the immediate cause of the damage, since the certificate was endorsed be her to constitute as a street certificate.
I: W/n Santamaria could be charged with negligence for failing to take necessary precautions in negotiating her stock certificate. H: In making deposit of her certificate, Santamaria did not take any precaution to protect herself against the possible misuse of shares. She could have asked Batangas Minerals to cancel it and issue another in her name to apprise the holder that she was the owner of the certificate. This she failed to do so, and instead she delivered the certificate to Campos and clothing the latter with apparent title to the shares represented by said certificate, including apparent authority to negotiate it by delivering it to HSBC. HSBC had no knowledge of the circumstances under which the certificate of stock was delivered to Campos and had the perfect right to assume that Campos was in lawful possession, in view of the fact that it was a street certificate, which is transferable by mere delivery. delivery. Santamaria made the negotiation of the certificate to other parties possible and the confidence she placed in Campos made the wrong done possible. This was the proximate cause of the damage suffered by her. She is thus estopped from claiming further title to or interest therein as against a bona fide pledgee or transferee thereof. thereof. The certificate was delivered by Campos to HSBC in the
A De Los Santos v. JH McGrath, Atty General of the US. F: Involves the true ownership of 1,600,000 shares of Lepanto Mining. The original owner was the Mitsui Co, a Japanese corporation, and was held in trust by Vicente Madrigal, in whose name the shares were registered in the books of Lepanto. Madrigal delivered the certificates to the Mitsui office in the RP, which kept the same until the liberation of Manila by the US. The Mitsuis nor Madrigal had never sold or disposed of the shares, which was alleged to have been looted or stolen stolen during the liberation. By virtue of vesting order P-12, title in the shares was ordered vested in the Alien Property Custodian of the US, which was succeeded in this action by the US Atty General. De Los Santos and Astraquillo however claim to be owners of 1,600,000 shares of Lepanto Mining, alleging that they bought
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1,100,000 from Carl Hess and 500,000 from Juan Campos. All evidence and persons who could testify as to their ownership of the shares no longer longer existed. Hess was executed by the Japanese and Campos killed during the liberation. A receipt made in a purported sale by Astraquillo of the shares was curiously destroyed by fire.
has been such as to create an estoppel against him — The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer acquires no title as against the true owner does not apply where the circumstances are such as to estop the latter from asserting his title — It is not negotiable because the holder takes it without prejudice to such rights or defenses as registered owners or transferor’s creditor may have under the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles governing estoppel
I: Who owns the certificates? H: Under the Code, a share of stock may be transferred by endorsement of the certificate coupled with delivery. The transfer is not valid except as between the transferring parties, unless it is entered and noted upon the books of the corporation. No such entry in the name of de los Santos and Astraquillo having been made, it follows that the transfer allegedly effected by Hess and Campos is not valid, except as between themselves. It does not bind the Madrigals or the Mitsuis who are not parties to the alleged transaction. Although a stock certificate is sometimes regarded as quasinegotiable, in the sense that it may be transferred by endorsement, coupled with delivery, it is well-settled that the instrument is non-negotiable, because the holder thereof takes it without prejudice to such rights or defense as the registered owner or credit may have under the law. If the owner of the certificate has endorsed it in blank, and it is stolen from him, no title is acquired by an innocent purchaser for value. The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer acquires no title as against the true owner does not apply where the circumstances are such as to estop the latter from asserting his title. Where one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss must fall on the one who first trusted the wrongdoer and put in his hands the means of inflicting such loss. But negligence which will work an estoppel of this kind must be the proximate cause of the damage and must be in or i mmediately connected with the transfer itself.
Collateral transfers
— As personal property, shares may be the subject matter of pledge and chattel mortgage (CM) Collateral transfers are not covered by the registration o requirement in Sec 63 (applies only to absolute transfers per SC in Monserrat v Ceron) If certificate is delivered as security for the performance of an o obligation, it is a pledge and governed by CC If not delivered, transaction must be registered in the CM registry o of the province If SHs domicile is i n a different province, registration must also be o made in such province Chua Gan v Samahang Magsasaka Inc. F: Chua Gan is the assignee of all rights and interests of mortgagee Chua Chiu, in whose favor a mortgage upon shares of corporation Samahang Magsasaka Inc owned by debtor Cotoco was entered into, delivered, and registered in the RoDs. Cotoco defaults, Chua Gan forecloses mortgage and after public auction, certificate of shares were entered in his favor. favor. Chua Gan then tendered the certificates to the corporation for cancellation and the issuance of new certificates in his name. Officers of Samahang Magsasaka refused, contending that 9 attachments had been issued and served against the shares of Cotoco in the books. 8 of the writs were served and noted in the books before the corporation knew of the mortgage of Chua Chiu. Chua Gan sues. (The registered owner mortgaged the shares and the mortgagee not only registered the mortgage with the registry of deeds, but also in the books of the corporation. When the mortgagee foreclosed on the mortgage, the officers of the corporation refused to issue the new certificates in the name of the mortgagee as the winning bidder thereof in the auction sale, on the ground that before the mortgagee made his demand upon the corporation, writs of attachments had been served upon and registered in the books of the corporation against the mortgagor, which the mortgagee refused to have annotated in the new certificate to be issued to him)
Moreover, delos Santos and Astraquillo were aware of sufficient facts to put them on notice of the need of inquiring into the regularity of the transactions and the title of supposed vendors. The certificates were in the name of Madrigal. Obviously therefore, the alleged sellers were not the registered owners of the certificates and shares of stock. They must have been conscious of the infirmities in title. The purported sales were also admittedly hostile to the Japanese, who had prohibited it, and plaintiffs had actual knowledge of these facts and of the risks attendant. In other words, they assumed those risks and cannot validly claim against the registered SH, the status of purchasers in GF.
— A stock certificate is not a negotiable instrument, but it is regarded as quasi-negotiable in the sense that it may be transferred by endorsement coupled with delivery — A transferee under a forged assignment acquires no title which can be asserted against the true owner, unless the true owner’s own negligence
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or registered pursuant to the Corpo Code may: I: w/n the registration of the CMs in the ROD is constructive notice to the attaching creditors (w/n the mortgage took priority over the writs of attachment) H: GR: for purposes of execution, attachment, attachment, and garnishment, it is not the domicile of the owner of the certificate but the domicile of the corporation which is decisive. By analogy, and considering that the ownership of shares in a corporation as property distinct from the certificates which are merely the evidence of such ownership, the property in the shares may be deemed to be situated in the province in which the corporation has its principal office or place of business. If this province is also the province of the owner’s domicile, a single registration is sufficient. If not, the CM must be registered both at the owner’s domicile and in the province where the corporation has its principal office or place of business. In this sense the property mortgaged is not the certificate but the participation and share of the owner in the assets of the corporation.
— Issue shares to or record the transfer of some or all its shares in the form of uncertificated securities, to investors or securities intermediaries, upon resolution of the board and agreed by a SH — Use of said uncertificated securities shall be without prejudice to the rights of the securities intermediary to subsequently require the issuance of the certificate — Issue all of the shares of a particular class in the form of uncertificated securities, subject to the condition that the investors may not require the corporation to issue a certificate Under 43.3 of the SRC: transfers of securities, including uncertificated ones, may be validly made and consummated in any of the ff ways, which would have the effect of delivery of a security in bearer form or duly indorsed in blank, representing the unrestricted negotiability of such delivery:
The transfer by endorsement and delivery of a certificate with intention to pledge the shares covered thereby should be sufficient to give legal effect to that intention and to consummate the juristic act without necessity for registration. Thus the attaching creditors are entitled to priority over the defectively registered mortgage of Chua Gan.
— By appropriate book entries in the securities accounts maintained by securities intermediaries — In the stock and transfer book held by the corporation or stock transfer agent *The transfer shall only be valid—as to the corporation—when it is recorded in the books of the corporation
— Considering the ownership of shares in a corporation as property distinct from the certificates which merely evidence the ownership, then the property in the shares may be deemed to be situated in the province which the corporation has its principal office or place of business. In this sense property mortgaged is not the certificate but the participation and share of the owner in the assets of the corporation. — Although under 63 the surrender of the certificate is necessary to effect the transfer of shares, it does not exclude the possibility that a transfer may be made in a different manner; meaning that the execution of a deed of assignment can be a valid mode of transferring title covering shares of stock.
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non-transferability and termination of membership in non-stock corporations
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— GR: shares are freely transferable — Exception: in close corporations S90-91
Special rules on registered or listed shares Under Sec 43.1 of the SRC: a corporation whose shares are listed in the PSE
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Transfer or or co conveyance Payment or consi de derati on on Delive Delivery ry of of stock stock cert certific ificate ate (indorsed—manner of indorsement) Prese Presenta ntatio tion n of docume document nt of of conveyance
Remitting of of tr transfer Presentati on on of original stock certificate Recording Recording of transfer
Cancellation Issuance of certificate
See table above One without the other: short of ownership of transferred shares Short of having transfer recorded: kulang pa ri n! Cases show that it is NOT sufficient that you have the stock certificate Problems arise when: Not all requirements for valid transfer are met Considerable delay in satisfying requirements of the Code Parties not original owner/transferor could assert proprietary rights Stock certificate: evidence of ownership of shares Whoever owns/holds the certificate is only presumed to be the owner Can be used to confirm conveyances made Similar to a check/negotiable instrument; all you do is endorse, even in blank: mere signature of endorser Without this certificate: NO voting rights, NO economic rights; these would not materialize until all requirements are satisfied Ideally, transfer and recording are done on the same date Both should happen one after the other Books recognize only one owner Code ensures that corporation recognizes only one SH of record (see Portland case) Transferee has way out if transfer or conveyance is imperfect If you do not comply, you expose yourself to risk! Unless transferee does not intend to be a SH of record (Chuidian: he has to be a SH because he wants to be director!)
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