CHAPTER 10: STOCKS and STOCKHOLDERS

1. How does one acquire shares?

a. By contract of subscription with the corporation;
b. Purchase of treasury shares from the corporation;
c. By purchase or acquisition of shares from existing stockholders
2. Is there any distinction between subscription and purchase of shares of stock?
NO. The distinction has been eliminated. So long as the shares to be acquired are
UNISSUED STOCKS of the corporation, the contract will be deemed a subscription
contract.
e.g. 10M ACS
5M Subscribed Capital Stock
5M Paid-up Capital
5M unissued shares
J wants to subscribe 1M of the unissued stocks. The corporation executed a contract of
sale, J is asked to pay for 50% down payment and a condition that J will not become a
stockholder unless full payment has been made. Corporation leased a piece of land, their
only asset. The same was ravaged by a storm. The corporation now demands payment for
the balance from J. Should J be compelled to pay the balance?
YES. J is liable to pay the balance. Sec. 60 of the corporation code provides
Sec. 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)
Also, once subscribed, J became a stockholder inclusive the unpaid balance.
3. A did not pay for 200k shares. The corporation demanded payment but still, A did not pay the
same. Hence, he was considered as a delinquent stockholder. The corporation then sold the shares
in a public auction and the corporation was declared as the highest bidder. The corporation paid
203k for As shares. As shares now became treasury shares. J wants to acquire the said shares and
the corporation was willing to sell provided that J first make a 50% down payment and he shall
not be considered as a stockholder until full payment of the shares. J paid for the down payment
but did not pay the balance. Later on, fire broke and destroyed all of the assets of the corporation.
May J be compelled to pay for the balance of the shares?
NO. The transaction not subscription as contemplated in sec. 60 of the corporation
code. It was a PURCHASE - In order to be considered as subscription, the stocks
subscribed must be UNISSUED stocks. In the question given, when A subscribed for the
200k shares, there was already subscription. THERE IS NO SUCH THING AS
PURCHASE OF UNISSUED SHARES.
SUBSCRIPTION
In cases of INSOLVENCY:
A debtor form subscription is liable.

OTHER MODES OF BECOMING A

STOCKHOLDER (purchase)
The corporation can have no claim since it can no
longer issue a stock certificate, because there is no
consideration.

4. Are subscription contracts need to be in writing?

NO. Subscription of shares of stocks are not covered by the statute of frauds as it is not
considered as a sale. Hence, an ORAL subscription is valid.
5. May it be conditional?
YES. Conditional subscriptions are valid provided that there is nothing in the charter to
prohibit such and it is within the powers of the corporation to perform and is not contrary
to law or contrary to public policy.
Conditional subscription vs. Subscription upon special terms:
Conditional subscription A condition where it does not make a subscriber a
stockholder, or render him to pay the amount of his subscription, until
performance or fulfillment of the condition.
Subscription upon special terms An absolute subscription, making the
subscriber a stockholder, and rendering him liable as such, as soon as the
subscription is accepted, the special term being an independent stipulation.
*Whether the subscription is conditional or in special terms depends on the
agreement or intention of the parties. In case of doubt as to the intentions of the
parties, a subscription must be considered as an absolute subscription upon
special terms. The purpose is to give protection to creditors and other subscribers.
6. In question number 2, was the condition proper?
NO. The condition is contrary to law. As provided for under sec. 60 of the corporation
code provides that it is a subscription contract.
A facultative condition, one which is dependent upon the will of the debtor renders the
obligation void. Hence, the condition, being contrary to law would not hold a
subscription valid and enforceable. (Trillana vs. Quezon College)
TRILLANA vs. QUEZON COLLEGE
FACTS:
Damasa Crisostomo sent a letter with the intention to subscribe capital stock in
respondent corporation. Enclosed inside the letter was her initial payment, alongside with
a condition that the balance shall be paid if she would be able to catch fish.
Damasa died and respondent corporation instituted a case to claim against her
estate for the unpaid balance of her subscription.
ISSUE: Whether or not the subscription is valid and enforceable.
HELD: NO.
During the negotiation for the subscription of the shares, there was an initial
offer, however, Damasa wrote a counter proposal for the price of the shares. Being such,
there should be an express acceptance on the part of the respondent in order for the
agreement to be binding. Absent of evidence for such express acceptance, then it could
not be said that there is a valid and enforceable subscription.
The need of an express acceptance is more imperative, in view of the proposal of
Damasa to pay the remaining value of the subscription after she had harvested fish. Such
condition is dependent on her will, making it a facultative condition. Under the civil

code, a condition dependent on the sole will of the debtor renders the obligation void.
However, a condition dependent upon chance or upon the will of a third person is valid.
7. When can subscription be made?
Sec. 60 provides
i. Pre-incorporation subscription subscription of shares of stock of a corporation
still be formed.
ii. Post incorporation subscription subscription of those made or executed after the
formation or organization of the corporation.
Sec. 61. Pre-incorporation subscription. - A subscription for shares of stock of a
corporation still to be formed shall be irrevocable for a period of at least six (6) months
from the date of subscription, unless all of the other subscribers consent to the revocation,
or unless the incorporation of said corporation fails to materialize within said period or
within a longer period as may be stipulated in the contract of subscription: Provided, That
no pre-incorporation subscription may be revoked after the submission of the articles of
incorporation to the Securities and Exchange Commission. (n)
Sec. 61 gives an immediate binding effect on pre-incorporation subscriptions as against
the subscribers of the capital stock of a corporation still be formed. Pre-incorporation
subscription is MANDATORY1.
Pre-incorporation subscription is also IRREVOCABLE for a given period of time:
1. They shall be irrevocable for a period of at least 6 months from the date of
subscription unless:
a. All the subscribers consent to the revocation;
b. The incorporation of the said corporation fails to materialize within
said period or within a longer period as may be stipulated in the
contract of subscription.
SIR: When there is subscription, there is actual issuance of shares. Such issuance must be made for a
valid consideration.
8. What may be used as consideration for the issuance of shares of stock?
Sec. 62. Considering 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; (a set-off)
5. Amounts transferred from unrestricted retained earnings to stated capital; and
1 Sec. 13 and 14 of Corp Code: Mandates that a corporation may be registered as
such if at least 25% of its authorized capital stock has been subscribed and that at
least 25% of the subscribed capital has been paid.

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)
9. If the consideration is other than actual cash, who shall determine the value?
a. Tangible properties
i. By an independent appraiser;
ii. Zonal valuation as certified by the BIR;
iii. Real Estate Tax Declaration
b. Intangible properties (i.e. patents, copyrights)
i. Board of Directors subject to the approval of the SEC;
ii. Independent appraiser
Theories on valuation of property and services:
a. True value rule the motives or intent of those making the valuation are disregarded
and the sole and decisive question is whether or not the property or
services are in fact worth the value placed on them.
b. Good faith rule The proposition that the value of the property or services is a matter
about which there can be an honest difference of opinion. If the
parties have acted in good faith without fraud or intentional overvaluation, the transaction cannot be overturned even if the later
becomes evident that the property or services were in fact worth
much less than the value fixed on them initially. This is more
followed.
10. What is meant by amounts transferred form unrestricted retain earnings to stated capital?
It means the declaration and distribution of stock dividend where corporate earnings are
capitalized rather than being distributed as cash dividend. It merely converts income into
capital, the consideration being the retained earnings itself which would have accrued to
the stockholders in proportion to their respective stockholdings.
11. What is meant by outstanding shares exchanged for stocks in the event of reclassification or
conveyance?
Shares of stocks surrendered to the corporation in exchange for new or different type of
shares. It may take place by amendment of the AOI.

e.g. Founders shares with exclusive voting rights which shall not exceed 5 years, may be
converted into common or other type of shares upon the expiration of the period agreed
upon or as may be fixed in the AOI or by-laws.
12. How is the value of no par shares determined?
It may be fixed in
a. Articles of incorporation; or
b. Board of directors pursuant to an authority conferred upon them by the Articles
of Incorporation and by-laws;
c. Stockholders representing at least a majority of the OCS at a meeting duly
called for that purpose, provided that the value of the no-par value shares
would not be less than 5php.
13. Can promissory notes or future services be a consideration for shares of stock? Why?
NO. As explicitly provided for in sec. 62 of the Corporation Code, promissory notes or
future services cannot be made for considerations for shares of stock as their realization is
not certain. It would prejudice the creditors who shall rely on the shares for payment.
This is in relation to the trust fund doctrine.
14. May shares of stock be issued without consideration? Like the consideration shall be paid out of
the dividends?
NO. It is illegal and void as in fraud of other stockholders and creditors, or both,
and cannot be either enforced by the subscriber or interposed as a defense in an action for
subscription (in relation to the trust fund doctrine). Subscribers, all alike, are bound to
pay full par value in cash or its equivalent, and any attempt to discriminate in favor of
one subscriber by relieving him of this liability wholly or in part is forbidden. (National
Exchange Co. Inc. vs. Dexter)
NATIONAL EXCHANGE CO. INC. vs. DEXTER
FACTS:
Dexter signed a subscription of capital stock where there is a stipulation that it is
payable from the fist dividends declared of the capital stocks until the subscription is
paid.
ISSUE: Whether the stipulation is valid?
HELD: NO. The stipulation is not valid.
It shall be unlawful to issue stock otherwise than what is stated in the law. It is
self-evident that a stipulation such as that now under consideration is illegal; for the
stipulation obligates the subscriber to pay nothing for the shares except as dividends may
accrue upon the stock. In the contingency that no dividends are declared and paid, there is
no liability at all. This is a discrimination in favor of the particular subscriber, and hence,
is unlawful.
It is illegal and void as in fraud of other stockholders and creditors, or both, and
cannot be either enforced by the subscriber or interposed as a defense in an action for
subscription.
The rule is that conditions attached to subscriptions, which, if valid, lessen the
capital of the company, are fraud upon the grantor of the franchise, and upon those who
may become creditors of the corporation, and upon unconditional stockholders.
Subscribers, all alike, are bound to pay full par value in cash or its equivalent,
and any attempt to discriminate in favor of one subscriber by relieving him of this
liability wholly or in part is forbidden.

CERTIFICATE OF STOCK AND THEIR TRANSFER

SIR: The issuance of a certificate of stock (COS) is done after FULL payment of the stocks.
The issuance of a stock certificate is not a condition sine quanon to consider a subscriber as a stockholder.
The moment his subscription becomes effective, he becomes a stockholder for all intents and purposes
except only that he cannot be entitled to be issued a certificate of stock until full payment of his
subscription2 and he cannot transfer the same without full payment.
15. What are the requisites of a valid certificate of stock 3?
a. It must be signed by the president or vice-president and countersigned by the secretary
or the assistant secretary;
b. It must be sealed with the corporate seal; and the entire value thereof (together with
interest or expenses, if any) should have been paid.
16. Are stockholders who have not fully paid for their subscription, have no rights as stockholders?
NO. A subscriber to shares of stock, even if not yet fully paid, is entitled to exercise all
the rights of a stockholder and corresponding liabilities, as long as they are not
considered as delinquent stocks.
Sec. 72. Rights of unpaid shares. Holders of subscribed shares not fully paid
which are not delinquent shall have all the rights of a stockholder.
*NOTE: There are only 2 instances when a stockholder may not exercise his
rights as such stockholder: (1) when his shares are declared delinquent; (2)
when he exercises his appraisal right.
17. Are certificates of stocks transferrable? How?
Two modes:
General rule: endorsement of the owner or his attorney-in-fact AND delivery;
and
Exception: duly notarized deed of assignment
18. Are certificate of stocks negotiable?
NO. They are QUASI-NEGOTIABLE.
The transferee takes it without prejudice to all the rights and defenses which the true and
lawful owner may have except insofar as the principles governing estoppel may apply.
e.g. (1)
A is an owner of a Certificate of stock, which was stolen by B. B forged the
signature of A and transferred it to C. Can C acquire title?
NO. Because A has all the defenses of an owner, unless the principle of
estoppel applies.
*NOTE: If the instrument was NEGOTIABLE, then C is a holder in due course.
e.g. (2)
2 Sec. 72. Rights of unpaid shares.
3 Sec. 63. Certificate of stock and transfer of shares.

A is an owner of a stock certificate which he endorsed to B. Because B has a

grudge on A, the former sold it to C. C bought the certificate in good faith and for
value. Can C acquire title?
YES. There is a valid transfer as B was clothed with an apparent
authority. It now becomes a street certificate. (application of Doctrine of
Non-negotiability.)
Thus while certificates of stock are non-negotiable, if the legal owner
thereof, by his act or negligence, is estopped from claiming ownership
(as when he clothes another with apparent title or authority to dispose the
same), a purchaser in good faith and without notice will acquire a better
title as against the owner so estopped.
Street Certificate when the owner of the same endorsed it in blank.
Hence, the holder is entitled to demand its transfer in his name from the
issuing corporation.
DOCTRINE OF NON-NEGOTIABILITY
A bona-fide purchaser of such certificate will acquire no better title to the shares
than his transferor had, and that he took the shares subject to all rights, remedies and
defenses which the true and lawful owner may have no matter how innocent or ignorant
the purchaser or transferee may have been, will have no application where estoppel
governs.
19. Is there a requirement for registration of transfer to be binding to the parties? Binding the
corporation and third persons?
NO. Non-registration does not affect the validity of the transfer insofar as the contracting
parties are concerned.
HOWEVER, to be binding as to the corporation and other third persons, it must be
recorded in the stock and transfer books. Unrecorded transfer cannot enjoy the status of a
stockholder; he cannot vote nor be voted for, and he will not be entitled to dividends.
A transfer of shares not recorded in the stock and transfer book of the corporation is non-existent
in so far as the corporation is concerned. This is so because the corporation looks only through
its books for the purpose of determining who its stockholders are. (Nautica Canning Corp. vs.
Yumul)
It is equally clear to us that all transfer of shares not so entered are invalid as to attaching or
execution creditors of the assignors as well as to the corporation and to subsequent purchaser in
good faith, and indeed, as to all persons interested, except the parties to such transfer. All
transfers not so entered on the books of the corporation are absolutely void; not because they are
without notice or fraudulent in law or fact, but they are made so void by statue. (Uson vs.
Diosomito)
Purpose of registration:
a. enable the transferee to exercise all the rights of a stockholder;
b. inform the corporation of any change in shares ownership so that it can ascertain the
persons entitled to the rights and subject to the liabilities of a stockholder;

c. To afford the corporation an opportunity to object or refuse registration of the transfer in

case allowed by law (as when it has unpaid claims on the shares transferred);
d. to avoid fictitious and fraudulent transfers;
e. to protect creditors who have the right to look upon stockholders, in case of non-payment
or watered shares, for the satisfaction of their claims.
USON vs. DIOSOMITO
FACTS:
Diosomito is the original owner of the shares in question. In 1931, he sold the said shares
to Barcelon, accompanied it with the delivery of the corresponding certificates of stock. However,
Barcelon did not present the certificates to the corporation for registration until 1932. When the
stocks were registered in his name, Barcelon transferred the same to Jollye.
It must be noted that before Barcelon registered the certificates, a writ of attachment was
levied upon Diosomito.
ISSUE: Whether a bona fide transfer of shares, not registered or noted on the books of the
corporation, is valid against a subsequent lawful attachment of shares, regardless of whether the
attaching creditor has actual notice of the said transfer or not.
HELD: NO.
Under the then Corporation Law, the same states that the transfers must be registered to
be valid and binding upon the corporation and third persons.
All transfers of shares should be entered, as here required, on the books of the
corporation. And it is equally clear to us that all transfer of shares not so entered are invalid as to
attaching or execution creditors of the assignors as well as to the corporation and to subsequent
purchaser in good faith, and indeed, as to all persons interested, except the parties to such
transfer. All transfers not so entered on the books of the corporation are absolutely void; not
because they are without notice or fraudulent in law or fact, but they are made so void by statue.
20. What is transfer as used in the code?
Absolute and unconditional transfer to warrant registration in the books of the
corporation in order to bind the latter and other third persons.
21. Does the word transfer include mortgage?
NO. Mortgage is merely a conditional transfer, hence, not one contemplated in the word
transfer. What the law refers to as to the word transfer is the unconditional transfer or
absolute conveyance of ownership of title. Hence, the requirement for registration in the
books of the corporation is not required for a mortgage of stocks to be valid. (Monserrat
vs. Ceron)
MONSERRAT vs. CERRON
FACTS:
Plaintiff is the president and manager of Manila Yellow Taxi Cab Co., Inc. Due to
the financial aid extended to him by respondent, Monserrat assigned to Cerron usufruct
of half of his common shares by issuing a deed of assignment. In the said deed,
Monserrat assigned only the right to enjoy the profits which may be derived from the said
shares and prohibited Cerron to mortgage, sell, encumber, alienate or do other acts
implying absolute ownership.
Cerron however, mortgaged the shares to Matute, the latter having no knowledge
of the agreement. Due to non-payment, the mortgage was foreclosed and was sold in a

public auction. Monserrat alleged ownership of the same. The trial court ruled in favor of
Monserrat and declared the mortgage null and void.
ISSUE: Whether or not it is necessary to enter upon the books of the corporation a
mortgage in order to be valid and enforceable against third persons.
HELD: NO.
What the law refers to as to the word transfer is the unconditional transfer or
absolute conveyance of ownership of title. Hence, the requirement for registration in the
books of the corporation is not required for a mortgage of stocks to be valid. Cerron,
having acquired the shares in good faith, is entitled to the protection of the law.
22. Must the mortgage be registered in the register of deeds in order to have force and effect against
third persons or creditors?
YES. While it is true that the registration of the mortgage in the books of the corporation
is not required in order for the mortgage to be valid (Monserrat vs. Cerron). However, the
said mortgage must be registered in the REGISTRY OF DEEDS of the residence of the
mortgagor AND the register of deeds in the province where the principal office of the
corporation is situated. A defective registration of mortgage in the register of deeds shall
not have any priority over attaching creditors. (Chua Guan vs. Samahang Magsasaka)
CHUA GUAN vs. SAMAHANG MAGSASAKA, INC.
FACTS:
Respondent is a corporation with a principal office at Cabanatuan, Nueva Ecija. Co Toco,
the owner of 5,894 shares of the said corporation, mortgaged the same to Chua Chiu, a resident of
Manila, to guarantee the payment of a debt. Chua Chiu registered the deeds of assignment in the
Register of Deeds of Manila.
Co Toco defaulted on his payment, hence, the mortgaged was foreclosed and was sold at
a public auction, Chia Chiu being the highest bidder. Co Toco then demanded the corporation for
the cancellation of the old certificates of stocks and the issuance of new ones in his name.
It must be noted that before notice of the mortgage, there were already writ of
attachments served to the corporation.
ISSUE: Whether or not the registration of the chattel mortgage in the Register of Deeds of
Manila gave constructive notice to the attaching creditors?
HELD: NO.
It has been already settled that registration in the corporate books is not a requirement for
the validity of mortgage of stocks. However, the under the chattel mortgage law, when such
mortgage has been made, it must be registered in the following:
xxx
(c)If the residence of the mortgagor is different from the place where the property is
located, the mortgage must be BOTH recorded in the mortgagors residence and the
province where the property is situated.
In the present case, the registration of the mortgage was defective as it was only
registered in the residence of the mortgagor and not with the province where the property was
situated. Hence, the attaching creditors are entitled to priority over the defectively registered
mortgage.

23. May the right to transfer be restricted?

YES. By (1) law;
a. The right of the owner of the shares to transfer the same is limited and restricted by
express provision (of sec. 63, Corporation Code) 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. (Uson vs. Diosomito)
PADGETT vs. BABCOCK & TEMPLETON
FACTS:
Padgett was an employee of the defendant corporation. He bought
several shares from the same. Also, as a Christmas bonus, the corporation
transferred several shares to his name. Certificates were issued in Padgetts name,
however, the word non-transferrable appears on each and every one of the
certificates.
Padgett, before severing his relations to the corporation decided to sell his shares
to the corporation, if not, hed be authorized to sell the same to other persons.
The corporation agreed to buy the shares of Padgett but the value thereof was
below par value. Hence, he did not agree to the said sale.
ISSUE: Whether or not (1) the restriction imposed on the right to transfer the
shares is valid; (2) May the corporation be compelled to buy the shares of a
selling stockholder.
HELD:
(1) The restriction on the right to transfer the shares is NOT valid.
As a general rule, the owner of the shares may dispose his shares of stock as he
sees fit, unless the corporation has been dissolved, or unless the right to do so is
properly restricted, or the owners privilege has been hampered by his own
action.
Any restriction on a stockholders right to dispose his shares must be construed
strictly; and any attempt to restrain a transfer of shares is regarded as being in
restraint of trade, in the absence of a valid lien upon its shares, and except to the
extent that valid restrictive regulations and agreements exist and applicable.
Subject only to such restrictions, a stockholder cannot be controlled in or
restrained from exercising his right to transfer by the corporation or its officers or
by other stockholders, even though the sale is to a competitor of the company or
to an insolvent person, or even though ta controlling interest is sold to on
purchaser.
The only restriction imposed is under sec. 63 of the Corporation Code.
(2) There is no law or authority that states that a corporation is compelled to buy
the shares of a stockholder at par value, plus interest demanded thereon. In the
absence of a similar contractual obligation and of a legal provision applicable
thereto, it is logical to conclude that it would be unjust and unreasonable to
compel the said defendants to comply with the non-existent or imaginary
obligation.

b. by special laws ( e.g. General Banking Act)

(2) by agreement;
The restriction must not be unreasonable. (Fleischer vs. Botica Nolasco)
A restriction to the power of a stockholder to dispose his share shall not be deemed
unreasonable when the same has a beneficial purpose, results in the protection of the
corporation as well as the individual parties to the contract, and is reasonable as to the
length of time. (Lambert vs. Fox)
LAMBERT vs. FOX
FACTS:
John Edgar & Co., a corporation engaged in the stationary business suffered
financial loses, hence, its creditors, including the plaintiff and the defendant agreed to
take over the business. Both the defendant and the plaintiff became the two largest
stockholders of the same.
After the incorporation of the new corporation, an agreement was entered into
between the plaintiff and the defendant. The agreement stated that they mutually agree
not to sell, transfer or otherwise dispose of any part of their present holdings of stock in
said corporation till after one year from the date thereof.
Nonetheless, respondent sold his shares to the competitor corporation.
ISSUE: Whether or not the stipulation in the said agreement is valid.
HELD: YES. The stipulation is valid.
The suspension of the power to sell has a beneficial purpose, results in the protection of
the corporation as well as the individual parties to the contract, and is reasonable as to the
length of time of the suspension.
(3) by AOI
i.e. Preferential rights may be given if stated in the AOI and printed in all certificate of
stocks.

SIR: Sec. 63 governs transfers of shares of stock.

GENERAL RULE: Transfer of stock is through
(1) Endorsement of the owner or his attorney-in-fact; AND
(2) Delivery of the Certificate of Stock to the transferee
EXCEPTION:
Upon the execution of a NOTARIZED DEED OF ASSIGNMENT (valid only when a
certificate of stock has not yet been issued.) (Rural Bank of Salinas vs. CA)
EXCEPTION TO THE EXCEPTION: Once a certificate of stock has already been issued, it
cannot be transferred by mere notarized deed. The notarized deed must be coupled with the
endorsement and delivery of the certificate of stock. (Rural Bank of Lipa vs. CA)
The reason is to avoid fraudulent transactions and double sales.

EXCEPTION TO THE EXCEPTION TO THE EXCEPTION:

Delivery and endorsement is not essential where it appears that the person sought to be held as
stockholders are officers of the corporation, and have the custody of the stock book. (Tan vs.
SEC)
EXCEPTION TO THE EXCEPTION TO THE EXCEPTION TO THE EXCEPTION:
When there is a voting trust agreement
EXCEPTION TO THE EXCEPTION TO THE EXCEPTION TO THE EXCEPTION TO
THE EXCEPTION:
In cases of lost and destroyed certificates.
24. May it be validly transferred through (1) indorsement of the Certificate of Stock only? (2) Only
delivery of the COS?
(1) NO. When the Certificate of Stock is endorsed but not delivered (in this case,
withholding delivery by the transferor) will not constitute a valid transfer of a
certificate of stock. (Embassy Farms, Inc. vs. CA)
(2) Delivery not coupled with endorsement is not a valid mode of transfer of shares of
stock. (Razon vs. IAC)
25. Are there other modes of transfer?
YES. A notarized deed of assignment is equivalent to the delivery of the thing itself. A notarized
deed of assignment is a valid mode of transfer if no certificate of stock has yet been issued.
When a corporation refuses to register a validly transferred certificate of stock without good
cause, the corporation may be compelled by mandamus to register the said stocks. The duty of
the corporation is ministerial in nature. Being such, a corporation cannot validly refuse
registration of certificates of stocks without good cause. (Rural Bank of Salinas vs. CA)
Refusal of registration with good cause:
In order for a writ of mandamus to be issued, the transferee must first establish his legal right to
the thing demanded. When the pledgee (alleged transferee) did not comply with the requisites
under the Civil Code in order to obtain the ownership of the shares of stock (thing pledged), then
the corporation may validly refuse to register the same. (Tay vs. CA)
RURAL BANK OF SALINAS vs. CA
FACTS:
The deceased was the President of the petitioner company. Before his death, he executed
an SPA in favor of his wife, authorizing her to sell and dispose all of his shares in the said
corporation.
Pursuant to the said SPA, the wife executed a Deed of Assignment in favor of the other
private respondents.
Respondents then presented the Deeds of Assignment for registration. The request for the
same was denied by the petitioner corporation.
ISSUE:
Whether or not the corporation may be compelled to register the deeds of assignment by
Mandamus.
HELD:

Whenever a corporation refuses to transfer and register stock in cases like the present,
mandamus will lie to compel the officers of the corporation to transfer said stock in the books of
the corporation.
The corporations obligation to register is a ministerial one and if it refuses to make such
transaction without good cause, it may be compelled so by mandamus.
TAY vs. CA
FACTS:
Respondent secured a loan from petitioner, in order to secure the loan, respondent
executed a contract of pledge whereby he pledged 300 shares of stock from respondent
corporation. Respondent failed to pay his loan. Hence, petitioner filed a petition for mandamus in
order to register the stock transfers and issue new certificates in his favor.
ISSUE: Whether or not the respondent corporation may be compelled by mandamus to register
the said stocks.
HELD: NO.
The reliance over the case of Rural Bank of Salinas vs. CA has been misplaced. In the
said case, the contract of transfer / sale has already been perfected. In this case, the petitioners
ownership over the said shares was not yet perfected when the complaint was filed. The contract
of pledge certainly does not make him the owner of the shares pledged.
In Rural Bank of Salinas, the transferees were already prima facie shareholders when the
deeds of assignment were questioned. If the said deeds were to be annulled later on, respondents
would still be considered shareholders of the corporation from the time of the assignment until
the annulment of such contracts.
In order that a writ of mandamus may be issued, it is essential that the person petitioning
for the same has a clear legal right to the thing demanded and that is the imperative duty of the
respondent to perform the act required. It neither confers powers nor imposes duties and is never
issued in doubtful cases. It is simply a command to exercise a power already possessed and to
perform a duty already imposed.
In the present case, the petitioner failed to establish this legal right. Under the civil code,
in order to become the owner of the pledged thing, there must first be a public auction. Absent
such requirement, the ownership of the shares could not have passed to him and the pledgor
remains the owner of the thing pledged.
NAVA vs. PEERS MARKETING
FACTS:
Teofilo Po is a stockholder in respondent corporation. However, no certificate of stock
was issued to him. He then sold his shares to petitioner. Petitioner then requested the corporation
to register to his name the transfer made by Po. The said request was denied because Po has not
fully paid the amount of his subscription.
ISSUE: Whether or not the respondent corporation may be compelled to register the stocks sold
by Po to Nava.
HELD: NO.
The transfer made by Po to Nava is not alienation, sale or transfer of stock that is
supposed to be recorded in the stock and transfer book, as contemplated in sec. 63 of the
Corporation Code.
As a rule, the shares which may be alienated are those which are covered by certificates
of stock. To validly transfer the same, they must be indorsed and properly delivered by the

transferee. Title may be vested in the transferee by delivery of the certificate with a written
assignment or indorsement thereof.
In the case given, there was no certificate of stock issued to Po as he has not yet fully
paid his subscription. Hence, without the said certificate of stock, he cannot validly transfer the
said certificates.
26.