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Tan vs.

SEC (206 SCRA 740 [1992])


Lessons Applicable:
? Nature of Certificate of Stock (Corporate Law)
? Rights to Certificate of Stock for Fully Paid Shares (Corporate Law)
Page 60 of 960 CORP LAW
FACTS:
? October 1, 1979: Visayan Educational Supply Corp.
? As incorporator, Alfonso S. Tan had 400 shares of the capital stock at the par
value of P100/share, evidenced by Certificate of Stock No. 2
o elected as President until 1982
o Board of Directors as director until April 19, 1983
? January 31, 1981: incorporators Antonia Y. Young and Teresita Y. Ong, withdrew
by assigning to the corp. their shares, represented by certificate of stock No.
4 and 5, they were paid 40% corporate stock-in-trade
? Certificate of stock No. 2 was cancelled by the corporate secretary and Patric
ia Aguilar by virtue of Resolution No. 1981 which was passed and approved while
he was still a member of the BOD
? Due to the withdrawal of the 2 incorporators and in order to complete the memb
ership of the 5 directors of the board, he sold 50 shares out of his 400 shares
of capital stock to his brother Angel S. Tan
? Another incorporator, Alfredo B. Uy, also sold 50 of his 400 shares of capital
stock to Teodora S. Tan
? March 27, 1981: Angel Tan was elected director and on March 27, 1981
? Certificate of Stock No. 2 was cancelled and the Certificates Nos. 6 in the na
me of Angel S. Tan and 8 in the name of Alfonso S. Tan, Mr. Buzon were issued an
d delivered (stock split), signed by the newly elected fifth member of the Board
, Angel S. Tan as VP, upon instruction of Alfonso S. Tan who was then the presid
ent
o Alfonso S. Tan was given back Stock Certificate No. 2 for him to endorse and h
e deliberately withheld it for reasons of his own - so as if no delivery
? Certificate of Stock No. 8 was delivered to Tan Su Ching
? January 29, 1983: Tan Su Ching was elected as President, Tan as VP but did not
sign the minutes
? February 27, 1983: dislodged from his position as president, he withdrew from
the corporation paid with stock-in-trade corresponding to 33.3% par value of P35
,000.00
Page 61 of 960 CORP LAW
? April 19, 1983: Board meeting cancelled Stock Certificate Nos. 2 and 8 and min
utes submitted to SEC
? December 3, 1983: Alfonso S. Tan filed the SEC case questioning for the first
time, the cancellation of Stock Certificates Nos. 2 and 8
o 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, the number of the cer
tificate or certificates and the number of shares transferred.
The capital stock and st
? SEC. 63. Certificate of stock and transfer of shares.
ock and corporations shall be divided into shares for which certificates signed
by the president and vice president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall be issued in accor
dance with the by-laws. Shares of stocks so issued are personal property and may
be transferred by delivery of the certificate or certificates indorsed by the o
wner or his attorney-in-fact or other person legally authorized to make the tran
sfer. No transfer, however, shall be valid, except as between the parties, until
the transfer is recorded in the books of the corporation so as to show the name
s of the parties to the transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares transferred.
No shares of stocks against which the corporation holds any unpaid claim shall b
e transferable in the
books of the corporations.
? SEC: held cancellation of the shares of stock - void

? SEC en banc: overturned - nullity of the sale of 350 shares represented under
stock certification No. 8, pursuant to the "in pari delicto" doctrine.
ISSUE: W/N transfer is valid w/o delivery
HELD: YES. Affirmed.
Page 62 of 960 CORP LAW
? Alfonso S. Tan devised the scheme of not returning the cancelled Stock Certifi
cate No. 2 which was returned to him for his endorsement, to skim off the larges
se of the corporation as shown by the trading of his Stock Certificate No. 8 for
goods of the corporation valued at P2M when the par value of the same was only
worth P35K
o He also used this scheme to renege on his indebtedness to respondent Tan Su Ch
ing in the amount of P1 million
? valid transfer even if no delivery
o certificate of stock is not a negotiable instrument
? Although it is sometimes regarded as quasi-negotiable, in the sense that it ma
y be transferred by endorsement, coupled with delivery, it is well-settled that
it is non-negotiable, because the holder thereof takes it without prejudice to s
uch rights or defenses as the registered owner/s or transferror's creditor may h
ave under the law, except insofar as such rights or defenses are subject to the
limitations imposed by the principles governing estoppel.
? negotiable instrument
? either indorsement + delivery or delivery = holder in due course = better righ
t than real owner
? certificate of stock = owner better right
? transfer
? valid between parties
? recorded in the books - to bind others including the corporation
? NOTE: Although there are 4 types of transactions, only transfer is recorded in
the stocks and transfer books.
? paper representative or tangible evidence of the stock itself and of the vario
us interests therein
? not necessary to render one a stockholder in corporation
Page 63 of 960 CORP LAW
? since stocks were already cancelled and reported to the respondent Commission,
there was no necessity to endorse
? All the acts required for the transferee to exercise its rights over the acqui
red stocks were attendant and even the corporation was protected from other part
ies, considering that said transfer was earlier recorded or registered in the co
rporate stock and transfer book
*Rights to Certificate of Stock for Fully Paid Shares? What is the doctrine? Hav
e to check.