CORP.

LAW OUTLINE 5 (RCCP)

Prof. M.I.P. Romero

Vlll. CAPITAL STRUCTURE OF CORPORATIONS

A. Concepts:
1) Shares of Stock vis-a-vis Stock Certificate
2) Authorized Capital Stock
3) Subscribed Capital Stock
4) Paid-in Capital
5) Compare Sec. 14 (par. 9) with Sec. 37 (par. 4) re sworn
statement of treasurer
6) Outstanding Capital Stock – Sec. 173
7) Watered stock - Sec. 64

B. Trust Fund Doctrine - vis-a-vis corporate assets

- vis-a-vis subscribed capital stock

Phil. Trust Co. v. Rivera 44 Phil. 469

It is established doctrine that subscription to the capital of a

corporation constitute a find to which creditors have a right to look
for satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to
realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil.,
802.) A corporation has no power to release an original subscriber to its
capital stock from the obligation of paying for his shares, without a valuable
consideration for such release; and as against creditors a reduction of the
capital stock can take place only in the manner an under the conditions
prescribed by the statute or the charter or the articles of incorporation.
Moreover, strict compliance with the statutory regulations is necessary (14
C. J., 498, 620).

Central Textile Mills v. NWPC (Aug. 7, 1996)

These payments cannot as yet be deemed part of petitioner’s paid-up

capital, technically speaking, because its capital stock has not yet been
legally increased. Thus, its authorized capital stock in the year when
exemption from WO No. NCR-02 was sought stood at P128,000,000.00,
which was impaired by losses of nearly 50%. Such payments constitute
deposits on future subscriptions, money which the corporation will
hold in trust for the subscribers until it files a petition to increase its
capitalization and a certificate of filing of increase of capital stock is
approved and issued by the SEC. 4 As a trust fund, this money is still
withdrawable by any of the subscribers at any time before the
issuance of the corresponding shares of stock, unless there is a pre-
subscription agreement to the contrary, which apparently is not
present in the instant case. Consequently, if a certificate of increase has
not yet been issued by the SEC, the subscribers to the unauthorized
issuance are not to be deemed as stockholders possessed of such legal
rights as the rights to vote and dividends. Ong Yong v. Tiu
G.R. 144476; 4/8/2003

Halley v. Printwell, Inc. G.R. 157549; May 30, 2011

The trust fund doctrineenunciates a –

xxx rule that the property of a corporation is a trust fund for the payment of
creditors, but such property can be called a trust fund ‘only by way of
analogy or metaphor.’ As between the corporation itself and its creditors it
is a simple debtor, and as between its creditors and stockholders its assets
are in equity a fund for the payment of its debts.

It is established doctrine that subscriptions to the capital of a corporation

constitute a fund to which creditors have a right to look for satisfaction of
their claims and that the assignee in insolvency can maintain an action
upon any unpaid stock subscription in order to realize assets for the
payment of its debts. (Velasco vs. Poizat, 37 Phil., 802)

We clarify that the trust fund doctrine is not limited to reaching the
stockholder’s unpaid subscriptions. The scope of the doctrine when the
corporation is insolvent encompasses not only the capital stock, but also
other property and assets generally regarded in equity as a trust fund for
the payment of corporate debts.36All assets and property belonging to the
corporation held in trust for the benefit of creditors thatwere distributed or in
the possession of the stockholders, regardless of full paymentof their
subscriptions, may be reached by the creditor in satisfaction of its claim.
Also, under the trust fund doctrine,a corporation has no legal capacity to
release an original subscriber to its capital stock from the obligation of
paying for his shares, in whole or in part,37 without a valuable
consideration,38 or fraudulently, to the prejudice of creditors.39The creditor is
allowed to maintain an action upon any unpaid subscriptions and thereby
steps into the shoes of the corporation for the satisfaction of its debt.40To
make out a prima facie case in a suit against stockholders of an insolvent
corporation to compel them to contribute to the payment of its debts by
making good unpaid balances upon their subscriptions, it is only necessary
to establish that thestockholders have not in good faith paid the par value
of the stocks of the corporation.41

C. Doctrine of Equality of Shares – Sec. 6, par.1

Castillo v. Balinghasay Oct. 18, 2004

We find and so hold that the law referred to in the

amendment to Article VII refers to the Corporation Code
and no other law. At the time of the incorporation of
MCPI in 1977, the right of a corporation to classify its
shares of stock was sanctioned by Section 5 of Act No.
1459. The law repealing Act No. 1459, B.P. Blg. 68,
retained the same grant of right of classification of stock
shares to corporations, but with a significant change.
Under Section 6 of B.P. Blg. 68, the requirements and
restrictions on voting rights were explicitly provided for,
such that "no share may be deprived of voting rights
except those classified and issued as "preferred" or
"redeemable" shares, unless otherwise provided in this
Code" and that "there shall always be a class or series
of shares which have complete voting rights." Section 6
of the Corporation Code being deemed written into
Article VII of the Articles of Incorporation of MCPI, it
necessarily follows that unless Class "B" shares of MCPI
stocks are clearly categorized to be "preferred" or
"redeemable" shares, the holders of said Class "B" shares
may not be deprived of their voting rights. Note that
there is nothing in the Articles of Incorporation nor an
iota of evidence on record to show that Class "B" shares
were categorized as either "preferred" or "redeemable"
shares. The only possible conclusion is that Class "B"
shares fall under neither category and thus, under the
law, are allowed to exercise voting rights.

One of the rights of a stockholder is the right to

participate in the control and management of
the corporation that is exercised through his
vote. The right to vote is a right inherent in and
incidental to the ownership of corporate stock,
and as such is a property right. The stockholder
cannot be deprived of the right to vote his stock
nor may the right be essentially impaired, either
by the legislature or by the corporation, without
his consent, through amending the charter, or
the by-laws.
D. Classification of Shares – Rationale
- Sec. 6, 7, 8, 9

KNOW the Concepts:

a) Par value shares
b) No par value shares – Sec. 61 (last par.)
Delpher Trades Corp. v. IAC (1988) 157 SCRA 349

After incorporation, one becomes a stockholder of a corporation by

subscription or by purchasing stock directly from the corporation or from
individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649,
citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange
for their properties, the Pachecos acquired 2,500 original unissued no par
value shares of stocks of the Delpher Trades Corporation. Consequently,
the Pachecos became stockholders of the corporation by subscription "The
essence of the stock subscription is an agreement to take and pay for
original unissued shares of a corporation, formed or to be
formed." (Rohrlich 243, cited in Agbayani, Commentaries and
Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980
Edition, p. 430) It is significant that the Pachecos took no par value shares
in exchange for their properties.

A no-par value share does not purport to represent any stated

proportionate interest in the capital stock measured by value, but only
an aliquot part of the whole number of such shares of the issuing
corporation. The holder of no-par shares may see from the certificate
itself that he is only an aliquot sharer in the assets of the corporation.
But this character of proportionate interest is not hidden beneath a
false appearance of a given sum in money, as in the case of par
value shares. The capital stock of a corporation issuing only no-par
value shares is not set forth by a stated amount of money, but instead
is expressed to be divided into a stated number of shares, such as,
1,000 shares. This indicates that a shareholder of 100 such shares is
an aliquot sharer in the assets of the corporation, no matter what
value they may have, to the extent of 100/1,000 or 1/10. Thus, by
removing the par value of shares, the attention of persons interested
in the financial condition of a corporation is focused upon the value of
assets and the amount of its debts. (Agbayani, Commentaries and
Jurisprudence on the Commercial Laws of the Philippines, Vol. III,
1980 Edition, p. 107).

- issued price
- meaning of “deemed fully paid and non-assessable”
c) Common shares - Sec. 6
d) Preferred shares - Sec. 6 ;
KNOW the concepts of the ff. types of preferred shares ---
cumulative, participating, non-cumulative, non-participating )
e) Redeemable shares - Sec. 8
-- Republic Planters Bank v. Agana ( Mar. 3, 1997)
 A preferred share of stock, on one hand, is one which en3tles the holder
thereof to certain preferences over the holders of common stock. The
preferences are designed to induce persons to subscribe for shares of a
corpora3on. 9 Preferred shares take a mul3plicity of forms. The most
common forms may be classified into two: (1) preferred shares as to
assets; and (2) preferred shares as to dividends. The former is a share
which gives the holder thereof preference in the distribu3on of the
assets of the corpora3on in case of liquida3on; 10 the laFer is a share the
holder of which is en3tled to receive dividends on said share to the
extent agreed upon before any dividends at all are paid to the holders
of common stock. 11 There is no guaranty, however, that the share will
receive any dividends. Under the old Corpora3on Law in force at the
3me the contract between the pe33oner and the private respondents
was entered into, it was provided that "no corpora3on shall make or
declare any dividend except from the surplus profits arising from its
business, or distribute its capital stock or property other than actual
profits among its members or stockholders un3l aLer the payment of its
debts and the termina3on of its existence by limita3on or lawful
dissolu3on.”

Similarly, the present Corporation Code 13 provides that the board of

directors of a stock corporation may declare dividends only out of
unrestricted retained earnings. 14 The Code, in Section 43, adopting the
change made in accounting terminology, substituted the phrase "unrestricted
retained earnings," which may be a more precise term, in place of "surplus
profits arising from its business" in the former law. Thus, the declaration of
dividends is dependent upon the availability of surplus profit or unrestricted
retained earnings, as the case may be. Preferences granted to preferred
stockholders, moreover, do not give them a lien upon the property of the
corporation nor make them creditors of the corporation, the right of the
former being always subordinate to the latter. Dividends are thus payable
only when there are profits earned by the corporation and as a general rule,
even if there are existing profits, the board of directors has the discretion to
determine whether or not dividends are to be declared. 15 Shareholders, both
common and preferred, are considered risk takers who invest capital in the
business and who can look only to what is left after corporate debts and
liabilities are fully paid.
Redeemable shares, on the other hand, are shares usually preferred, which
by their terms are redeemable at a fixed date, or at the option of either
issuing corporation, or the stockholder, or both at a certain redemption
price. 17 A redemption by the corporation of its stock is, in a sense, a
repurchase of it for cancellation. 18 The present Code allows redemption of
shares even if there are no unrestricted retained earnings on the books of
the corporation. This is a new provision which in effect qualifies the general
rule that the corporation cannot purchase its own shares except out of
current retained earnings. 19 However, while redeemable shares may be
redeemed regardless of the existence of unrestricted retained earnings, this
is subject to the condition that the corporation has, after such redemption,
assets in its books to cover debts and liabilities inclusive of capital stock.
Redemption, therefore, may not be made where the corporation is insolvent
or if such redemption will cause insolvency or inability of the corporation to
meet its debts as they mature. 20

f) Founders’ shares - Sec. 7

g) Treasury shares - Sec. 9 relate to Secs. 173 and 56
h) Voting shares - Sec. 6
i) Non-voting shares - Sec. 6
j) Be familiar w/ section 6 (a) up to (h)

E. CASE on Conversion of shares ---

(Just understand the concept of conversion ---- COCOFED v. RP.

GR Nos. 177857-58; 178193; 180705 [Sept. 17, 2009]

Needless to stress, courts do not, as they cannot, allow by judicial fiat the
conversion of special funds into a private fund for the benefit of private
individuals. In the same vein, We cannot subscribe to the idea of what
appears to be an indirect – if not exactly direct – conversion of special
funds into private funds, i.e., by using special funds to purchase shares of
stocks, which in turn would be distributed for free to private individuals.
Even if these private individuals belong to, or are a part of the coconut
industry, the free distribution of shares of stocks purchased with special
public funds to them, nevertheless cannot be justified. The ratio in
Gaston,120 as expressed below, applies mutatis mutandis to this case:

The stabilization fees in question are levied by the State … for a special
purpose – that of "financing the growth and development of the sugar
industry and all its components, stabilization of the domestic market
including the foreign market." The fact that the State has taken possession
of moneys pursuant to law is sufficient to constitute them as state funds
even though they are held for a special purpose….

That the fees were collected from sugar producers,[etc.], and that the funds
were channeled to the purchase of shares of stock in respondent Bank do
not convert the funds into a trust fund for their benefit nor make them the
beneficial owners of the shares so purchased. It is but rational that the fees
be collected from them since it is also they who are benefited from the
expenditure of the funds derived from it.

In this case, the coconut levy funds were being exacted from copra
exporters, oil millers, desiccators and other end-users of copra or its
equivalent in other coconut products.122 Likewise so, the funds here were
channeled to the purchase of the shares of stock in UCPB. Drawing a clear
parallelism between Gaston and this case, the fact that the coconut levy
funds were collected from the persons or entities in the coconut industry,
among others, does not and cannot entitle them to be beneficial owners of
the subject funds – or more bluntly, owners thereof in their private capacity.
Parenthetically, the said private individuals cannot own the UCPB shares of
stocks so purchased using the said special funds of the government.123

Coconut levy funds are special public funds of the government.

F. STOCKS & STOCKHOLDERS

Sec. 59 -72, 173

1) Consideration for shares -----

Garcia v. Lim Chu Sing 59 Phil. 562 (1934)

According to the weight of authority, a share of stock or the certificate

thereof is not an indebtedness to the owner nor evidence of indebtedness
and, therefore, it is not a credit (14 Corpus Juris, p. 388, see. 511).
Stockholders, as such, are not creditors of the corporation (14 Corpus
Juris, p. 848, Sec. 1289). It is the prevailing doctrine of the American
courts, repeatedly asserted in the broadest terms, that the capital stock of a
corporation is a trust fund to be used more particularly for the security of
creditors of the corporation, who presumably deal with it on the credit of its
capital stock (14 Corpus Juris, p. 383, sec. 505). Therefore, the defendant-
appellant Lim Chu Sing not being a creditor of the Mercantile Bank of
China, although the latter is a creditor of the former, there is no sufficient
ground to justify a compensation (art. 1195, Civil Code; Acuña Co
Chongco vs. Dievas, 12 Phil., 250).

Apodaca v. NLRC 172 SCRA 442 (1989)

Firstly, the NLRC has no jurisdiction to determine such intra-corporate

dispute between the stockholder and the corporation as in the matter of
unpaid subscriptions. This controversy is within the exclusive jurisdiction of
the Securities and Exchange Commission. 1

Secondly, assuming arguendo that the NLRC may exercise jurisdiction over
the said subject matter under the circumstances of this case, the unpaid
subscriptions are not due and payable until a call is made by the
corporation for payment. 2 Private respondents have not presented a
resolution of the board of directors of respondent corporation calling for the
payment of the unpaid subscriptions. It does not even appear that a notice
of such call has been sent to petitioner by the respondent corporation.

Lastly, assuming further that there was a call for payment of the
unpaid subscription, the NLRC cannot validly set it off against the
wages and other benefits due petitioner. Article 113 of the Labor Code
allows such a deduction from the wages of the employees by the
employer, only in three instances, to wit:

ART. 113. Wage Deduction. — No employer, in his own behalf or in

behalf of any person, shall make any deduction from the wages of his
employees, except:
(a) In cases where the worker is insured with his consent by the employer, and
the deduction is to recompense the employer for the amount paid by him as
premium on the insurance;

(b) For union dues, in cases where the right of the worker or his union to checkoff
has been recognized by the employer or authorized in writing by the individual
worker concerned; and

(c) In cases where the employer is authorized by law or regulations issued by the
Secretary of Labor. 4
National Exchange vs Dexter 51 Phil. 601 (1928)

Pursuant to this provision we find that the Philippine Commission inserted

in the Corporation Law, enacted March 1, 1906, the following provision:
". . . no corporation shall issue stock or bonds except in exchange for
actual cash paid to the corporation or for property actually received by it at
a fair valuation equal to the par value of the stock or bonds so issued." (Act
No. 1459, sec. 16 as amended by Act No. 2792, sec. 2.)

The prohibition against the issuance of shares by corporations except for

actual cash to the par value of the stock to its full equivalent in property is
thus enshrined in both the organic and statutory law of the Philippine;
Islands; and it would seem that our lawmakers could scarely have chosen
language more directly suited to secure absolute equality stockholders with
respect to their liability upon stock subscriptions. Now, if it is unlawful to
issue stock otherwise than as stated it is self-evident that a stipulation such
as that now under consideration, in a stock subcription, is illegal, for this
stipulation obligates the subcriber to pay nothing for the shares except as
dividends may accrue upon the stock. In the contingency that dividends are
not paid, there is no liability at all. This is a discrimination in favor of the
particular subcriber, and hence the stipulation is unlawful.

2) Unpaid subscriptions -----

a) Rights of Unpaid Shares

b) Distinguish From Delinquent Shares
c) Indivisibility of Subscription

4) Nature/Function of Stock Certificates ----

Tan v. SEC (206 SCRA 740)

The meaning of shares of stock are personal property and may be

transferred by delivery of the certificate or certificates indorsed by the
owner or his attorney-in-fact or other person legally authorized to make the
transfer.
The case of Nava vs. peers Marketing corporation (74 SCRA 65) was cited
by petitioner making the reference to commentaries taken from 18 C.J.S.
928-930, that the transfer by delivery to the transferee of the certificate
should be properly indorsed, and that "There should be compliance with
the mode of transfer prescribed by law."

It was very obvious that petitioner devised the scheme of not returning the
cancelled Stock Certificate No. 2 which was returned to him for his
endorsement, to skim off the largesse of the corporation as shown by the
trading of his Stock Certificate No. 8 for goods of the corporation valued at
P2 million when the par value of the same was only worth P35,000.00.
(Ibid., p. 470) He also used this scheme to renege on his indebtedness to
respondent Tan Su Ching in the amount of P1 million.

xxx

Besides, in Philippine jurisprudence, a certificate of stock is not a

negotiable instrument. "Although it is sometime regarded as quasi-
negotiable, in the sense that it may 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 such rights or defenses as the
registered owner/s or transferror'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.”

The case of Nava vs. peers Marketing corporation (74 SCRA 65) was cited
by petitioner making the reference to commentaries taken from 18 C.J.S.
928-930, that the transfer by delivery to the transferee of the certificate
should be properly indorsed, and that "There should be compliance with
the mode of transfer prescribed by law.”

xxx

Petitioner should be held guilty of manipulating the provision of Section 63

of the Corporation Law for contumaciously withholding the endorsement of
Stock Certificate No. 2 which was returned to him for the purpose, wasting
time and resources of the Court, even after he had received the stocks-in-
trade equivalent to P2,000,000.00 in lieu of his 350 shares of stock with a
par value of P35,000.00 only, and thereafter withdrawing from the
respondent corporation.
Not content with the fantastic return of his investment in the corporation
and bent on sucking out the corporate resources by filing the instant case
for damages and seeking the nullity of the cancellation of his Certificate of
Stock Nos. 2 and 8, petitioner even attempted to mislead the Court by
erroneously quoting the ruling of the Court in C. N. Hodges v. Lezama,
which has some parallelism with the instant case was the parties involved
therein were also close relatives as in this case.

5) Proof of Ownership of Shares ----

Nautica Canning Corp. Yumul GR 164588 (Oct. 19, 2005)

Besides, 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. The conduct of the parties
also constitute sufficient proof of 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.21 Thereafter, he was
elected as president of Nautica.22 Thus, Nautica and its stockholders
knowingly held respondent out to the public as an officer and a stockholder
of the corporation.

Lao v. Lao GR 170585 (Oct 6, 2008)

The mere inclusion as shareholder of petitioners in the General

Information Sheet of PFSC is insufficient proof that they are
shareholders of the company.

While it may be true that petitioners were named as shareholders in the

General Information Sheet submitted to the SEC, that document alone
does not conclusively prove that they are shareholders of PFSC. The
information in the document will still have to be correlated with the
corporate books of PFSC. As between the General Information Sheet and
the corporate books, it is the latter that is controlling.
CA: We agree with the trial court that mere inclusion in the General Information Sheets as stockholders
and officers does not make one a stockholder of a corporation, for this may have come to pass by
mistake, expediency or negligence. As professed by respondent-appellee, this was done merely to
comply with the reportorial requirements with the SEC. This maybe against the law but "practice, no
matter how long continued, cannot give rise to any vested right."
If a transferee of shares of stock who failed to register such transfer in the Stock and Transfer Book of the
Corporation could not exercise the rights granted unto him by law as stockholder, with more reason that
such rights be denied to a person who is not a stockholder of a corporation. Petitioners-appellants never
secured such a standing as stockholders of PFSC and consequently, their petition should be denied

Borgona v. Abra Valley GR 204089 (July 29, 2015)

In civil cases, the party having the burden of proof must establish his case
by a preponderance of evidence, or evidence that is more convincing to the
court as worthy of belief than that which is offered in opposition thereto. 
Thus, the party, whether the plaintiff or the defendant, who asserts the
affirmative of an issue bears the onus to prove his assertion in order to
obtain a favorable judgment. From the plaintiff the burden to prove his
positive assertions never parts. Yet, for the defendant, an affirmative
defense is one that is not a denial of an essential ingredient in the plaintiff’s
cause of action, but rather one that, if established, will be a good defense –
i.e., an “avoidance” of the claim
Section 50. Regular and special meetings of stockholders or members. – Regular meetings
of stockholders or members shall be held annually on a date fixed in the by-laws, or if not so fixed, on
any date in April of every year as determined by the board of directors or trustees: Provided, That written
notice of regular meetings shall be sent to all stockholders or members of record at least two (2) weeks
prior to the meeting, unless a different period is required by the by-laws.

Section 74. Books to be kept; stock transfer agent. – x x x

The records of all business transactions of the corporation and the minutes of any meetings shall be open
to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on
business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his
expense.

xxxx

Section 75. Right to financial statements. – Within ten (10) days from receipt of a written request of
any stockholder or member, the corporation shall furnish to him its most recent financial statement,
which shall include a balance sheet as of the end of the last taxable year and a profit or loss statement for
said taxable year, showing in reasonable detail its assets and liabilities and the result of its operations

6) Restrictions on Transfer of Shares ---

Fleischer v. Botica Nolasco (1925) 47 Phil. 583

SEC. 35. The capital stock of stock corporations shall de divided into shares for which
certificates signed by the president or the vice-president, countersigned by the secretary or
clerk and sealed with the seal of the corporation, shall be issued in accordance with the by-
laws. Shares of stock so issued are personal property and may be transferred by delivery of
the certificate indorsed by the owner or his attorney in fact or other person legally
authorized to make the transfer. No transfer, however, shall be valid, except as between the
parties, until the transfer is entered and noted upon the books of the corporation so as to
show the names of the parties to the transaction, that date of the transfer, the number of
the certificate, and the number of shares transferred.

No share of stock against which the corporation holds any unpaid claim shall be transferable
on the books of the corporation.

As a general rule, the by-laws of a corporation are valid if they are reasonable and
calculated to carry into effect the objects of the corporation, and are not contradictory to
the general policy of the laws of the land.

it is equally well settled that by-laws of a corporation must be reasonable and for a
corporate purpose, and always within the charter limits. They must always be strictly
subordinate to the constitution and the general laws of the land. They must not infringe
the policy of the state, nor be hostile to public welfare. (46 Am. Rep., 332.) They must
not disturb vested rights or impair the obligation of a contract, take away or abridge the
substantial rights of stockholder or member, affect rights of property or create
obligations unknown to the law.

Thomson v. CA (298 SCRA 280)

The Manila Polo Club does not necessarily prohibit the transfer of proprietary
shares by its members. The Club only restricts membership to deserving
applicants in accordance with its rules, when the amended Articles of
Incorporation states that: "No transfer shall be valid except between the
parties, and shall be registered in the Membership Book unless made in
accordance with these Articles and the By-Laws". 33 Thus, as between parties
herein, there is no question that a transfer is feasible. Moreover, authority
granted to a corporation to regulate the transfer of its stock does not
empower it to restrict the right of a stockholder to transfer his shares, but
merely authorizes the adoption of regulations as to the formalities and
procedure to be followed in effecting transfer. 34

In this case, the petitioner was the nominee of the private respondent to
hold the share and enjoy the privileges of the club. But upon the expiration
of petitioner's employment as officer and consultant of AmCham, the
incentives that go with the position, including use of the MPC share, also
ceased to exist. It now behooves petitioner to surrender said share to
private respondent's next nominee, another natural person. Obviously this
arrangement of trust and confidence cannot be defeated by the petitioner's
citation of the MPC rules to shield his untenable position, without doing
violence to basic tenets of justice and fair dealing.

Rural Bank of Salinas, Inc. v. CA (210 SCRA 510)

In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court
interpreted Sec. 63 in his wise:

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. 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 is when

the corporation holds any unpaid claim against the shares intended to be
transferred, which is absent here.

A corporation, either by its board, its by-laws, or the act of its officers,
cannot create restrictions in stock transfers, because:

. . . Restrictions in the traffic of stock must have their source in legislative

enactment, as the corporation itself cannot create such impediment. By-
laws are intended merely for the protection of the corporation, and
prescribe regulation, not restriction; they are always subject to the charter
of the corporation. The corporation, in the absence of such power, cannot
ordinarily inquire into or pass upon the legality of the transactions by which
its stock passes from one person to another, nor can it question the
consideration upon which a sale is based. . . . (Tomson on Corporation
Sec. 4137, cited in Fleisher vs. Nolasco, Supra).

The right of a transferee/assignee to have stocks transferred to his name is

an inherent right flowing from his ownership of the stocks. Thus:

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" (26, Cyc. 347, Hyer vs.
Bryan, 19 Phil. 138; Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).
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. (Fletcher,
Sec. 5528, page 434).

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.

7) Validity of Transfers / Registration of Shares

OBJECTIVE is to know the procedure for a valid transfer of

shares. After reading the cases, you must be able to weave them
together and make a summary of the procedure .

Razon v. IAC GR 74306 (March 16, 1992)

Rural Bank of Lipa GR 124535 (Sept. 28, 2001)
Torres v. CA GR 120138 (Sept. 5, 1997)
Ponce v. Alsons Cement GR 139802 ( Dec. 10, 2002)
Rural Bank of Salinas, Inc. v. CA June 26, 1992
Lim Tay v. CA GR 126891 (Aug. 5, 1998)
Hager v. Bryan 19 PHIL 138 (1911)
Bitong v. CA July 13, 1998
Lee v. Trocino, et al. GR 164648 (June 19, 2009)

8) Unauthorized Transfers ----

Santamaria vs. Hongkong 89 Phil. 780 (1951)

De los Santos vs. McGrath 96 Phil. 577(1955)
Guy v. Guy GR 189486 (Sept. 5, 2012)

9) Collateral Transfers ---

China Banking Corp. v. CA GR 117604 (Mar. 26, 1997)

Uson v. Diosomito (61 Phil. 535; 1935)
Chemphil Export & Import v. CA (Dec. 12, 1995)
lX. PRE-EMPTIVE RIGHT – Secs. 38 and 101

a) Purpose; when given; waiver

b) Distinguish from pre-emptive rt in a close corp – Sec. 101
c) Distinguish from Right of First Refusal

Makati Sports Club, Inc. v. Cheng GR 178523 (June 16, 2010)

X. APPRAISAL RIGHT – Secs. 80- 85; relate to Secs. 36, 41 and 104

Marcus v. RH Macy 74 N.E. 2d 228 (1947)

Turner v. Lorenzo Shipping GR 157479 Nov. 24,
2010