Professional Documents
Culture Documents
Cases No. 5
Cases No. 5
effect (April 1, 1906). The cases of Fua Cun vs. Summer and China Banking
Corporation, 44 Phil., 705 [1923] and Fleischer vs. Botica Nolasco Co., 47
Phil., 583 [1925] are not in point.
Section 35 of the Corporation Law is as follows:
SEC. 35. The capital stock of stock corporations shall be divided into shares
for which certificates signed by the president or the vice-president,
countersigned by the secretary or clerk and sealed 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, the date of the transfer, the number of the
certificate, and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim
shall be transferable on the books of the corporation.
The sentence of the foregoing section immediately applicable in the present
case is as follows:
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, the date of the transfer,
the number of the certificate, and the number of shares transferred.
The appellants cites decision from a number of states of the American
Union which hold that an unregistered transfer is valid as against the lien of
a subsequent attachment sued out by a creditor of the assignor, whether
such creditor has notice of the transfer or not. These decisions are founded
upon the theory that the attachment reaches only such title or interest as
the defendant may have in the property at the time of the levy; and if all
title and interest had previously passed by assignment from the debtor to a
third person, the attaching creditor obtains nothing by the levy; that the
owner of shares of stock has the common law right to dispose of the same
as personal property. But with the exception of California, to which
reference will be made later, none of the decisions cited by the appellants
construed statues identical with ours. Much of the confusion which is to be
found in the decision has arisen because the courts have failed to note the
difference in the various statutes of the American Union on the question
considered here. For an illuminating discussion of this confusion the
following authorities may be consulted:
We think the true meaning of the language is, and the obvious intention of
the legislature in using it was, that 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 transfers 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 purchasers in good faith, and indeed, as to all persons
interested, except the parties to such transfers. 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 because they are made so
void by statute.
Some of the states, including Wisconsin, which has held to the rather, strict
but judicial interpretation of the statutory language here in question have
amended the statute so as to fall in line with the more liberal and rational
doctrine of the third group referred to above. This court still adheres to the
principle that its function is jus dicere non jus dare. To us the language of
the legislature is plain to the effect that the right of the owner of the shares
of stock of a Philippine corporation to transfer the same by delivery of the
certificate, whether it be regarded as statutory on common law right, is
limited and restricted 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." Therefore, the transfer of the
75 shares in the North Electric Company, Inc., made by the defendant
Diosomito to the defendant Barcelon was not valid as to the plaintiffappellee, Toribia Uson, on January 18, 1932, the date on which she obtained
her attachment lien on said shares of stock which still stood in the name of
Diosomito on the books of the corporation.
We have considered the remaining assignments of error of the appellants
and finding no merit in them in results that the judgment must be affirmed
with costs against the appellants.
Malcolm and Diaz, JJ., concur.
Goddard, J., I agree with Justice Hull.
The plaintiff subscribed for 650 shares of stock of the defendant corporation
of the value of P500 each, of which he has paid only the total value of 200
shares, there remaining 450 shares unpaid, for which he was indebted to
the corporation in the sum of P225,000, the value thereof. On April 22,
1922, he was notified by the secretary of the corporation of a resolution
adopted by the board of directors of the corporation on the preceding day,
declaring the unpaid subscriptions to the capital stock of the corporation to
have become due and payable on the following May 31st at the office
thereof, the payment to be made to the treasurer, and stating that all such
shares as may have not been paid then, with the accrued interest up to that
date, will be declared delinquent, advertised for sale at public auction, and
sold on the following June 16th, for the purpose of paying up the amount of
the subscription and accrued interest, with the expenses of the
advertisement and sale, unless said payment was made before. The proper
advertisement having been published, as announced in the aforesaid notice,
the plaintiff filed a complaint in the Court of First Instance of Cebu on May
5th of the same year against the said corporation, wherein, after relating
the above-mentioned facts, he prayed for a judgment in his favor, decreeing
that, in prescribing another method of paying the subscription to the capital
stock different from that provided in article 46 of its by-laws, in declaring
the aforesaid 450 shares delinquent, and in directing the sale thereof, as
advertised, the corporation had exceeded its executive authority, and as a
consequence thereof he asked that a writ of injunction be issued against the
said defendant, enjoining it from taking any further action of whatever
nature in connection with the acts complained of and that it pay the costs of
this suit.chanroblesvirtualawlibrary chanrobles virtual law library
The plaintiff alleged as the grounds of his petition: (1) That, according to
aforesaid article 46 of the by-law of the corporation, which was inserted in
the complaint, all the shares subscribed to by the incorporation that were
not paid for at the time of the incorporation, shall be paid out of the 70 per
cent of the profit obtained, the same to be distributed among the
subscribers, who shall not receive any dividend until said shares were paid
in full; (2) that in declaring the plaintiff's unpaid subscription to the capital
stock to have become due and payable on May 31st, and in publishing the
aforesaid notice declaring his unpaid shares delinquent, the defendant
corporation has violated the aforesaid article, which prescribes an operative
method of paying for the shares continuously until their full amortization,
thus violating and disregarding a right of the plaintiff vested under the said
by-laws; (3) that the aforesaid acts of the defendant corporation were in
excess of its powers and executive authority and the plaintiff had no other
plain, speedy and adequate remedy in the ordinary course of law than that
prayed for in the said complaint, to prevent the defendant from taking any
further action in connection with the sale and alienation of the said
shares.chanroblesvirtualawlibrary chanrobles virtual law library
A preliminary injunction having been issued against the defendant, as
prayed for by the plaintiff, upon the giving of the proper bond, and the
defendant having been summoned, the latter filed a demurrer to the
complaint on the ground that the facts alleged therein did not constitute a
cause of action, and that even supposing the plaintiff to have any lawful
claim against the defendant corporation, the special remedy applied for by
the plaintiff was not the most adequate and
speedy.chanroblesvirtualawlibrary chanrobles virtual law library
Hearing having been had the court below by an order dated September 21,
1922, sustained the aforesaid demurrer on the first ground, giving the
plaintiff five days within which to amend his complaint, but the said period
having elapsed without the plaintiff having amended his complaint, upon
motion of the defendant, that court, by an order dated the 2d of the
following month of October, dismissed the complaint and ordered the
dissolution of the preliminary injunction previously issued, with costs, to
which orders the plaintiff excepted, asking at the same time for the
annulment thereof and a new hearing, which motion was denied by the
lower court. To that ruling the plaintiff also excepted, and brought the case
to this court by the proper bill of exceptions.chanroblesvirtualawlibrary
chanrobles virtual law library
Assuming the truth of the facts alleged in the complaint filed against the
herein defendant, as the filling of a demurrer to a complaint is made on that
assumption, the question to be decided reduces itself to determining
whether or not, under the provision of article 46 of the by-laws of the
defendant corporation, the latter may declare the unpaid shares delinquent,
or collect their value by another method different from that prescribed in
the aforecited article.chanroblesvirtualawlibrary chanrobles virtual law
library
Said article reads thus:
ART. 46. The net profit resulting from the annual liquidation shall be
distributed as follows: Ten per cent (10%) for the Board of Directors and in
the manner prescribed in article twenty-six (26) of these by-laws; ten per
cent (10%) for the general manager; ten per cent (10%) for the reserve
fund, and seventy per cent (70%) for the shareholders in equal parts;
Provided, however, That from this seventy per cent dividend the Board of
Directors may deduct such amount as it may deem fit for the payment of the
unpaid subscription to the capital stock and not pay any dividend to the
holders of the said unpaid shares until they are fully paid; Provided, further,
That when all the shares have been paid in full as provided in the preceding
paragraph, the Board of Directors may also deduct such amount as it may
deem fit for the creation of an emergency special fund, or extraordinary
reserve fund when in its judgment the same may convenient for the
development of the business of the corporation or for meeting any such
contingencies as may arise from its operation, whenever the distributable
dividend is found, after the foregoing deduction, to be not less than ten per
cent (10%) of the paid up capital stock.chanroblesvirtualawlibrary
chanrobles virtual law library
No dividend shall be declared or paid, except when there remains a net
profit after the payment of all the expenses incurred, or allowances made,
by the corporation to carry out the operation of its business; so that no such
dividend may be declared as may affect the capital of the corporation.
As will be seen from the context of the said article, its first part specifies the
manner in which the net profit from the annual liquidation should be
distributed, fixing a certain per cent for the board of directors; another for
the general manager; another for the reserve fund, and the remaining 70
per cent to be distributed in equal parts among the shareholders. But it
authorizes or empowers the board of directors to collect the value of the
shares subscribed to and not fully paid by deducting from the 70 per cent,
distributable in equal parts among the shareholders, such amount as may
be deemed convenient, to be applied on the payment of the said shares, and
not to pay the subscriber until the same are fully paid up. In no other way
can the words "Provided, however, that from this seventy per cent dividend
the board of directors may deduct such amount as it may deem fit for the
payment, etc." And this is so clear that in that same article the board of
directors is also authorized to create a special emergency fund or
extraordinary reserve fund, when, in its judgment, and in case all the shares
subscribed to have been fully paid, the same is convenient for the
development of the business of the corporation or for meeting any such
contingencies as my arise from its operation, applying said 70 per cent of
the profit on the payment of the shares that may have not been fully paid,
provided that the distributable dividend remaining after the deduction to be
made for the creation of the said special emergency fund or extraordinary
reserve fund is not less than 10 per cent of the capital actually paid. So that
it is discretionary on the part of the board of directors to do whatever is
provided in the said article relative to the application of a part of the 70 per
cent of the profit distributable in equal parts on the payment of the shares
subscribed to and not fully paid, and to the creation of a special emergency
fund or extraordinary reserve fund; and the fact itself that said special fund
may not be created when the dividend appearing to be distributable, after
deducting from the said 70 per cent the amount to be applied on the
payment of the unpaid subscription, is less than 10 per cent of the capital
actually paid, shows that it is the board of directors and not the delinquent
subscriber that may and must judge and decide whether or not such value
must be paid out of a part of the 70 per cent of the profit distributable in
equal parts among the shareholders, as provided in the first part of the said
article. It lies therefore, within the discretion of the board of directors to
make use of such authority.chanroblesvirtualawlibrary chanrobles virtual
law library
If the board of directors does not wish to make, or does not make, use of
said authority it has two other remedies for accomplishing the same
purpose. As was said by this court in the case of Velasco vs. Poizat (37 Phil.,
802):
The first and most special remedy given by the statute consists in
permitting the corporation to put the unpaid stock for sale and dispose of it
for the account of the delinquent subscriber. In this case the provisions of
sections 38 to 48, inclusive, of the Corporation Law are applicable and must
be followed. The other remedy is by action in court concerning which we
find in section 49 the following provision:chanrobles virtual law library
"Nothing in this Act prevent the directors from collecting, by action in any
court of proper jurisdiction, the amount due on any unpaid subscription,
together with accrued interest and costs and expenses incurred."
In the instant case the board of directors of the defendant corporation
elected to avail itself of the first of said two remedies, and, complying
strictly with the provisions of sections 37 to 49, inclusive, of the aforesaid
Corporation Law, which is binding upon it and its stockholders. it being an
artificial entity created by virtue of that same law (sec. 2), the board of
directors made use of the discretionary power granted to it by that law and
declared that payment of plaintiff's subscription to 450 shares which had
not been paid by him was due, and that said shares were delinquent, and
performed all the other acts subsequent to said declaration that are
mentioned in the complaint, as it did not deem it advantageous to the
corporation to apply on the payment of said shares, as was authorized by
the by-law, a part of the profit that was, or might have been realized, and
was distributable among the stockholders in equal parts, as to the existence
of which profit no allegation is made in the complaint, or to enforce
payment of such shares by bringing in court the proper action against the
debtor or delinquent stockholders. It is, however, alleged by the appellant
that the by-law of the corporation being of the nature of a contract between
it and its stockholders or members, and article 46 of the by-laws of the said
that the ruling in the Acayan case would ipso facto benefit the private
respondents, since to require a separate judicial declaration to recognize
the shares of the original incorporators would entail unnecessary delay and
expense. Besides, the Court of Appeals added, the incorporators have
already proved their stockholdings through the provisions of the articles of
incorporation.10
In the instant petition, petitioners claim that the 1992 stockholders
meeting was valid and legal. They submit that reliance on the 1952 articles
of incorporation for determining the quorum negates the existence and
validity of the stock and transfer book which private respondents
themselves prepared. In addition, they posit that private respondents
cannot avail of the benefits secured by the heirs of Acayan, as private
respondents must show and prove entitlement to the founders and common
shares in a separate and independent action/proceeding.
In private respondents Memorandum11 dated 08 March 2000, they point
out that the instant petition raises the same facts and issues as those raised
in G.R. No. 13131512, which was denied by the First Division of this Court on
18 January 1999 for failure to show that the Court of Appeals committed
any reversible error. They add that as a logical consequence, the instant
petition should be dismissed on the ground of res judicata. Furthermore,
private respondents claim that in view of the applicability of the rule on res
judicata, petitioners counsel should be cited for contempt for violating the
rule against forum-shopping.13
For their part, petitioners claim that the principle of res judicata does not
apply to the instant case. They argue that the instant petition is separate
and distinct from G.R. No. 131315, there being no identity of parties, and
more importantly, the parties in the two petitions have their own distinct
rights and interests in relation to the subject matter in litigation. For the
same reasons, they claim that counsel for petitioners cannot be found guilty
of forum-shopping.14
In their Manifestation and Motion15 dated 22 September 2004, private
respondents moved for the dismissal of the instant petition in view of the
dismissal of G.R. No. 131315. Attached to the said manifestation is a copy of
the Entry of Judgment16 issued by the First Division dated 01 December
1999.
The petition must be denied, not on res judicata, but on the ground that like
the petition in G.R. No. 131315 it fails to impute reversible error to the
challenged Court of Appeals Decision.
filed, but rather, two separate petitions for review on certiorari filed by two
distinct parties with the Court and represented by their own counsels,
arising from an adverse consolidated decision promulgated by the Court of
Appeals in one action or proceeding.24 As such, res judicata is not present in
the instant case.
Likewise, there is no basis for declaring petitioners or their counsel guilty of
violating the rules against forum-shopping. In the Verification/Certification25
portion of the petition, petitioners clearly stated that there was then a
pending motion for reconsideration of the 18 August 1997 Decision of the
Court of Appeals in the consolidated cases (CA-G.R. SP No. 41473 and CAG.R. SP No. 41403) filed by the Abuids, as well as a motion for clarification.
Moreover, the records indicate that petitioners filed their Manifestation26
dated 20 January 1998, informing the Court of their receipt of the petition
in G.R. No. 131315 in compliance with their duty to inform the Court of the
pendency of another similar petition. The Court finds that petitioners
substantially complied with the rules against forum-shopping.
The Decision of the Court of
Appeals must be upheld.
The petition in this case involves the same facts and substantially the same
issues and arguments as those in G.R. No. 131315 which the First Division
has long denied with finality. The First Division found the petition before it
inadequate in failing to raise any reversible error on the part of the Court of
Appeals. We reach a similar conclusion as regards the present petition.
The crucial issue in this case is whether it is the companys stock and
transfer book, or its 1952 Articles of Incorporation, which determines
stockholders shareholdings, and provides the basis for computing the
quorum.
We agree with the Court of Appeals.
The articles of incorporation has been described as one that defines the
charter of the corporation and the contractual relationships between the
State and the corporation, the stockholders and the State, and between the
corporation and its stockholders.27 When PMMSI was incorporated, the
prevailing law was Act No. 1459, otherwise known as "The Corporation
Law." Section 6 thereof states:
Sec. 6. Five or more persons, not exceeding fifteen, a majority of whom are
residents of the Philippines, may form a private corporation for any lawful
purpose or purposes by filing with the Securities and Exchange Commission
articles of incorporation duly executed and acknowledged before a notary
public, setting forth:
....
(7) If it be a stock corporation, the amount of its capital stock, in lawful
money of the Philippines, and the number of shares into which it is divided,
and if such stock be in whole or in part without par value then such fact
shall be stated; Provided, however, That as to stock without par value the
articles of incorporation need only state the number of shares into which
said capital stock is divided.
(8) If it be a stock corporation, the amount of capital stock or number of
shares of no-par stock actually subscribed, the amount or number of shares
of no-par stock subscribed by each and the sum paid by each on his
subscription. . . .28
A review of PMMSIs articles of incorporation29 shows that the corporation
complied with the requirements laid down by Act No. 1459. It provides in
part:
7. That the capital stock of the said corporation is NINETY THOUSAND
PESOS (P90,000.00) divided into two classes, namely:
FOUNDERS STOCK - 1,000 shares at P20 par value- P 20,000.00
COMMON STOCK- 700 shares at P 100 par value P 70,000.00
TOTAL ---------------------1,700 shares----------------------------P 90,000.00
....
8. That the amount of the entire capital stock which has been actually
subscribed is TWENTY ONE THOUSAND SIX HUNDRED PESOS
(P21,600.00) and the following persons have subscribed for the number of
shares and amount of capital stock set out after their respective names:
SUBSCRIBER
SUBSCRIBED
AMOUNT
SUBSCRIBED
No. of Shares
Par Value
Crispulo J. Onrubia
120 Founders
P 2,400.00
Juan H. Acayan
120 "
2, 400.00
Martin P.
Sagarbarria
100 "
2, 000.00
Mauricio G.
Gallaga
50 "
1, 000.00
Luis Renteria
50 "
1, 000.00
Faustina M. de
Onrubia
140 "
2, 800.00
Mrs. Ramon
Araneta
40 "
800.00
Carlos M. Onrubia
80 "
1,600.00
700
P 14,000.00
SUBSCRIBER
SUBSCRIBED
No. of Shares
AMOUNT
SUBSCRIBED
Par Value
Crispulo J. Onrubia
12 Common
P 1,200.00
Juan H. Acayan
12 "
1,200.00
Martin P.
Sagarbarria
8"
800.00
Mauricio G.
Gallaga
8"
800.00
Luis Renteria
8"
800.00
Faustina M. de
Onrubia
12 "
1,200.00
Mrs. Ramon
Araneta
Carlos M. Onrubia
8"
8"
76
800.00
800.00
P7,600.0030
which were recorded in the stock and transfer book in 1978, and the
additional one hundred thirty-two (132) in 1982. But obviously, the shares
so ordered recorded in the stock and transfer book are among the shares
reflected in the articles of incorporation as the shares subscribed to by the
incorporators named therein.
One who is actually a stockholder cannot be denied his right to vote by the
corporation merely because the corporate officers failed to keep its records
accurately.40 A corporations records are not the only evidence of the
ownership of stock in a corporation.41 In an American case,42 persons
claiming shareholders status in a professional corporation were listed as
stockholders in the amendment to the articles of incorporation. On that
basis, they were in all respects treated as shareholders. In fact, the acts and
conduct of the parties may even constitute sufficient evidence of ones
status as a shareholder or member.43 In the instant case, no less than the
articles of incorporation declare the incorporators to have in their name the
founders and several common shares. Thus, to disregard the contents of the
articles of incorporation would be to pretend that the basic document which
legally triggered the creation of the corporation does not exist and
accordingly to allow great injustice to be caused to the incorporators and
their heirs.
Petitioners argue that the Court of Appeals "gravely erred in applying the
Espejo decision to the benefit of respondents." The Court believes that the
more precise statement of the issue is whether in its assailed Decision, the
Court of Appeals can declare private respondents as the heirs of the
incorporators, and consequently register the founders shares in their name.
However, this issue as recast is not actually determinative of the present
controversy as explained below.
Petitioners claim that the Decision of the Court of Appeals unilaterally
divested them of their shares in PMMSI as recorded in the stock and
transfer book and instantly created inexistent shares in favor of private
respondents. We do not agree.
The assailed Decision merely declared that a separate judicial declaration to
recognize the shares of the original incorporators would entail unnecessary
delay and expense on the part of the litigants, considering that the
incorporators had already proved ownership of such shares as shown in the
articles of incorporation.44 There was no declaration of who the individual
owners of these shares were on the date of the promulgation of the
Decision. As properly stated by the SEC in its Order dated 20 June 1996, to
which the appellate courts Decision should be related, "if at all, the
ownership of these shares should only be subjected to the proper judicial