CERTIFICATE OF STOCK – is a written instrument signed by the proper officer of a corporation

stating or acknowledging that the person named therein is the owner of a designated number of shares
of its stock. It indicates the name of the holder, the number, kind and class of shares represented and the
date of issuance.

1. NATURE OF THE CERTIFICATE OF STOCK

a. It is the evidence of the holder’s interest and status in the corporation, his ownership of the share
represented thereby, but is not in law the equivalent of such ownership. It expresses the contract
between the corporation and the stockholder, and is based on the number of shares owned by a
stockholder.

b. It is a written instrument signed by the proper officer of a corporation stating or acknowledging that
the person named therein is the owner of a designated number of shares

c. It is not essential to the existence of a shares of stock or the creation of the relation of a shareholder.

d. A certificate of stocks is a property that has a value separate and distinct from the value of the
shares represented. It may be brought out of the domicile of the corporation, being a personal property
of the owner. (SEC Opinion, July 29, 1976)

e. It is not a negotiable instrument because the holder thereof takes it without prejudice to such rights
or defenses as the registered owner’s or transferor’s creditor may legally have (except estoppel) .
Hence, the issuance of “bearer” stock certificates is not allowed under the law.

2. UNCERTIFICATED SHARES

Section 43.2 of the Securities Regulation Code states that:

Transfer of uncertificated shares shall only be valid, so far as the corporation is concerned, when a
transfer is recorded in the books of the corporation so as to show the names of the parties to the
transfer and the number of shares transferred.

Lao vs Lao (2008) – The mere inclusion of a person as a shareholder in the General Information Sheet
(GIS) filed with the SEC is an insufficient proof that one is a shareholder where there is no certificate
of stock in his name, or a written instrument assigning the shares in his favor, duly registered in
the stock and transfer book of the corporation.

3. NEGOTIABILITY AND THE REQUIREMENTS FOR A VALID TRANSFER OF STOCKS

A certificate of stock is not a negotiable instrument. Certificates of stock may be issued only to
registered owners of stock. The issuance of “bearer” stock certificates is not allowed under the law
(SEC Opinion No. 05-02, January 31, 2005). Although it is sometimes regarded as quasi-negotiable, in
the sense that it may be settled by indorsement, 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 transferor’s creditor may have under the law except insofar as such rights or
defenses are subject to the limitations imposed by the principles governing estoppel. [Delos Santos vs
McGrath (1957); Tan vs SEC (1992)]
In the case of De los Santos et al. vs. MacGrath, et al., G.R. No. L-4818, 28 February 1955, the
Supreme Court interpreted the provisions of then Section 63, now Section 62 of the Revised
Corporation Code, which provided the requirements for a valid transfer of stocks. The Supreme Court
held that any voluntary transfer of shares of stock in a corporation that is represented by a certificate of
stock must strictly comply with the following conditions:

a. There must be delivery of the certificate;

b. The share must be indorsed by the owner or his agent; and

c. To be valid to the corporation and third parties, the transfer must be recorded in the books
of the corporation.

ISSUANCE OF CERTIFICATE OF STOCKS

Sec. 63. Issuance of stock certificates. - No certificate of stock shall be issued to a subscriber until the
full amount of the subscription together with interest and expenses (in case of delinquent shares), if any
is due, has been paid.

BALTAZAR v. LINGAYEN GULF ELECTRIC POWER

No. L-16238; June 30, 1965

FACTS:

• Lingayen Gulf Electric Power Co., Inc. has an authorized capital stock of P300,000.00 divided into
3,000 shares of voting stock at P100.00 par value, per share.
• Plaintiffs Baltazar were among the incorporators, having subscribed to 600 and 400 shares of the
capital stock.
• It is alleged that it has always been the practice and procedure of the Corporation to issue certificates
of stock to its individual subscribers for unpaid shares of stock.
• Of the 600 shares of capital stock subscribed by Baltazar, he had fully paid 535 shares of stock, and
issued to him 535 fully paid-up and non-assessable certificates of stock.
• Respondents Ungson were small stockholders, all holding a total number of fully paid-up shares of
stock, of not more than 100 shares and the defendant Acena, was likewise an incorporator and
stockholder, holding 600 shares of stock, for which certificates of stock were issued to him and as such,
was the largest individual stockholder thereof.
• In the stockholder’s meeting in 1995 for electing new officers and BOD
• The fight for control of the management and property of the corporation was close and keen.
• The total number of fully paid-up shares held by stockholders of one group, was almost ‘equal the
number of fully paid-up shares held by the other group.
• The Ungson group (especially defendant Acena), which had been in complete control of the
management and property of the Corporation since then.
• In order to continue retaining such control, they issued resolutions threatening and procuring to
‘expel and oust the plaintiffs and their companion stockholders, for the ultimate purpose of depriving
them of their right to vote in the said annual stockholders’ meeting for May 1955.
• One of defendant’s prayers is that the resolutions be declared legal and valid, invalidating the
“watered stocks” of plaintiffs, if not paid, and disqualifying the delinquent subscribers, among whom
were the plaintiffs, from voting totally or partially, their subscriptions.

ISSUES:

1. Whether a stockholder be deprived to vote if he only paid in partial? (NO)

2. Whether the previous payment be applied to the interest of unpaid shares, thus diminishing the
voting power of the shares of stock already paid? (NO)

RULINGS:

1. NO. If a stockholder, in a stock corporation subscribes to a certain number of shares of stock,

and makes partial payments for which he is issued certificates of stock, he is entitled to vote the latter,
notwithstanding the fact that he has not paid the balance of his subscription which has been called for
payment or declared delinquent.

They invoke the ruling laid down by the Court in the Fua Cun v. Summers case (44 Phil 705, March 27,
1923) pertinent portion of which states:

“In the absence of special agreement to the contrary, a subscriber for a certain number of shares of
stock does not, upon payment of one-half of the subscription price, become entitled to the issuance of
certificates for one-half of the number of shares subscribed for; the subscriber’s right consists only in
equity entitling him to a certificate for the total number of shares subscribed for by him upon payment
of the remaining portion of the subscription price.”

The cited case connotes the principle that a partial payment of a subscription does not entitle the
stockholder to a certificate for the total number of shares subscribed by him; his right consists only in
equity to a certificate of the total number of shares subscribed for, upon payment of the remaining
portion of the subscription price.

The saving clause in the quoted pronouncement, “in the absence of special agreement to the
contrary,” reveals that the doctrine is not mandatory, but merely directory, which is not violative of
law, the rigor of the pronouncement may be relaxed. The plaintiffs-appellees seem to sustain an adverse
concept, postulating that once a stockholder has subscribed to a certain number of shares, although he
has made partial payments only, but is issued a certificate for the paid-up shares of stock, he is entitled
to vote the whole number of shares subscribed by him, paid or not, until the said unpaid shares shall
have been called for payment or declared delinquent.

The cases at bar do not come under the aegis of the principle enunciated in the Fua Cun v. Summers
case, because it was the practice and procedure, since the inception of the corporation, to issue
certificates of stock to its individual subscribers for unpaid shares of stock and gave voting power to
shares of stock fully paid. And even though no agreement existed, the ruling in said case, does not now
reflect the correct view on the matter, for better than an agreement or practice, there is Sec. 37 of the
Corporation Law, which renders the said case of Fua Cun-Summers, obsolescent.

Section 37, of the Corporation Law, as amended by Act No. 3518, approved on March 1, 1929, six (6)
years after the promulgation of the Fua-Summers case (decided in 1923), provides:
"SEC. 37. No certificate of stock shall be issued to a subscriber as fully paid up until the full par value
thereof, or the full subscription in the case of no par stock, has been paid by him to the corporation.
Subscribed shares not fully paid up may be voted provided no subscription call or interest due on
subscription is unpaid and delinquent."

Stated in another way, the present law requires as a condition before a share holder can vote his shares,
that his full subscription be paid in the case of no par value stock; and in case of stock corporation with
par value, as in the case of Lingayen Gulf, the stockholder can vote the shares fully paid by him only,
irrespective of the unpaid delinquent shares.

2. NO. If a stockholder subscribes to a certain number of shares of stock and makes partial
payment only, which is applied to corresponding stocks issued to him, but is declared delinquent as to
the rest, with interest, it is held that previous payments on account of the capital, may not be first
applied to interest, thus diminishing the voting power of the shares of stock already paid. In other
words, if the entire subscribed shares of stock are not paid, the paid shares of stock may not be
deprived of the right to vote, until the entire subscribed shares of stock are fully paid, including interest.

Defendants-appellants, invoking Art. 1253 NCC (Art. 1173 of the Old Civil Code) which provides that
“if the debt produces interest, payment of the principal shall not be deemed to have been made until the
interests have been covered,” and relying on an opinion of the Securities and Exchange Commission,
claim that said unilateral nullification and/or cancellation of previously issued capital stock shares
certificates was valid. This provision of law only applies in the absence of verbal or written agreement,
to the contrary (8 Manresa, p. 317); it is likewise merely directory, and not mandatory. (Art. 1252
NCC).

In the present case, the defendant-corporation had applied the payments made by the stockholders to
the full par value of the shares of stock subscribed by them, instead of the accrued interest, as shown by
the capital stock shares certificate issued for the payments made, and the stockholders had accepted
such certificates issued for such payments. This being the case, the said application of payments must
be deemed to have been agreed upon by the Corporation and the stockholders, and the same cannot
now be changed without the consent of the stockholders concerned. The Corporation Law and the by-
laws of the defendant Corporation do not contain any provision, prohibiting the application of
stockholders’ payments to the full par value of a corporation’s capital stock, ahead of the payment of
accrued interest for unpaid subscriptions. It would, therefore, result that a corporation may, upon
request of an interested stockholder, as his option, apply payments by them to the full par value of
shares of capital stock subscribed, leaving its collection later of the accrued interest on unpaid
subscriptions, and that once such option has been exercised and the corresponding stock certificates
have been issued, the corporation cannot, by a unilateral act, legally nullify and cancel the capital stock
certificates so issued.

FUA CUN v. SUMMERS

No. 19441. March 27, 1923

FACTS:

• Chua Soco subscribed for 500 shares of stock of the defendant Banking Corporation paying one-half
of the subscription price, in cash, for which a receipt was issued in the following terms:
"Upon receipt of the balance of said subscription in accordance with the terms of the calls of the Board
of Directors, and surrender of this certificate, duly executed certificates for said five hundred shares of
stock will be issued to the order of the subscriber.

"It is expressly understood that the total number of shares specified in this receipt is subject to sale by
the China Banking Corporation for the payment of any unpaid subscriptions, should the subscriber fail
to pay the whole or any part of the balance of his subscription upon 30 days' notice issued therefor by
the Board of Directors.

• Chua Soco executed a promissory note in favor of the plaintiff Fua Cun for the sum of P25,000,
securing the note with a chattel mortgage on the shares of stock subscribed for by Chua Soco.
• The plaintiff thereupon took the receipt to the manager of the defendant Bank and informed him of
the transaction with Chua Soco, but was told to await action upon the matter by the Board of Directors.
• Chua Soco appears to have become indebted to the China Banking Corporation in the sum of
P37,731.68 for dishonored acceptances of commercial paper.
• Fua Cun thus brought this action maintaining that by virtue of the half payment made by Chua Soco
in effect, Chua Soco became the owner of 250 shares and praying that his lien on said shares, by virtue
of the chattel mortgage, be declared to hold priority over the claim of the defendant Banking
Corporation;
• The trial court declared that Chua Soco, acquired the right to 250 shares fully paid up, upon which
shares the plaintiff holds a lien superior to that of the defendant Banking Corporation and ordering that
the receipt be returned to said plaintiff.

ISSUE:

Whether Chua Soco acquired the 250 shares of stocks as ruled by the lower court?

RULING:

NO. As we have already stated, the court erred in holding the plaintiff as the owner of two hundred and
fifty shares of stock; "the plaintiff's rights consist in an equity in five hundred shares and upon payment
of the unpaid portion of the subscription price he becomes entitled to the issuance of certificate for said
five hundred shares in his favor."

In the absence of special agreement to the contrary, a subscriber for a certain number of shares of stock
does not, upon payment of one-half of the subscription price, become entitled to the issuance of
certificates for one-half the number of shares subscribed for; the subscriber's right consists only in an
equity entitling him to a certificate for the total number of shares subscribed for by him upon payment
of the remaining portion of the subscription price.

G.R. No. L-28120 November 25, 1976

RICARDO A. NAVA,
vs.
PEERS MARKETING CORPORATION, RENATO R. CUSI and AMPARO CUSI
 FACTS:

Teofilo Po as an incorporator subscribed to eighty shares of Peers Marketing Corporation. Po paid two
thousand pesos or twenty-five percent of the amount of his subscription.

No certificate of stock was issued to him or, for that matter, to any incorporator, subscriber or
stockholder. Po sold to Ricardo A. Nava for two thousand pesos twenty of his eighty shares. In the deed
of sale Po represented that he was “the absolute and registered owner of twenty shares” of Peers
Marketing Corporation. Nava requested the officers of the corporation to register the sale in the books
of the corporation.

The request was denied because Po has not paid fully the amount of his subscription. Nava was
informed that Po was delinquent in the payment of the balance due on his subscription and that the
corporation had a claim on his entire subscription of eighty shares which included the twenty shares
that had been sold to Nava. Nava filed this mandamus action in the CFI to compel the corporation and
Renato R. Cusi and Amparo Cusi, its executive vice-president and secretary, respectively, to register the
said twenty shares in Nava’s name in the corporation’s transfer book.

The respondents in their answer pleaded the defense that no shares of stock against which the
corporation holds an unpaid claim are transferable in the books of the corporation.

The trial court dismissed the petition.

ISSUE:

Whether the officers of Peers Marketing Corporation can be compelled by mandamus to enter in its
stock and transfer book the sale made by Po to Nava of the twenty shares forming part of Po’s
subscription of eighty shares, with a total par value of P8,000 and for which Po had paid only P2,000, it
being admitted that the corporation has an unpaid claim of P6,000 as the balance due on Po’s
subscription and that the twenty shares are not covered by any stock certificate

RULING:

No. The officers of Peers Marketing Corporation cannot be compelled by mandamus to enter in its
stock and transfer book the sale made by Po to Nava of the twenty shares forming part of Po’s
subscription of eighty shares.

The corporation can include in its by-laws rules, not inconsistent with law, governing the transfer of its
shares of stock. As prescribed in Section 35 of the Corporation Law, shares of stock may be transferred
by delivery to the transferee of the certificate properly indorsed. “Title may be vested in the transferee
by delivery of the certificate with a written assignment or indorsement thereof” (18 C.J.S. 928). There
should be compliance with the mode of transfer prescribed by law.

A corporation cannot release an original subscriber from paying for his shares without a valuable
consideration or without the unanimous consent of the stockholders.
A stock subscription is a subsisting liability from the time the subscription is made. The subscriber is as
much bound to pay his subscription as he would be to pay any other debt. The right of the corporation
to demand payment is no less incontestable.

As already stressed, in this case, no stock certificate was issued to Po. Without stock certificate, which
is the evidence of ownership of corporate stock, the assignment of corporate shares is effective only
between the parties to the transaction.

The delivery of the stock certificate, which represents the shares to be alienated, is essential for the
protection of both the corporation and its stockholders

1. FULL PAYMENT OF CERTIFICATE OF STOCKS

Section 63 is clear. Full payment of subscription is required for the issuance of certificate of
stock., which could be given either to the subscriber or to his or her duly appointed nominee, upon the
subscriber’s instructions.

2. PAYMENT PRO-RATA

The provision in Sec. 63 enunciates the doctrine that a subscription is one, indivisible
contract, and therefore, it cannot be divided into portions, so that the stockholder shall not be
entitled to certificate of stock until he has paid the full amount of his subscription together with the
interests and expenses, if any is due. (SEC Opinion April 11, 1994)

STOCK TRANSFER BOOK – a book in which must be kept a record of all stocks in the names of
the stockholders alphabetically arranged; the installments paid and unpaid on all stock for which
subscription has been made, and the date of payment of any installment; a statement of every
alienation, sale or transfer of stock made, the date thereof, and by and to whom made; and such other
entries as the by-laws may prescribe.

The stock and transfer book shall be kept in the principal office of the corporation or in the office of its
stock transfer agent and shall be open for inspection by any director or stockholder of the corporation at
reasonable hours on business days.

GONZALO CHUA GUAN VS SAMAHANG MAGSASAKA, INC. ET AL

G.R. No. L-42091 November 2, 1935

FACTS:

As evidenced by certificates of stocks in his possession, Co Toco is the owner of 5,894 shares of the
capital stock of Samahang Magsasaka, a legal corporation with principal office in Cabanatuan,
Nueva Ecija. He mortgaged and later registered his stocks to the Registry of Deeds (ROD) in Manila
his shares to Chua Chiu to guarantee the payment of his debt to the latter. Chua Chiu then assigned all
his right to the said mortgage to the plaintiff, Gonzalo Chua Guan. Chua Guan sold the shares at public
auction after Co Toco defaulted the payment of his debt. Chua Guan bought Co Toco’s shares for being
the highest bidder.

Chua Guan then demanded Samahang Magsasaka to cancel the certificate of stocks in Co Toco’s name
and issue new ones in his name. Samahang Magsasaka refused to cancel the said certificates standing
in the name of Co Toco on the books of the corporation and to issue new ones in the name of the
plaintiff because prior to the date when the plaintiff made his demand, to wit, February 4, 1933, nine
attachments had been issued and served and noted on the books of the corporation against the shares of
Co Toco and Chua Guan objected to having these attachments noted on the new certificates which he
demanded.

ISSUE:

Whether or not the certificate of stocks was properly mortgaged and registered in the ROD of Manila.

RULING:

No. It was improperly mortgaged and registered in the ROD of Manila.

It is a common but not accurate generalization that the situs of shares of stock is at the domicile of the
owner. The term situs is not one of fixed of invariable meaning or usage. Nor should we lose sight of
the difference between the situs of the shares and the situs of the certificates of shares. The situs of
shares of stock for some purposes may be at the domicile of the owner and for others at the domicile of
the corporation; and even elsewhere. It is a general rule that for purposes of execution, attachment
and garnishment, it is not the domicile of the owner of a certificate but the domicile of the
corporation which is decisive.

By analogy with the foregoing and considering the ownership of shares in a corporation as property
distinct from the certificates which are merely the evidence of such ownership, therefore, the property
in the shares may be deemed to be situated in the province in which the corporation has its principal
office or place of business. If this province is also the province of the owner's domicile, a single
registration sufficient. If not, the chattel mortgage should be registered both at the owner's domicile and
in the province where the corporation has its principal office or place of business. In this sense the
property mortgaged is not the certificate but the participation and share of the owner in the assets of the
corporation.

Apart from the cumbersome and unusual method of hypothecating shares of stock by chattel mortgage,
it appears that in the present state of our law, the only safe way to accomplish the hypothecation of
share of stock of a Philippine corporation is for the creditor to insist on the assignment and delivery of
the certificate and to obtain the transfer of the legal title to him on the books of the corporation by the
cancellation of the certificate and the issuance of a new one to him. From the standpoint of the debtor
this may be unsatisfactory because it leaves the creditor as the ostensible owner of the shares and the
debtor is forced to rely upon the honesty and solvency of the creditor. Of course, the mere possession
and retention of the debtor's certificate by the creditor gives some security to the creditor against an
attempted voluntary transfer by the debtor, provided the by-laws of the corporation expressly enact that
transfers may be made only upon the surrender of the certificate.

It is to be noted, however, that section 35 of the Corporation Law (Act No. 1459) enacts that shares of
stock "may be transferred by delivery of the certificate endorsed by the owner or his attorney in fact or
other person legally authorized to make the transfer." The use of the verb "may" does not exclude the
possibility that a transfer may be made in a different manner, thus leaving the creditor in an insecure
position even though he has the certificate in his possession. Moreover, the shares still standing in the
name of the debtor on the books of the corporation will be liable to seizure by attachment or levy on
execution at the instance of other creditors. This unsatisfactory state of our law is well known to the
bench and bar. Loans upon stock securities should be facilitated in order to foster economic
development. The transfer by endorsement and delivery of a certificate with intention to pledge the
shares covered thereby should be sufficient to give legal effect to that intention and to consummate the
juristic act without necessity for registration.

In view of the premises, the mortgage should have been registered in the ROD – Cabanatuan City,
Nueva Ecija, where the principal office of Samahang Magsasaka is located. Said corporation is
therefore entitled to priority over the defectively registered mortgage of the appellant, Chua Guan.

1.CONTENTS OF STOCK TRANSFER BOOK

a. Names of the stockholders alphabetically arranged;

b. The installments paid and unpaid on all stock for which subscription has been made, and the date of
payment of any installment;
c. A statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom
made;
d. Other entries as the by-laws may prescribe.

2.WHO MAY MAKE VALID ENTRIES

In Torres Jr. vs. Court of Appeals, the Court ruled that it is the Corporate Secretary who is responsible
to serve as custodian of all the records of the corporation, to keep the stock and transfer books, and the
only person authorized to make the entries therein.

STOCK TRANSFER AGENT – is a financial services company that record the ownership changes of
the stocks from stock corporations, maintain the issuer's security holder records, cancel and issue
certificates, and distribute dividends. Because transfer agents stand between issuing companies and
security holders, efficient transfer agent operations are critical to the successful completion of
secondary trades.

1. LOST/DESTROYED CERTIFICATES

Section 72. Lost or Destroyed Certificates. The following procedure shall be followed by a corporation
in issuing new certificates of stock in lieu of those which have been lost, stolen or destroyed:

(a) The registered owner of a certificate of stock in a corporation or such person's legal representative
shall (1) file with the corporation an affidavit in triplicate setting forth, if possible, the
circumstances as to how the certificate was lost, stolen or destroyed, the number of shares represented
by such certificate, the serial number of the certificate and the name of the corporation which issued the
same. The owner of such certificate of stock shall also submit such other information and evidence as
may be deemed necessary; and

(b) After verifying the affidavit and other information and evidence with the books of the corporation
shall (2) publish a notice in a newspaper of general circulation in the place where the
corporation has its principal office, once a week for three (3) consecutive weeks at the expense
of the registered owner of the certificate of stock which has been lost, stolen or destroyed. The notice
shall state the name of the corporation, the name of the registered owner, the serial number of the
certificate, the number of shares represented by such certificate, and shall state that (3) after the
expiration of one (1) year from the date of the last publication, if no contest has been presented
to the corporation regarding the certificate of stock, the right to make such contest shall be
barred and the corporation shall cancel the lost, destroyed or stolen certificate of stock, the
right to make such contest shall be barred and the corporation shall cancel the lost, destroyed
or stolen certificate of stock in its books. In lieu thereof, (4) the corporation shall issue a new
certificate of stock, unless the registered owner files a bond or other security as may be required,
effective for a period of one (1) year, for such amount and in such form and with such sureties as may
be satisfactory to the board of directors, in which case a new certificate may be issued even before the
expiration of one (1) year period provided herein. (5) If a contest has been presented to the
corporation or if an action is pending in court regarding the ownership of the certificate of
stock which has been lost, stolen in lieu thereof shall be suspended until the court renders a
final decision regarding the ownership of the certificate of stock which has been lost, stolen ore
destroyed.

Except in case of fraud, bad faith, or negligence on the part of the corporation and its officers, no action
may be brought against any corporation which shall have issued certificate of stock in lieu of those lost,
stolen or destroyed pursuant to the procedure above-described.

2. SITUS OF THE SHARES OF STOCK

It is a general rule that for purposes of execution, attachment and garnishment, it is not the domicile of
the owner of a certificate but the domicile of the corporation which is decisive. By analogy, the
property in the shares may be deemed to be situated in the city or province in which the corporation
has its principal office or place of business. (Chua Guan vs Samahang Magsasaka, Inc.)