Case Summary (G.R. No. L-28120)
Procedural posture and issue presented
The trial court dismissed Nava’s petition for mandamus. Nava appealed, arguing that the dismissal was contrary to law and relying on an interpretation of Section 37 (as amended from former Section 36) of the Corporation Law and on prior case law (notably Baltazar). The controlling legal question before the court was whether the corporate officers could be compelled by mandamus to record, in the corporation’s stock and transfer book, Po’s sale and Nava’s acquisition of the twenty shares that formed part of an unpaid subscription when (a) no stock certificates had been issued for those shares and (b) the corporation had an unpaid claim for the balance of Po’s subscription.
Relevant statutory provisions and their operative effect
The court analyzed the statutory scheme for issuance and transfer of shares under the Corporation Law. Section 35 (quoted in the decision) prescribes that capital stock be divided into shares and that certificates signed by corporate officers shall be issued in accordance with the by‑laws; such certificates represent personal property and may be transferred by delivery of the certificate properly indorsed. Section 35 also provides that no transfer is valid, except as between the parties, until the transfer is entered on the corporation’s books, and expressly states: “No share of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation.” Section 37 (as amended from Section 36) was construed in the opinion and earlier jurisprudence to regulate the issuance of certificates and the voting rights attaching to shares actually represented by certificates issued on the basis of payments made.
Court’s analysis: necessity of certificates for book transfers
The court emphasized the ordinary and statutory mode of effecting alienations of corporate shares: delivery of a properly indorsed stock certificate and entry of the transfer in the corporation’s books, with surrender and cancellation of old certificates and issuance of new ones. Because the twenty shares here were not represented by any certificate in Po’s name, the court found the transaction did not constitute an “alienation, sale, or transfer of stock” in the sense contemplated by Section 52 and other transfer provisions. The court relied on the statutory language and established authorities that title to shares and the practical protection of corporate and shareholder interests are linked to issuance and delivery of certificates. The absence of a certificate therefore foreclosed the usual transfer procedure.
Court’s analysis: subscription liability and its effect on transferability
The court reiterated the principle that a stock subscription is an enforceable subsisting liability from the time of subscription, and that the subscriber remains obliged to pay the subscription as with any other debt. Because Po had an outstanding unpaid balance on his subscription (P6,000), the corporation had a claim against the entire subscription, including the twenty shares sold to Nava. Section 35 was read plainly to forbid transfer on the corporate books of “any share of stock against which the corporation holds any unpaid claim.” Given the corporation’s unpaid claim and the lack of a certificate, the officers were under no clear legal duty to register the sale; hence mandamus — which requires a clear legal duty — was not available.
Distinction from the Baltazar (Lingayen Gulf) line of cases
Nava relied on Baltazar to argue that Section 37 permits issuance of certificates and recognition of shares paid up even where the subscriber’s overall subscription is unp
...continue readingCase Syllabus (G.R. No. L-28120)
Case Caption and Citation
- Reported at 165 Phil. 690, Second Division, G.R. No. L-28120, decided November 25, 1976.
- Title as reported: RICARDO A. NAVA, PETITIONER-APPELLANT, VS. PEERS MARKETING CORPORATION, RENATO R. CUSI AND AMPARO CUSI, RESPONDENTS-APPELLEES.
- Decision authored by Justice Aquino.
- Concurrence by Fernando (Chairman), Barredo, Antonio, and Concepcion, Jr., JJ.
Procedural History
- Petition for mandamus filed by Ricardo A. Nava in the Court of First Instance of Negros Occidental, Bacolod City Branch on December 21, 1966.
- Trial court dismissed Nava's petition after hearing.
- Nava appealed the dismissal to the Supreme Court, assigning as error that the trial court erred in applying Fua Cun vs. Summers and China Banking Corporation, 44 Phil. 705.
- Supreme Court reviewed the case and affirmed the trial court’s judgment, ordering costs against the petitioner-appellant.
Factual Background
- Teofilo Po, as an incorporator of Peers Marketing Corporation, subscribed to eighty (80) shares at P100 per share, total par value P8,000.
- Po paid P2,000 (25% of his total subscription).
- No certificate of stock was issued to Po, nor to any incorporator, subscriber, or stockholder.
- On April 2, 1966, Po executed a deed of sale to Ricardo A. Nava for twenty (20) of his eighty shares for P2,000.
- 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 corporation's officers to register the sale in the corporation's books; registration was refused because Po had not fully paid his subscription and the corporation asserted a claim on the entire subscription including the twenty shares sold.
- Respondents named in the action were Peers Marketing Corporation and its executive vice-president and secretary, Renato R. Cusi and Amparo Cusi.
- The corporation pleaded as defense that no shares of stock against which it holds an unpaid claim are transferable on its books.
Issue Presented
- Whether the officers of Peers Marketing Corporation can be compelled by mandamus to enter, in its stock and transfer book, the sale by Po to Nava of twenty shares that form part of Po's unpaid subscription (total subscription P8,000; paid P2,000; unpaid claim P6,000), given that the twenty shares were not covered by any stock certificate.
- Whether Section 37 (as amended from Section 36) of the Corporation Law requires issuance of stock certificate for shares the par value of which have been paid even though the total subscription has not been paid, and whether such provision obliges the corporation to register the transfer.
Parties' Contentions
- Petitioner/Appellant (Nava):
- Contended that the trial court erred in applying the rule in Fua Cun v. Summers and China Banking Corporation.
- Argued that under Section 37 a certificate of stock may be issued for shares the par value of which have already been paid for even though the subscriber has not fully paid his entire subscription, and that the corporation should thus issue/register a certificate for the twenty shares sold to him.
- Relied on Baltazar v. Lingayen Gulf Electric Power Co., Inc., where it was held that Section 37 permits voting for shares fully paid by the stockholder despite unpaid balance on other shares of his subscription.
- Respondents (Peers Marketing Corporation, Renato R. Cusi, Amparo Cusi):
- Pleaded that no shares of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation.
- Denied any duty to register the transfer, given Po's delinquency on his subscription and the absence of any stock certificate covering the twenty shares.
Applicable Statutory Provisions and Corporate Law Principles (as cited in the decision)
- Section 35, Corporation Law (quoted in the opinion):
- Capital stock shall be divided into shares for which certificates shall be issued in accordance with the by-laws.
- Shares issued by certificates are personal property and may be transferred by delivery of the certificate indorsed by the owner or his authorized attorney.
- No transfer is valid, except between the parties, until entered and noted upon the books of the corporation showing names of parties, date of transfer, number of the certificate, and 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."
- Section 36 (re voting trust agreement) and the procedure for surrender/cancellation and re-issuance of certificates where applicable (text fragments cited).
- Amendment: Section 36 was amended by Act No. 3518 and is now Section 37; Section 37 provides: "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 case of no par stock, has been paid by him to the corporation."
- Section 13(7), Act No. 1459: corporations may include in their by-laws rules, not inconsistent with law, governing the transfer of shares.
- Reference to Section 52: the Court considered whether the sale constituted the alienation, sale, or transfer contemplated to be recorded in the stock and transfer book