Corporate Law Case Digest: Bachrach Motor Co V.

Lacson Ledesma (1937)

G.R. No. L-42462 August 31, 1937

Lessons Applicable: Quasi-negotiable Character of Certificate of Stock (Corporate Law)

FACTS:

 June 30, 1927: CFI favored Bachrach Motor Co., Inc (Bachrach) against Mariano Lacson
Ledesma

 Ledesma mortgaged to the Philippine National Bank (PNB) Talisay-Silay Milling Co., Inc
shares

 September 29, 1928: PNB brought an action against Ledesma and his wife Concepcion
Diaz for the recovery of a mortgage credit

 January 2, 1929: PNB amended its complaint by including the Bachrach Motor Co., Inc.,
as party defendant because they claim to have rights to some of the subject matters of
this complaint

 January 30, 1929: Bachrach field a gen. denial

 CFI: favored PNB

 December 20, 1929: Bachrach brought an action in the CFI against the Talisay-Silay
Milling Co., Inc., to recover P13,850 against the bonus or dividend w/c, by virtue of the
resolution of December 22, 1923, Central Talisay-Silay Milling Co., Inc., had declared in
favor of Ledesma as one of the owners of the hacienda which had been mortgaged to the
PNB to secure the obligation of the Talisay-Silay Milling Co., Inc. in favor of said bank

 CFI: favored Bachrach

ISSUE: W/N shares of stock are personal property and therefore can be subject to pledge or
chattel mortgage

HELD: YES. AFIRMED

 section 4 of the Chattel Mortgage Law, in so far as it provides that a chattel mortgage
shall not be valid against any person except the mortgagor, his executors or
administrators, unless the possession of the property is delivered to and retained by the
mortgagee or unless the mortgage is recorded in the office of the register of deeds of the
province in which the mortgagor resides.

 pledge of the 6,300 stock dividends is valid against the Bachrach because the certificate
was delivered to the creditor bank, notwithstanding the fact that the contract does not
appear in a public instrument
  Certificates of stock or of stock dividends, under the Corporation Law, are quasi
negotiable instruments in the sense that they may be given in pledge or mortgage to
secure an obligation

 certificates of stock, while not negotiable in the sense of the law merchant, like bills and
notes, are so framed and dealt with as to be transferable, when property endorsed, by
mere delivery, and as they frequently convey, by estoppel against the corporation or
against prior holders, as good a title to the transferee as if they were negotiable, and
inasmuch as a large commercial use is made of such certificates as collateral security,
and it is to the public interest that such use should be simplify and facilitated by placing
them as nearly as possible on the plane of commercial paper, they are often spoken of
and treated as quasi negotiable, that is as having some of the attributes and partaking of
the character of negotiable instruments, in passing from hand to hand, especially where
they are accompanied by an assignment and power of attorney, executed in blank, to
transfer them to anyone who may obtain possession as holders, even though such
assignment and power are under seal.

Bachrach Motor v. Mariano Ledesma; Talisay Milling

(Aug 1937)

Facts:

! Bachrach brought this action to recover the amount of judgments. Itappealed form the
judgment declaring the right of PNB to the 6,300stock dividends as a preferred one absolving
PNB and Ledesmaform the complaint.

! It prayed that:

O The transfer certificate of stock dividends of Talisay Milling ofthe PNB be declared null and
void

O That Talisay Milling be ordered to cancel the entry of thetransfer of 6,300 stock dividends
made by it on its books infavor of PNB

O That Talisay Milling be order to pay Php 22K in case the6300 stock dividends could not be
sold or if the proceeds ofthe sale are insufficient.

O That the defendants pay the cost of suit.

Antecedent Facts:

! Bachrach obtained judgment against Ledesma in the sum of 3K.

! The special sheriff, in compliance with the writ of execution attachedall right, title to and
interest w/c Ledesma may have in any bonus,dividend, share of stock, money or property w/c
Ledesma is entitledto receive from Talisay Milling.

O This is by virtue of the fact that Ledesma mortgaged his landin favor of PNB to guarantee the
indebtedness of TalisayMilling or w/c defendant is entitled to receive from Talisay onaccount of
being a stockholder.

O The notice of attachment was served to both Ledesma andTalisay.

! Talisay even received a copy of the notice ofattachment.

! On Oct 3, 1927, Bachrach obtained judgment against Ledesma

O Writ of execution caused attachment of Ledesma’s right ofredemption over parcels of land.

O On the day of issuance of the execution, real properties weremortgaged to PNB to secure
payment to said bank byLedesma of the sum of P624K

! In the same instrument of mortgage, Ledesmamortgaged in favor of PNB shares owned by him
inTalisay Millng.

! Certificate covering 6,300 stock dividends weredelivered as security to Atty. Roman

asrepresentative of bank PNB.

O Talisay Milling granted a bonus or compensation to theowners of the real properties

mortgaged to answer the debtscontracted by it with PNB.

! Pursuant to this, Ledesma was allotted P19K.

! PNB brought an action against Ledesma and his wife for therecovery of mortgage credit.

O PNB amended its complaint to include Bachrach Motor as aparty because it claims to have
some right to certainproperties which PNB was also claiming.

! CFI Bacolod rendered judgment in favor of PNB.

O Bachrach brought an action against Talisay to recover thebonus or dividends declared by the
corporation againstMariano Ledesma as one of the owners of the hacienda w/chad been
mortgaged to PNB to secure obligation of Talisay.

Issues :

! WON pledge of stocks was ineffective against Bachrach becauseevidence of its date was not
made to appear in a public instrument.

! WON pledge could not legally exist because the certificate was notthe shares themselves.

O Certificate of stock cannot be the subject matter of thecontracts of pledge or chattel mortgage.
Held:

! The pledge of stock dividends is valid against Bachrach Motorbecause the certificate was
delivered to creditor bank PNB,notwithstanding the fact that the contract DOESN'T appear in
apublic instrument.

O Civ. Code provides that: no pledge shall be effective againsta 3rd person unless evidence of its
date appears in a public instrument.

! But this provision has been modified by ChattelMortgage Law (Sec 4)

! A chattel mortgage shall not be valid against anyperson except the mortgagor,
hisexecutor/administrator UNLESS the possession ofthe property is delivered to and retained
by themortgagee OR unless the mortgage is recorded inthe office of the Register of Deeds of the
province inw/c the mortgagor resides.

! Certificate of stock or of stock dividends under the corporation laware QUASI NEGOTIABLE
instruments in the sense that they may begiven in pledge or mortgage to secure an obligation.

o Petitioner Bachrach contends that pledge couldn't legallyexist because the certificate was not
the shares themselvesand that the stock certificate cannot be the subject matter ofa contract of
pledge or chattel mortgage