Monserrat v.

Ceron (GR 37078, 27 September 1933) Facts: Petitioner, Monserrat, was president and manager of the Manila Yellow Taxicab Company Inc., and the owner of P1,200 common shares of stock of the company. He assigned the usufruct (right in a property owned by another for a limited time or until death) of half of his common shares of stock to Carlos Ceron (defendant). The assignment included the right to enjoy the profits from the shares, prohibiting Ceron from selling, mortgaging, encumbering, or exercising any act implying absolute ownership. Ceron mortgaged some of the shares of stock of Manila Yellow Taxicab, including the 600 common shares assigned to him by Monserrat to Eduardo Matute, President to Erma, Inc as payment of his debt. Matute was not informed of the document that contained Cerons rights and prohibitions with regard to the 600 common shares of stock from Monserrat. *Original case did not mention how the case was instituted in the CFI. The CFI Manila rendered judgment in favor of the plaintiff declaring the plaintiff the owner of the 600 shares of stock; and declaring the mortgage constituted on the ownership of the shares of stock null and void and without force and effect, although the mortgage on the usufruct enjoyed by the mortgage debtor Ceron in the said 600 shares of stock is hereby declared valid; with costs against the defendants. Erma Inc. and the Sheriff of Manila, the defendants therein, appealed from the decision. Issue & Ruling: Whether it is necessary to enter upon the books of the corporation a mortgage constituted on common shares of stock in order that such mortgage may be valid and may have force and effect as against third persons. o Section 35 of the Corporation Law provides the following: The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or the vice-president, counter signed 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, the date of the transfer the number of the certificate, and the number of shares transferred. o Section 35 of the Corporation Law does not require any entry except of transfers of shares of stock in order that such transfers may be valid as against third persons. o The word transfer is defined by the "Diccionario de la Academia de la Lengua Castellana" as the act and effect of transferring; and the verb as to assign or waive the right in, or absolute ownership of, a thing in favor of another, making him the owner thereof. o Section 3 of Act No. 1508, as amended by Act No. 2496, defines the

phrase (chattel mortgage) as: a conditional sale of personal property as security for the payment of a debt the condition being that the sale shall be avoided upon the seller paying to the purchaser a sum of money or doing some other act named. If the condition is performed according to its terms the mortgage and sale immediately become void, and the mortgage is hereby divested of his title. o The chattel mortgage is not the transfer referred to in section 35 of Act No. 1459 commonly known as the Corporation law, which transfer should be entered and noted upon the books of a corporation in order to be valid, and which, means the absolute and unconditional conveyance of the title and ownership of a share of stock. o Inasmuch as a chattel mortgage of the aforesaid title is not a complete and absolute alienation of the dominion and ownership thereof, its entry and notation upon the books of the corporation is not necessary requisite to its validity. Whether or not the defendant entity, Erma, Inc., had knowledge of the document that states that the transfer of the 600 shares of common stocks from Monseratt to Ceron was only for the usufruct of the shares, and that Ceron bound himself not to alienate nor encumber them. o The evidence shows that when Matute went to the office of the Manila Yellow Taxicab Co., Inc., to examine the Stock and Transfer Book of the said corporation, for the purpose of ascertaining the actual status of Carlos G. Ceron's shares of stock, Matute found nothing but that the shares in question were recorded therein in the name of said Carlos G. Ceron, free from all liens and encumbrances. o The notation of liens and encumbrances was placed there only on May 5, 1931, the same date on which the 600 common shares were to have been sold at public auction, in view of Carlos G. Ceron's default in the payment of the loan secured by them. o Therefore, defendant entity Erma, Inc. as conditional purchaser of the 600 shares of stock, acquired, in good faith, Cerons right and title to the shares of stock. SC holds that: since section 35 of the Corporation Law does not require the notation upon the books of a corporation of transactions relating to its shares, except the transfer of possession and ownership thereof, as a necessary requisite to the validity of such transfer, the notation upon the aforesaid books of the corporation, of a chattel mortgage constituted on the shares of stock in question is not necessary to its validity.