Nava vs. Peers Marketing Corporation, et al.

A transfer of shares that are not covered by a stock certificate and against which the corporation holds an unpaid claim cannot be registered in the stock and transfer book, and mandamus will not compel such registration absent a clear legal duty.

Peers Marketing Corporation is a stock corporation in which Teofilo Po was an incorporator. Ricardo A. Nava was a transferee of a portion of Po’s subscription. Renato R. Cusi and Amparo Cusi served as the corporation’s executive vice-president and secretary, respectively. The governing statutory framework included the Corporation Law’s provisions on certificates of stock, transfers of shares, and the stock and transfer book, including the rule that no share against which the corporation holds an unpaid claim is transferable on the books.

Teofilo Po, as an incorporator of Peers Marketing Corporation, subscribed to eighty shares of the corporation at one hundred pesos a share, for a total par value of eight thousand pesos. He paid two thousand pesos, or twenty-five percent of his subscription. No certificate of stock was issued to him or, for that matter, to any incorporator, subscriber, or stockholder.

On April 2, 1966, 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 had 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.

On December 21, 1966, Nava filed a mandamus action in the Court of First Instance of Negros Occidental, Bacolod City Branch, to compel the corporation and Renato R. Cusi and Amparo Cusi, its executive vice-president and secretary, respectively, to register the twenty shares in Nava’s name in the corporation’s transfer book. The respondents answered that no shares of stock against which the corporation holds an unpaid claim are transferable in the books of the corporation.

It was admitted that the corporation had an unpaid claim of six thousand pesos as the balance due on Po’s subscription and that the twenty shares were not covered by any stock certificate. No provision of the corporation’s by-laws was shown to cover the situation; the parties did not submit the by-laws or invoke any of its provisions. The trial court found that Po had paid only two thousand pesos of the eight thousand peso total par value of his subscription and that no certificate of stock had been issued to him.

• Application of Fua Cun: Petitioner-appellant Nava appealed on the ground that the trial court’s decision was contrary to law. His sole assignment of error was that the trial court erred in applying Fua Cun vs. Summers and China Banking Corporation, 44 Phil. 705, to justify respondents’ refusal to register the twenty shares in Nava’s name in the corporation’s books.
• Section 37 and Par-Value Shares: Nava argued that Fua Cun was decided under Section 36 of the Corporation Law, which provided that no certificate of stock shall be issued to a subscriber as fully paid up until the full par value thereof has been paid. Section 36 was amended by Act No. 3518 and is now Section 37. According to Nava, Section 37 requires full payment of the subscription as a condition precedent for issuance of a certificate of stock only in the case of no par stock; therefore, a certificate may be issued for shares whose par value has already been paid even though the entire subscription has not been fully paid.
• Reliance on Baltazar: Nava relied on Baltazar vs. Lingayen Gulf Electric Power Co., Inc., L-16236-38, June 30, 1965, 14 SCRA 522, where it was held that Section 37 requires full subscription payment before a shareholder can vote shares in the case of no par value stock, and that in a par-value corporation a stockholder can vote the shares fully paid by him irrespective of unpaid delinquent shares. He contended that Peers Marketing Corporation should issue a certificate of stock for the twenty shares notwithstanding Po’s unpaid subscription for the eighty shares.

• Unpaid Subscription: Respondents denied Nava’s request to register the sale because Po had 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 sold to Nava.
• Statutory Defense: In their answer, respondents pleaded the defense that no shares of stock against which the corporation holds an unpaid claim are transferable in the books of the corporation.

• Mandamus to Register Transfer: 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 twenty shares forming part of Po’s subscription of eighty shares, where Po had paid only two thousand pesos of the total par value of eight thousand pesos, the corporation had an unpaid claim of six thousand pesos as the balance due on Po’s subscription, and the twenty shares were not covered by any stock certificate.
• Issuance of Certificate for Partially Paid Par-Value Shares: Whether a certificate of stock may be issued for the twenty shares under Section 37 of the Corporation Law, as amended by Act No. 3518, notwithstanding that Po had not fully paid his entire subscription, and whether Baltazar vs. Lingayen Gulf Electric Power Co., Inc. supports Nava’s position.

• Mandamus to Register Transfer: No. Mandamus will not issue because there is no clear legal duty on the officers to register the twenty shares in Nava’s name; the shares were not covered by any stock certificate and were subject to the corporation’s unpaid claim, and Section 35 provides that no share against which the corporation holds an unpaid claim is transferable on the books.
• Issuance of Certificate for Partially Paid Par-Value Shares: No. Section 37 does not authorize the relief under these facts; Baltazar is inapplicable because the stockholder there held a certificate of stock for shares whose par value had been paid, whereas no certificate was issued to Po.

• Mandamus to Register Transfer: The rule applied was that shares which may be alienated are those covered by certificates of stock. Section 35 of the Corporation Law provides that capital stock is divided into shares for which certificates are issued; shares 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 is valid, except as between the parties, until entered and noted upon the corporation’s books, and no share of stock against which the corporation holds any unpaid claim shall be transferable on the books. The usual procedure—indorsement of the certificate, delivery to the secretary, entry in the books, surrender of the certificate, and issuance of a new one—could not be followed because the twenty shares were not covered by any certificate of stock in Po’s name. In addition, the corporation had a claim on those shares for the unpaid balance of Po’s subscription. A stock subscription is a subsisting liability from the time the subscription is made; the subscriber is as much bound to pay it as any other debt, and the corporation’s right to demand payment is incontestable. A corporation cannot release an original subscriber from paying for his shares without valuable consideration or without the unanimous consent of the stockholders. Because there was no clear legal duty on the officers of the corporation to register the twenty shares in Nava’s name, there was no cause of action for mandamus.
• Issuance of Certificate for Partially Paid Par-Value Shares: Nava’s argument that Section 37 permits issuance of a certificate for shares whose par value has been paid, even if the entire subscription remains unpaid, did not entitle him to relief. No parallelism existed with Baltazar. In Baltazar, the stockholder, an incorporator, was the holder of a certificate of stock for shares whose par value had been paid by him; the issue was whether those shares had voting rights although the incorporator had not paid fully the total amount of his subscription. Here, no stock certificate was issued to Po. Without a 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. Delivery of the stock certificate, which represents the shares to be alienated, is essential for the protection of both the corporation and its stockholders. The trial court’s dismissal of the petition was therefore correct.

• Certificate as prerequisite to recordable transfer — Under Section 35 of the Corporation Law, shares of stock issued under certificates are personal property and may be transferred by delivery of the certificate indorsed by the owner or authorized person; no transfer is valid except between the parties until entered in the corporation’s books. The Court applied this by holding that the sale by Po to Nava was not the “alienation, sale, or transfer of stock” contemplated by Section 52 for recordation because the twenty shares were not covered by any stock certificate.
• Unpaid claim bars transfer on corporate books — Section 35 provides that no share of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation. The corporation had an unpaid claim for the six thousand peso balance on Po’s subscription, which covered the entire eighty shares including the twenty sold to Nava; thus, the officers could not be compelled to register the transfer.
• Stock subscription as subsisting liability — A stock subscription is a subsisting liability from the time the subscription is made, and the subscriber is as much bound to pay it as any other debt. The corporation cannot release an original subscriber from paying for his shares without valuable consideration or without the unanimous consent of the stockholders. Po remained liable for the unpaid balance, and the corporation’s claim on the shares persisted.
• Mandamus requires clear legal duty — Mandamus lies only to compel the performance of a clear legal duty. Because the officers had no clear legal duty to register the twenty shares in Nava’s name, the petition for mandamus stated no cause of action.
• Stock certificate as evidence of ownership — Without a stock certificate, which is evidence of ownership of corporate stock, an assignment of corporate shares is effective only between the parties to the transaction; delivery of the stock certificate is essential for the protection of both the corporation and its stockholders. This supported the denial of registration and distinguished Baltazar, where the stockholder held a certificate for shares whose par value had been paid.
• Baltazar doctrine limited to voting rights where certificate exists — The rule in Baltazar that a stockholder in a par-value corporation may vote shares fully paid by him, irrespective of unpaid delinquent shares, does not authorize registration or issuance where no certificate of stock was ever issued to the subscriber. The Court distinguished Baltazar because the stockholder there held a certificate for the shares whose par value had been paid, and the issue was voting rights, not transfer or registration.

• “We hold that the transfer made by Po to Nava is not the "alienation, sale, or transfer of stock" that is supposed to be recorded in the stock and transfer book, as contemplated in section 52 of the Corporation Law.” — This is the core holding: the sale of uncertificated shares was not the kind of transfer that could be recorded in the stock and transfer book.
• “No share of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation.” — This statutory rule from Section 35 supplied the decisive bar to registration because the corporation held an unpaid claim on Po’s subscription.
• “Under the facts of this case, there is no clear legal duty on the part of the officers of the corporation to register the twenty shares in Nava's name, Hence, there is no cause of action for mandamus.” — This states the mandamus holding: absent a clear legal duty, the petition could not prosper.
• “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 (Davis vs. Wachter, 140 So. 361).” — This explains why the absence of a certificate prevented the assignment from binding the corporation and distinguished Baltazar.

• Fua Cun vs. Summers and China Banking Corporation, 44 Phil. 705 — Cited as the authority relied upon by the trial court; it held that payment of one-half of the subscription does not entitle the subscriber to a certificate of stock for one-half of the number of shares subscribed. Nava challenged its application.
• Hager vs. Bryan, 19 Phil. 138 — Cited for the rule and procedure governing transfer of shares by delivery of the certificate indorsed; the Court used it to explain that the usual transfer procedure could not be followed because Po had no certificate. The text also notes it overruled Hager vs. Bryan, 21 Phil. 523.
• Baltazar vs. Lingayen Gulf Electric Power Co., Inc., L-16236-38, June 30, 1965, 14 SCRA 522 — Cited by Nava; distinguished because the stockholder there held a certificate of stock for shares whose par value had been paid, and the issue was voting rights, not registration of an uncertificated transfer.
• Velasco vs. Poizat, 37 Phil. 802; Lumanlan vs. Cura, 59 Phil. 746 — Cited for the rule that a stock subscription is a subsisting liability from the time the subscription is made and the subscriber is bound to pay it as any other debt.
• Philippine National Bank vs. Bitulok Sawmill, Inc., L-24177-85, June 29, 1968, 23 SCRA 1366 — Cited for the rule that a corporation cannot release an original subscriber from paying for his shares without valuable consideration.
• Lingayen Gulf Electric Power Co., Inc. vs. Baltazar, 93 Phil 404 — Cited for the rule that a corporation cannot release an original subscriber without the unanimous consent of the stockholders.
• Fleischer vs. Botica Nolasco Co., 47 Phil. 583, 589 — Cited for the rule that a corporation may include in its by-laws rules, not inconsistent with law, governing the transfer of its shares of stock.
• Davis vs. Wachter, 140 So. 361 — Cited for the rule that without a stock certificate, the assignment of corporate shares is effective only between the parties to the transaction.
• Smallwood vs. Moretti, 128 So. 2d 628 — Cited for the rule that delivery of the stock certificate, which represents the shares to be alienated, is essential for the protection of both the corporation and its stockholders.

• Section 35, Corporation Law — Provides that capital stock is divided into shares for which certificates are issued; shares so issued are personal property and may be transferred by delivery of the certificate indorsed by the owner or authorized person; no transfer is valid except between the parties until entered and noted upon the corporation’s books; and no share of stock against which the corporation holds any unpaid claim shall be transferable on the books. Applied: Po had no certificate and the corporation had an unpaid claim, so the transfer could not be registered and mandamus did not lie.
• Section 37, Corporation Law, as amended by Act No. 3518 — Provides that 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. Applied: Nava invoked it to argue that a certificate could issue for the twenty shares whose par value had been paid despite the unpaid balance; the Court rejected the argument because no certificate had been issued to Po and Baltazar was inapplicable.
• Section 52, Corporation Law — Referred to the “alienation, sale, or transfer of stock” that is supposed to be recorded in the stock and transfer book. Applied: The Court held that the Po-Nava transfer was not such a transfer because the shares were not covered by a stock certificate.
• Section 137, Act No. 1459 — Allows a corporation to include in its by-laws rules, not inconsistent with law, governing the transfer of its shares of stock. Applied: No by-laws provision was shown to cover the situation, and the parties did not submit the by-laws or invoke any of its provisions.
• Section 36, Corporation Law — The old provision under which Nava claimed Fua Cun was decided; it required full par value payment before a certificate could be issued to a subscriber as fully paid up. The text states it was amended by Act No. 3518 and is now Section 37. Applied: Nava invoked this provision to distinguish Fua Cun; the Court resolved the case on the absence of a stock certificate and the unpaid claim.

Fernando (Chairman), Barredo, Antonio, and Concepcion, Jr., JJ., concur.