sections 430
SAMAHANG MAGSASAKA, INC., and SIMPLICIO and 450, Code of Civil Procedure.)
OCAMPO, ADRIANO G. SOTTO, and EMILIO VERGARA, as
president, secretary and treasurer respectively of the same, 1. 4. ID.; ID.; ID.; ACT No. 1508, SECTION 4,
defendants and appellees.
CONSTRUED.—By analogy with the foregoing and
considering the ownership of shares in a corporation as
1. 1. CORPORATIONS; MORTGAGE OF SHARES OF property distinct from the certificates which are merely
STOCK.—The registration of the chattel mortgage in the evidence of such ownership, it is a reasonable
the office of the corporation was not necessary and had construction of section 4 of Act No. 1508 to hold that
no legal effect. (Monserrat vs. Ceron, 58 Phil., 469.) the property in the shares may be deemed to be situated
The long mooted question as to whether or not shares of in the province in which the corporation has its
a corporation could be hypothecated by placing a principal office or place of business. If this province is
chattel mortgage on the certificate representing such also the province of the owner's domicile, a single
shares we now regard as settled by the case above cited registration is sufficient. If not, the chattel mortgage
of Monserrat vs. Ceron. should be registered both at the owner's domicile and in
the province where the corporation has its
1. 2. ID.; ID.; SITUS OF SHARES.—It is a common but
not accurate generalization that the situs of shares of 473
stock is at the domicile of the owner. The term situs is
not one of fixed or invariable meaning or usage. The
situs of shares of stock for some purposes may be at the VOL. 62, NOVEMBER 2, 1935 473
domicile of the owner and for others at the domicile of Chua Guan vs. Samahang Magsasaka, Inc.
the corporation; and even elsewhere. (Cf. Vidal vs.
South American Securities Co., 276 Fed., 855; Black 1. principal office or place of business. In these sense the
Eagle Min. Co. vs. Conroy, 94 Okla., 199; 221 Pac., property mortgaged is not the certificate but the
425; Norrie vs. Kansas City Southern Ry. Co., 7 Fed. participation and share of the owner in the assets of the
[2d], 158.) corporation.
1. 3. ID. ; ID. ; ID. ; DOMICILE.—It is a general rule that 1. 5. ID.; ID.; ASSIGNMENT AND DELIVERY OF
for purposes of execution, attachment and garnishment, CERTIFICATE.—The only safe way to accomplish the
it is not the domicile of the owner of a certificate but hypothecation of shares of stock of a Philippine
the domicile of the corporation which is decisive. corporation is for the creditor to insist on the
(Fletcher, Cyclopedia of the Law of Private 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 This is an appeal from a judgment of the Court of First Instance
issuance of a new one to him. of Nueva Ecija in an action for a writ of mandamus. The case is
remarkable for the following reason: that the parties entered
1. 6. ID.; ID.; ACT No. 1459, SECTION 35, into a stipulation in which the defendants admitted all of the
CONSTRUED.—Section 35 of the Corporation Law allegations of the complaint and the plaintiff admitted all of the
(Act No. 1459) enacts that shares of stock "may be special defenses in the 473
transferred by delivery of the certificate endorsed by the
owner or his attorney in fact or other person legally 474
authorized to make the transfer." The use of the verb
"may" does not exclude the possibility that a transfer 474 PHILIPPINE REPORTS ANNOTATED
may be made in a different manner, thus leaving the Chua Guan vs. Samahang Magsasaka, Inc.
creditor in an insecure position even though he has the
certificate in his possession. The shares still standing in
answer of the defendants, and on this stipulation they submitted
the name of the debtor on the books of the corporation
the case for decision.
will be liable to seizure by attachment or levy on
execution at the instance of other creditors. (Cf. Uy
Piaoco vs. McMicking, 10 Phil., 286, and Uson vs. The complaint alleges that the defendant Samahang
Diosomito, 61 Phil., 535.) This unsatisfactory state of Magsasaka, Inc., is a corporation duly organized under the laws
our law is well known to the bench and bar. (Cf. Fisher, of the Philippine Islands with principal office in Cabanatuan,
The Philippine Law of Stock Corporations, pages 163- Nueva Ecija, and that the individual defendants are the
168.) president, secretary and treasurer respectively of the same; that
on June 18, 1931, Gonzalo H. Co Toco was the owner of 5,894
APPEAL from a judgment of the Court of First Instance of shares of the capital stock of the said corporation represented
Nueva Ecija. Platon, J. by nine certificates having a par value of P5 per share; that on
said date Gonzalo H. Co Toco, a resident of Manila, mortgaged
said 5,894 shares to Chua Chiu to guarantee the payment of a
The facts are stated in the opinion of the court.
debt of P20,000 due on or before June 19, 1932. The said
certificates of stock were delivered with the mortgage to the
Buenaventura C. Lopez for appellant.
mortgagee, Chua Chiu. The said mortgage was duly registered
in the office of the register of deeds of Manila on June 23,
Domingo L. Vergara for appellees.
1931, and in the office of the said corporation on September
30, 1931.
BUTTE, J,:
On November 28, 1931, Chua Chiu assigned all his right and The special defenses set up in the answer are as follows. that
interest in said mortgage to the plaintiff and the assignment the defendants refuse to cancel the said certificates standing in
was registered in the office of the register of deeds in the City the name of Gonzalo H. Co Toco on the books of the
of Manila on December 28, 1931, and in the office of the said corporation and to issue new ones in the name of the plaintiff
corporation on January 4, 1932. because prior to the date when the plaintiff made his demand,
to wit, February 4, 1933, nine attachments had been issued and
The debtor, Gonzalo H. Co Toco, having defaulted in the served and noted on the books of the corporation against the
payment of said debt at maturity, the plaintiff foreclosed said shares of Gonzalo H. Co Toco and the plaintiff objected to
mortgage and delivered the certificates of stock and copies of having these attachments noted on the new certificates which
the mortgage and assignment to the sheriff of the City of he demanded. These attachments noted on the books of the
Manila in order to sell the said shares at public auction. The corporation against the shares of Gonzalo H. Co Toco are as
sheriff auctioned said 5,894 shares of stock 011 December 22, follows:
1932. and the plaintiff having been the highest bidder for the
sum of P14,390, the sheriff executed in his favor a certificate of "(1) Con fecha agosto 26, 1931, se recibió por el Secretario de
sale of said shares. la entidad demandada la notificación de embargo expedida por
el Juzgado de Primera Instancia de Nueva Écija en la causa
The plaintiff tendered the certificates of stock standing' in the civil No. 6043, siendo partes Lucía Matías contra Gonzalo H.
name of Gonzalo H. Co Toco to the proper officers of the Co Toco y otros, siendo la cantidad reclamada P23,582.55.
corporation for cancellation and demanded that they issue new
certificates in the name of the plaintiff. The said "(2) Con fecha agosto 27, 1931, se recibió por el Secretario de
la entidad demandada la notificación de embargo expedida por
475 el Juzgado de Paz de Cabanatúan, Nueva Écija. en la causa
civil No. 2322, siendo partes Samahang Magsasaka, Inc. contra
VOL. 62, NOVEMBER 2, 1935 475 Gonzalo H. Co Toco, abarcando las acciones o títulos Nos. 280
Chua Guan vs. Samahang Magsasaka, Inc. al 2,279 o 2,000 acciones por valor de P10,000.
But the case of Fua Cun vs. Summers and China Banking If with respect to a chattel mortgage of shares of stock of a
Corporation, supra, did not decide the question here presented corporation, registration in the province of the owner's
and gave no light as to the registration of a chattel mortgage of domicile should be sufficient, those who lend on such security
shares of stock of a corporation under the provisions of section would be confronted with the practical difficulty of being
4 of the Chattel Mortgage Law, supra. compelled not only to search the records of every province in
which the mortgagor might have been domiciled but also every VOL. 62, NOVEMBER 2, 1935 481
province in which a chattel mortgage by any former owner of Chua Guan vs. Samahang Magsasaka, Inc.
such shares might be registered. We cannot think that it was the
intention of the legislature to put this almost prohibitive
poration has its principal office or place of business. If this
impediment upon the hypothecation of shares of stock in view
province is also the province of the owner's domicile, a single
of the great volume of business that is done on the faith of the
registration is sufficient. If not, the chattel mortgage should be
pledge of shares of stock as collateral.
registered both at the owner's domicile and in the province
where the corporation has its principal office or place of
It is a common but not accurate generalization that the situs of
business. In this sense the property mortgaged is not the
shares of stock is at the domicile of the owner. The term situs is
certificate but the participation and share of the owner in the
not one of fixed or invariable meaning or usage. Nor should we
assets of the corporation.
lose sight of the difference between the situs of the shares and
the situs of the certificates of shares. The situs of shares of
Apart from the cumbersome and unusual method of
stock for some purpose? may be at the domicile of the owner
hypothecating shares of stock by chattel mortgage, it appears
and for others at the domicile of the corporation; and even
that in the present state of our law, the only safe way to
elsewhere. (Cf. Vidal vs. South American Securities Co., 276
accomplish the hypothecation of share of stock of a Philippine
Fed., 855; Black Eagle Min. Co. vs. Conroy, 94 Okla., 199;
corporation is for the creditor to insist on the assignment and
221 Pac., 425; Norrie vs. Kansas City Southern Ry. Co., 7 Fed.
delivery of the certificate and to obtain the transfer of the legal
[2d]. 158.) It is a general rule that for purposes of execution,
title to him on the books of the corporation by the cancellation
attachment and garnishment, it is not the domicile of the owner
of the certificate and the issuance of a new one to him. From
of a certificate but the domicile of the corporation which is
the standpoint of the debtor this may be unsatisfactory because
decisive. (Fletcher, Cyclopedia of the Law of Private
it leaves the creditor as the ostensible owner of the shares and
Corporations, vol. 11, paragraph 5106. Cf. sections 430 and
the debtor is forced to rely upon the honesty and solvency of
450, Code of Civil Procedure.)
the creditor. Of course, the mere possession and retention of
the debtor's certificate by the creditor gives some security to
By analogy with the foregoing and considering the ownership
the creditor against an attempted voluntary transfer by the
of shares in a corporation as property distinct from the
debtor, provided the by-laws of the corporation expressly enact
certificates which are merely the evidence of such ownership, it
that transfers may be made only upon the surrender of the
seems to us a reasonable construction of section 4 of Act No.
certificate. It is to be noted, however, that section 35 of the
1508 to hold that the property in the shares may be deemed to
Corporation Law (Act No. 1459) enacts that shares of stock
be situated in the province in which the cor-
"may be transferred by delivery of the certificate endorsed by
the owner or his attorney in fact or other person legally
481
authorized to make the transfer." The use of the verb "may"
does not exclude the possibility that a transfer may be made in appellant and the judgment appealed from must be affirmed
a different manner, thus leaving the creditor in an insecure without special pronouncement as to costs in this instance.1
position even though he has the certificate in his possession.
Moreover, the shares still standing in the name of the debtor on Malcolm, Villa-Real, Imperial, and Goddard, JJ., concur.
the books of the corporation will be liable to seizure by
attachment or levy on execution at the instance of other Judgment affirmed.
creditors. (Cf. Uy Piaoco
482
We are fully conscious of the fact that our decisions in the case
of Monserrat vs. Ceron, supra, and in the present case have
done little perhaps to ameliorate the present uncertain and
unsatisfactory state of our law applicable to pledges and chattel
mortgages of shares of stock of Philippine corporations. The
remedy lies with the legislature.