Corporate Law Case Digest: Tan v. SEC (1992)

G.R. No. 95696 March 3, 1992

Lessons Applicable:

FACTS:

October 1, 1979: Visayan Educational Supply Corp.
As incorporator, Alfonso S. Tan had 400 shares of the capital stock at the par value of P100/share, evidenced by Certificate of Stock No. 2

January 31, 1981: incorporators Antonia Y. Young and Teresita Y. Ong, withdrew by assigning to the corp. their shares, represented by certificate of stock No. 4 and 5, they were paid 40% corporate stock-in-trade
Certificate of stock No. 2 was cancelled by the corporate secretary and Patricia Aguilar by virtue of Resolution No. 1981 which was passed and approved while he was still a member of the BOD
Due to the withdrawal of the 2 incorporators and in order to complete the membership of the 5 directors of the board, he sold 50 shares out of his 400 shares of capital stock to his brother Angel S. Tan
Another incorporator, Alfredo B. Uy, also sold 50 of his 400 shares of capital stock to Teodora S. Tan
March 27, 1981: Angel Tan was elected director and on March 27, 1981
Certificate of Stock No. 2 was cancelled and the Certificates Nos. 6 in the name of Angel S. Tan and 8 in the name of Alfonso S. Tan, Mr. Buzon were issued and delivered (stock split), signed by the newly elected fifth member of the Board, Angel S. Tan as VP, upon instruction of Alfonso S. Tan who was then the president

Alfonso S. Tan was given back Stock Certificate No. 2 for him to endorse and he deliberately withheld it for reasons of his own - so as if no delivery

Certificate of Stock No. 8 was delivered to Tan Su Ching
January 29, 1983: Tan Su Ching was elected as President, Tan as VP but did not sign the minutes
February 27, 1983: dislodged from his position as president, he withdrew from the corporation paid with stock-in-trade corresponding to 33.3% par value of P35,000.00
April 19, 1983: Board meeting cancelled Stock Certificate Nos. 2 and 8 and minutes submitted to SEC
December 3, 1983: Alfonso S. Tan filed the SEC case questioning for the first time, the cancellation of Stock Certificates Nos. 2 and 8

No transfer, however, shall be valid, except as between the parties, until the transfer is recorded to 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 or certificates and the number of shares transferred.

SEC. 63. Certificate of stock and transfer of shares. — The capital stock and stock and corporations shall be divided into shares for which certificates signed by the president and vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stocks so issued are personal property and may be transferred by delivery of the certificate or certificates 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 recorded in 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 or certificates and the number of shares transferred.

No shares of stocks against which the corporation holds any unpaid claim shall be transferable in the

books of the corporations.

SEC: held cancellation of the shares of stock - void
SEC en banc: overturned - nullity of the sale of 350 shares represented under stock certification No. 8, pursuant to the "in pari delicto" doctrine.

ISSUE: W/N transfer is valid w/o delivery

HELD: YES. Affirmed.

Alfonso S. Tan devised the scheme of not returning the cancelled Stock Certificate No. 2 which was returned to him for his endorsement, to skim off the largesse of the corporation as shown by the trading of his Stock Certificate No. 8 for goods of the corporation valued at P2M when the par value of the same was only worth P35K

He also used this scheme to renege on his indebtedness to respondent Tan Su Ching in the amount of P1 million

Although it is sometimes regarded as quasi-negotiable, in the sense that it may be transferred by endorsement, coupled with delivery, it is well-settled that it is non-negotiable, because the holder thereof takes it without prejudice to such rights or defenses as the registered owner/s or transferror's creditor may have under the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles governing estoppel.
negotiable instrument

either indorsement + delivery or delivery = holder in due course = better right than real owner

NOTE: Although there are 4 types of transactions, only transfer is recorded in the stocks and transfer books.

paper representative or tangible evidence of the stock itself and of the various interests therein

since stocks were already cancelled and reported to the respondent Commission, there was no necessity to endorse
All the acts required for the transferee to exercise its rights over the acquired stocks were attendant and even the corporation was protected from other parties, considering that said transfer was earlier recorded or registered in the corporate stock and transfer book