Haystack: Monserrat v. Ceron (GR 37078, 27 September 1933)

Monserrat v. Ceron
[G.R. No. 37078. September 27, 1933.]
En Banc, Villa-real (J): 4 concur

Facts: Enrique Monserrat, was the president and manager of the Manila Yellow Taxicab Company and the owner of 1,200 common shares of stock thereof. On 25 March 1930, in consideration of the interest shown and the financial aid extended him in the organization of the corporation by Carlos G. Ceron, Monserrat assigned to the former the usufruct of half of the said common shares of stock; the corresponding certificate of stock No. 7, having been issued in the name of Ceron to that effect on 24 March 1930. Said assignment or transfer only gave the transferee the right to enjoy, during his lifetime, the profits which might be derived from the shares assigned him, prohibiting him from selling, mortgaging, encumbering, alienating or otherwise exercising any act implying absolute ownership of all or any of the shares in question, the transferor having reserved for himself and his heirs the right to vote derived from said shares of stock and to recover the ownership thereof at the termination of the usufruct (Exhibit A). The Stock certificate was recorded in the name of Ceron and the deed of transfer was noted on page 22 of the Stock and Transfer Book of the Manila Yellow Taxicab Company.

On 26 February 1931, Ceron mortgaged to Eduardo R. Matute, president of Erma Inc., some shares of stock of the Manila Yellow Taxicab, among which were the 600 common shares of stock in question, for the sum of P30,000. Ceron endorsed to Matute the certificate of stock, of which Matute has been in possession ever since. When Ceron mortgaged the shares to Matute, he did not inform Matute of the existence of the document (Exhibit A) and the latter never had any knowledge thereof. Ceron continued as secretary of the Manila Yellow Taxicab until 5 May 1931, the date when the notation of Exhibit A in question appearing in the books of the corporation and the same date when the shares of stock were sold at public auction to satisfy Ceron’s debt to Matute.

Case facts do not provide for details on how the case was instituted in the CFI Manila

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.

The Supreme Court reversed the judgment appealed from and absolved defendants from the complaint therein; with costs against the appellee.

1. Section 35 of the Corporation Law does not require entry except of transfers of shares of stock in order that such transfers may be valid as against third persons.
Section 35 of the Corporation Law provides that “the capital stock of stock corporations shall be divided into shares for which certificates signed by the president or the vice-president, countersigned 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 endorsed 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;” and that “no share of stock against which the corporation hold any unpaid claim shall be transferable on the books of the corporation."

2. Words in statute to be taken in their natural, plain and ordinary signification
It is a rule of statutory construction that the words of a statute are to be taken in their natural, plain and ordinary signification in accordance with the common and approved usage of the language, giving to words of common use their popularly accepted meaning and to technical terms or words of art, their accepted special signification, unless there is reason to believe from the context of the statute that such words have been used in another sense. In the present case, inasmuch as it does not appear from the text of the Corporation Law that an attempt was made to give a special signification to the word "transfer", we it shall be construed according to its accepted meaning in ordinary parlance.

3. Transfer defined
Diccionario de la Academia de la Lengua Castellana: The word "transferencia" (transfer) is defined as "accion y efecto de tarnsferir" (the act and effect of transferring); and the verb "transferir", as "ceder o renunciar en otro el derecho o dominio que se tiene sobre una cosa, haciéndole dueño de ella" (to assign or waive the right in, or absolute ownership of, a thing in favor of another, making him the owner thereof). Law Dictionary of "Words and Phrases": "Transfer' means any act by which property of one person is vested in another, and 'transfer of shares', as used in Uniform Stock Transfer Act, implies any means whereby one may be divested of and another acquire ownership of stock.“

4. Chattel mortgage defined
Section 3 of Act 1508, as amended by Act 2496, defines the phrase "hipoteca mobiliaria" (chattel mortgage) as “a conditional sale of personal property as security for the payment of a debt, or the performance of some other obligation specified therein, the condition being that the sale shall be void 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 mortgagee is thereby divested of his title."

5. Transfer in a chattel mortgage a mere security for the payment of the mortgage debt
Although a chattel mortgage, accompanied by delivery of the mortgaged thing, transfers the title and ownership thereof to the mortgage creditor, such transfer is not absolute but constitutes a mere security for the payment of the mortgage debt, the transfer in question becoming null and void from the time the mortgage debtor complies with his obligation to pay his debt.

6. Transfer in a chattel mortgage not the transfer contemplated in Section 35 of the Corporation Law, i.e. Absolute and unconditional conveyance of title and ownership of a share of stock
"A 'transfer' is the act by which the owner of a thing delivers it to another with the intent of passing the rights which he has in it to the latter, and a chattel mortgage is not within the meaning of such term. (Noble v. Ft. Smith Wholesale Grocery, 127 Pac., 14,17; 34 Okl. 662; 46 LRA [NS] 455). The chattel mortgage is not the transfer referred to in section 35 of Act 1459 (the Corporation Law) which transfer should be entered and noted upon the books of a corporation in order to be valid, and which, as has already been said, means the absolute and unconditional conveyance of the title and ownership of a share of stock. The entry and notation of a chattel mortgage upon the books of the corporation is not a necessary requisite to its validity.

7. Matute (Erma Inc.) a conditional purchaser in good faith
Erma, Inc., as a conditional purchaser of the shares of stock in question given as security for the payment of his credit, acquired in good faith Ceron's right and title to the 600 common shares of stock evidenced by certificate No. 7 of the Manila Yellow Taxicab Company., and as such conditional purchaser in good faith, it is entitle to the protection of the law. Evidence would show that Matute found the shares, as recorded in the Stock and Transfer Book of the company, free from all liens and encumbrances and made no reference made to the deed Exhibit A.

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