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Corporate Law Case Digest: De los Santos v. Republic (1955)

G.R. No. L-4818             February 28, 1955
Lessons Applicable: Nature of Certificate of Stock (Corporate Law)

  • 600,000 shares of stock of the Lepanto Consolidated Mining Co., Inc., (Lepanto), a corporation duly organized and existing under the laws of the Philippines
  • Originally, 1/2 shares of stock were claimed by Apolinario de los Santos, and the other half by Isabelo Astraquillo. During the pendency of this case, the Astraquillo has allegedly conveyed and assigned his interest in and to de los Santos.
  • Vicente Madrigal is registered in the books of the Lepanto as owner of said stocks and whose indorsement in blank appears on the back of said certificates
  • contend that De los Santos bought:
    • 55,000 shares from Juan Campos
    • 300,000 shares from Carl Hess
    • 800,000 shares from Carl Hess for the benefit of Astraquillo
  • delivered to stock broker Leonardo Recio stock certificate No. 2279 55,000 shares to see Mr. DeWitt, who, probably, would be interested in purchasing the shares
  • DeWitt retained the shares reasoning that it was blocked by the US and receipt was burned at Recio's dwelling
  • By virtue of vesting P-12, dated February 18, 1945, title to the 1,600,000 shares of stock in dispute was, however, vested in the Alien Property Custodian of the U. S. 
    • Plaintiffs filed their respective claims with the Property Custodian
  • Defendant Attorney General of the U. S., successor to the Administrator contends, substantially, that, prior to the outbreak of the war in the Pacific, shares of stock were bought by Vicente Madrigal, in trust for, and for the benefit of, the Mitsui Bussan Kaisha a corporation organized in accordance with the laws of Japan, the true owner thereof, with branch office in the Philippines
  • March, 1942: Madrigal delivered stock certificates, with his blank indorsement thereon, to the Mitsuis, which kept said certificates, in the files of its office in Manila, until the liberation of the latter by the American forces early in 1945; that the Mitsuis had never sold, or otherwise disposed of, said shares of stock; and that the stock certificates aforementioned must have been stolen or looted, therefore, during the emergency resulting from said liberation.
  • CFI: favored plaintiffs
  • Defendants Appealed
  • Hess, during that period, operate as broker, for being American, he was under Japanese surveillance, and that Hess had made, during the occupation, no transaction involving mining shares, except when he sold 12,000 shares of the Benguet Consolidated, inherited from his mother, sometime in 1943.
ISSUE: W/N the plaintiffs are entitled to the shares 

  • burden of proof is upon the plaintiffs
  • Section 35 of the Corporation Law reads:
The capital 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.
No shares of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation. (Emphasis supplied.)
  • Certificates of stock are not negotiable instruments (post, Par. 102), consequently, a transferee under a forged assignment acquires no title which can be asserted against the true owner, unless his own negligence has been such as to create an estoppel against him (Clarke on Corporations, Sec. Ed. p. 415). If the owner of the certificate has endorsed it in blank, and it is stolen from him, no title is acquired by an innocent purchaser for value 
  • Neither the absence of blame on the part of the officers of the company in allowing an unauthorized transfer of stock, nor the good faith of the purchaser of stolen property, will avail as an answer to the demand of the true owner
  • The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer acquires no title as against the true owner does not apply where the circumstances are such as to estop the latter from asserting his title. . . .
    • one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss must fall on the one who first trusted the wrongdoer and put in his hands the means of inflicting such loss
  • negligence which will work an estoppel of this kind must be a proximate cause of the purchase or advancement of money by the holder of the property, and must enter into the transaction itself 
    • the negligence must be in or immediately connected with the transfer itself 
  • to establish this estoppel it must appear that the true owner had conferred upon the person who has diverted the security the indicia of ownership, or an apparent title or authority to transfer the title
    • So the owner is not guilty of negligence in merely entrusting another with the possession of his certificate of stock, if he does not, by assignment or otherwise, clothe him with the apparent title.
    • Nor is he deprived of his title or his remedy against the corporation because he intrusts a third person with the key of a box in which the certificate are kept, where the latter takes them from the box and by forging the owner's name to a power of attorney procures their transfer on the corporate books. 
    • Nor is the mere indorsement of an assignment and power of attorney in blank on a certificate of stock, which is afterwards lost or stolen, such negligence as will estop the owner from asserting his title as against a bona fide purchaser from the finder or thief, or from holding the corporation liable for allowing a transfer on its books, where the loss or theft of the certificate was not due to any negligence on the part of the owner
    • stock pledged to a bank is endorsed in blank by the owner does not estop him from asserting title thereto as against a bona fide purchaser for value who derives his title from one who stole the certificate from the pledgee. And this has also been held to be true though the thief was an officer of the pledgee, since his act in wrongfully appropriating the certificate cannot be regarded as a misappropriation by the bank to whose custody the certificate was intrusted by the owner, even though the bank may be liable to the pledgor
  • Hence, as the undisputed principal or beneficiary of the registered owner (Madrigal), the Mitsuis may claim his rights, which cannot be exercised by the plaintiffs, not only because their alleged title is not derived either from madrigal or from the Mitsuis, but, also, because it is in derogation, of said rights. madrigal and the Mitsuis are notprivies to the alleged sales by Campos and Hess to the plaintiffs, contrary to the latter's pretense.