GR 37078; (September, 1933) (Digest)
G.R. No. 37078 ; September 27, 1933
ENRIQUE MONSERRAT, plaintiff-appellee, vs. CARLOS G. CERON, ET AL., defendants. ERMA, INC., and, THE SHERIFF OF MANILA, respondents.
FACTS
Plaintiff Enrique Monserrat owned 1,200 shares in Manila Yellow Taxicab Co., Inc. On March 25, 1930, he assigned only the usufruct of 600 shares to defendant Carlos G. Ceron, reserving for himself the ownership, the right to vote, and the right to recover full ownership upon termination of the usufruct. This restriction was documented in a deed (Exhibit A) and noted in the corporation’s Stock and Transfer Book. However, on February 26, 1931, Ceron mortgaged these 600 shares to Eduardo R. Matute, president of defendant Erma, Inc., to secure a loan, without informing Matute of the usufructuary restriction. Ceron endorsed and delivered the stock certificate to Matute. The notation of Exhibit A in the stock book was allegedly made only on May 5, 1931, after the mortgage was constituted and after Ceron had defaulted on the loan. Monserrat sued to have the mortgage declared null and void and to be declared the owner of the shares.
ISSUE
Whether the chattel mortgage on the shares of stock is valid and binding upon Erma, Inc., as a third party, despite the lack of notation of the mortgage on the corporate books and despite the undisclosed usufructuary restriction.
RULING
Yes. The Supreme Court reversed the trial court’s judgment. It held that Section 35 of the Corporation Law requires notation on the corporate books only for the transfer of ownership of shares to make such transfer valid against third parties. A chattel mortgage is not a transfer of ownership but a conditional sale as security. Therefore, notation of a mortgage on the corporate books is not a requisite for its validity. Since Ceron, as corporate secretary, showed Matute the stock book which did not reflect the usufructuary restriction (Exhibit A) at the time of the mortgage, and Ceron intentionally concealed it, Erma, Inc. acquired the mortgage lien in good faith as a conditional purchaser. The mortgage on the shares is valid.
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