G.R. No. L-20630 August 31, 1965
C.N. HODGES and RICARDO GURREA, petitioners, vs. JOSE MANUEL LEZAMA, PAQUITA B. LEZAMA, BENJAMIN LUIS BORJA and THE COURT OF APPEALS, respondents.

FACTS

Petitioner C.N. Hodges acquired 2,230 shares of La Paz Ice Plant & Cold Storage Co., Inc. at public auction on July 12, 1954. Stock Certificate No. 17 was issued in his name on November 1, 1954. On the same date, Hodges sold the shares to respondent Benjamin Luis Borja on installment. To secure payment, Borja executed a chattel mortgage on the shares in favor of Hodges. However, Stock Certificate No. 17 was never endorsed by Hodges to Borja or surrendered to the corporation for cancellation. Instead, Borja, through his relatives who were corporate officers (respondents Jose Manuel Lezama, president, and Paquita B. Lezama, secretary), caused Stock Certificate No. 18 to be issued in his name, with a note on the back stating the shares were mortgaged to Hodges. Hodges retained possession of his unendorsed and uncancelled Stock Certificate No. 17. When Borja defaulted on payments, Hodges foreclosed the chattel mortgage and reacquired the shares at public auction on September 17, 1958. Hodges did not have this reacquisition entered in the corporate books, as he still held Stock Certificate No. 17. The next day, Hodges sold the shares on installment to his co-petitioner Ricardo Gurrea but again kept the certificate without endorsement. Before a stockholders’ meeting, petitioners filed a petition for prohibition with injunction to prevent Borja from voting the shares. The Court of First Instance ruled in favor of petitioners, but the Court of Appeals reversed, holding Borja became the owner upon the 1954 sale and the provision on the certificate was merely internal procedure. Petitioners appealed to the Supreme Court.

ISSUE

Whether respondent Benjamin Luis Borja is the owner entitled to vote the 2,230 shares of stock, or whether petitioner C.N. Hodges retained ownership and the right to vote them.

RULING

The Supreme Court reversed the decision of the Court of Appeals and reinstated the decision of the Court of First Instance with modification. The Court ruled that Hodges remained the owner of the shares entitled to vote them. The provision on Stock Certificate No. 17 stating it was “transferable only on the books of the Corporation … upon surrender of this certificate properly endorsed” was not a mere internal rule waivable by the corporation under the circumstances. The parties’ conduct showed they intended Hodges to retain ownership until Borja fully paid the price, as evidenced by Hodges keeping the certificate and Borja’s acquiescence. Furthermore, title to the shares reverted to Hodges upon his purchase at the foreclosure auction on September 17, 1958. The Court held it would be sacrificing substance for form to require a separate mandamus action. It ordered Borja to surrender Stock Certificate No. 18 for cancellation and the corporate officers to issue a new certificate in favor of Hodges.