89 Rural Bank of Salinas Vs CA

RURAL BANK OF SALINAS v.
CA
Paras, J. | June 26, 1992
Topic 1: Formation of Corporations; By-Laws; Limitations; Consistent with Articles of
Incorporation
Nature: Mandamus with the Securities and Exchange Commission;
PARTIES:
Petitioner: RURAL BANK OF SALINAS
Private Respondents: MELANIA GUERRERO, LUZ ANDICO, WILHELMINA ROSALES,
FRANCISCO GUERRERO, JR., FRANCISCO GUERRERO, SR.
Intervenor: MARIPOL GUERRERO
DISPUTED MATTER:
The petitioner Rural Bank is refusing to register in its books the transfer/assignment of the
shares in private respondents’ names, citing as its reason the settlement of the estate of the
original owner of the shares.
SYNOPSIS:
Clemente Guerrero was the owner of 473 shares of stock in Rural Bank; he executed a
Special Power of Attorney in favor of his wife, Melania Guerrero and through this
authorization, the wife was able to transfer ownership of the stocks to the private respondents
through executing a Deed of Assignment. When the private respondents sought to have the
transfer registered in Rural Bank’s stock and transfer book and the shares registered in their
names, the Bank refused. The Supreme Court here held a corporation’s obligation to register
is ministerial. To refuse the registration of the transferred shares in its stock and transfer
books is to render nugatory and ineffectual the spirit and intent of Sec. 63 of the Corporation
Code.
FACTS:
● On June 10, 1979, Clemente Guerrero, then President of petitioner Rural Bank of
Salinas (“Rural Bank”) executed a Special Power of Attorney (“SPA”) in favor of his wife,
private respondent Melania Guerrero. The SPA granted Melania Guerrero full power and
authority to sell or otherwise dispose of Clemente Guerrero’s 473 shares of stock in the
Rural Bank.
● On February 27, 1980, by virtue of the SPA, Melania Guerrero executed a Deed of
Assignment where she assigned 457 shares of stock to Luz Andico, 10 shares of stock
to Wilhelmina Rosales and 5 shares of stock to Francisco Guerrero, Jr.
● On June 24, 1980 (two days before Clemente Guerrero’s death) Melania Guerrero, by
virtue of the SPA executed a Deed of Assignment for the remaining share of stock in
favor of Francisco Guerrero, Sr.
● Melania Guerrero then presented the Deeds of Assignment to petitioner Rural Bank for
registration and requested for the transfer of the said shares of stock in Rural Bank’s
stock and transfer book. She requested that the stock certificates in the name of
Clemente Guerrero be cancelled and new ones issued in the name of the assignees.
● Rural Bank denied the requests for registration and transfer of the shares of stock in the
names of the assignees prompting Melania Guerrero to file a suit for mandamus with the
Securities and Exchange Commission (SEC).
● Rural Bank filed its Answer with Counterclaim alleging that upon Clemente Guerrero’s
death, his 473 shares of stock became part of his estate, thus, his property and that of
his widow’s should first be settled and liquidated in accordance with law before any
distribution can be effected.
● On January 29, 1980, a Motion to Intervene was filed by Maripol Guerrero, the legally
adopted daughter of Clemente Guerrero. In her Motion, she alleged that:
o Almost two (2) weeks before the ruling of Petition for Mandamus, a Petition for
the Administration of Clemente Guerrero was filed;
o The Deeds of Assignment for the subject shares of stock are fictitious and
antedated;
o The said conveyances are actually donations since the considerations therefor
are below the book value of the shares, the assignees are actually relatives of
Melania Guerrero; and
o The transfer of the shares in question as to assignees would deprive her of her
rightful share in the inheritance.
● This Motion to Intervene was denied for lack of merit.
● SEC directed Rural Bank to register, in its stock and transfer book, the transfer of the
stocks and to pay the assignees thereof the dividends for said shares from 1981 to 1989
without interest.
● The Court of Appeals affirmed the SEC when the case was brought to it via Petition for
Review.
● In raising the case to the Supreme Court, Rural Bank has for its arguments:
▪ Mandamus can’t be a remedy cognizable by SEC when the purpose is to
register certificates of stock in the names of claimants who are not yet
stockholders of a corporation; and when there exists valid reasons for
refusing to register the transfer of the subject stocks.
ISSUES/HELD:
● W/N the SEC can, by mandamus, order Rural Bank to register in its stock and
transfer book the transfer of the 473 shares of stock to the private
respondents/assignees – YES, Sec. 63 of the Corporation Code provides that “ x x x
shares of stock so issued are personal property and may be transferred by delivery of
the Certificate/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 x x x”
The Court here held that there is no limitation as to stock transfers imposed under the
said section. The owner of shares, as owner of personal property, is at liberty under the
said section to dispose them in favor of whomever he pleases, without limitation in this
respect, other than the general provisions of the law. The only limitation is when the
corporation holds any unpaid claim against the shares intended to be transferred.
However, this limitation is absent in the present case. The Court here held that the right
of a transferee/assignee to have stocks transferred in his name is an inherent right
flowing from his ownership of the stocks.
A corporation, either by its Board, By-Laws, or the act of its officers, cannot create
restrictions in stock transfers because: “restrictions in the traffic of stock must have their
source in legislative enactment as the corporation itself cannot create such impediment.
By-Laws are intended merely for the protection of the corporation, and prescribe
regulation, not restriction, and its provisions are always subject to the charter of the
corporation.” The corporation, in absence of such power, cannot ordinarily inquire into or
pass upon the legality of the transactions by which its stock passes from one person to
another, nor can it question the consideration upon which a sale is based. A
corporation’s obligation to register transfers of stocks is ministerial, otherwise, to allow a
corporation to refuse the registration of the transferred shares in its stock and transfer
books is to render nugatory and ineffectual the spirit and intent of Sec. 63 of the
Corporation Code.
DISPOSITIVE:
WHEREFORE, the petition is DISMISSED for lack of merit.
OPINIONS:
N/A
____________________________________________________________________________
HELPFUL INFORMATION
DOCTRINE: A corporation cannot ordinarily inquire into or pass upon the legality of the
transactions by which its stock passes from one person to another, nor can it question
the consideration upon which a sale is based. The only exception when a corporation
can refuse to register the transfer of stocks in its books is when it holds any unpaid
claim against the shares intended to be transferred.
DEFINITION OF TERMS:
N/A
HISTORICAL CONTEXT:
N/A
ANNEX:
Sec. 63 of the Corporation Code: Certificate of Stock and Transfer of Shares. - The capital stock
of stock corporations shall be divided into shares for which certificates signed by the president
or 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 stock 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 stock against which the corporation holds any unpaid claim shall be transferable in
the books of the corporation.

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