[G.R. No. 19441. March 27, 1923.

] DECISION

OSTRAND, J.  :
FUA CUN (alias Tua Cun), Plaintiff-Appellee, v. RICARDO SUMMERS, in his
capacity as Sheriff ex-oficio of the City of Manila, and the CHINA BANKING It appears from the evidence that on August 26, 1920, one Chua Soco
CORPORATION, Defendants-Appellants. subscribed for five hundred shares of stock of the defendant Banking
Corporation at a par value of P100 per share, paying the sum of P25,000, one-
Araneta & Zaragoza for Appellants. half of the subscription price, in cash, for which a receipt was issued in the
following terms:jgc:chanrobles.com.ph
Canillas & Cardenas for Appellee.
"This is to certify, That Chua Soco, a subscriber for five hundred shares of the
SYLLABUS capital stock of the China Banking Corporation at its par value of P100 per share,
has paid into the Treasury of the Corporation, on account of said subscription
1. BANKING CORPORATION; SHARES OF STOCK; LIEN OF CORPORATION UPON
and in accordance with its terms, the sum of twenty-five thousand pesos
THE SAME. — A banking corporation has no lien upon its own stock for the
(P25,000), Philippine currency.
indebtedness of the stockholders even when the by-laws provide that the
shares shall be transferable only upon the books of the corporation and that no
"Upon receipt of the balance of said subscription in accordance with the terms
such transfer shall be made if the holder of the shares is indebted to the
of the calls of the Board of Directors, and surrender of this certificate, duly
corporation.
executed certificates for said five hundred shares of stock will be issued to the
order of the subscriber.
2. ID.; ID.; EFFECT OF PART PAYMENT OF SUBSCRIPTION; SPECIAL AGREEMENT.
— In the absence of special agreement to the contrary, a subscriber for a certain
"It is expressly understood that the total number of shares specified in this
number of shares of stock does not, upon payment of one-half of the
receipt is subject to sale by the China Banking Corporation for the payment of
subscription price, become entitled to the issuance of certificates for one-half
any unpaid subscriptions, should the subscriber fail to pay the whole or any part
the number of shares subscribed for; the subscriber’s right consists only in an
of the balance of his subscription upon 30 days’ notice issued therefor by the
equity entitling him to a certificate for the total number of shares subscribed for
Board of Directors.
by him upon payment of the remaining portion of the subscription price.

"Witness our official signatures at Manila, P. I., this 25th day of August, 1920.
3. ID.; ID.; ASSIGNMENT OF EQUITY. — An equity in shares of stock may be
assigned, the assignment becoming effective as between the parties and as to
(Sgd.) "MERWIN WEBSTER
third parties with notice.

"Cashier
4. ID.; ID.; ID.; PRIORITY OF LIEN. — An attachment levied upon assigned rights
or interests in an action against the assignor after the attaching creditor has
(Sgd.) "DEE C. CHUAN
received notice of the assignment creates no lien as against the assignee.

"President"
5. ID.; ID.; ID.; CHATTEL MORTGAGE. — Whether in this jurisdiction an equity in
shares of stock may properly be made the subject of a chattel mortgage, quaere,
On May 18, 1921, Chua Soco executed a promissory note in favor of the plaintiff
but such chattel mortgage will at least operate as a conditional equitable
Fua Cun for the sum of P25,000 payable in ninety days and drawing interest at
assignment.
the rate of 1 per cent per month, securing the note with a chattel mortgage on
the shares of stock subscribed for by Chua Soco, who also endorsed the receipt
above mentioned and delivered it to the mortgage. The plaintiff thereupon took shares, unless such security or purchase shall be necessary to prevent loss upon
the receipt to the manager of the defendant Bank and informed him of the a debt previously contracted in good faith, and stock so purchased or acquired
transaction with Chua Soco, but was told to await action upon the matter by the shall, within six months from the time of its purchase, be sold or disposed of at
Board of Directors. public or private sale, or, in default thereof, a receiver may be appointed to
close up the business of the bank in accordance with law."cralaw virtua1aw
In the meantime Chua Soco appears to have become indebted to the China library
Banking Corporation in the sum of P37,731.68 for dishonored acceptances of
commercial paper and in an action brought against him to recover this amount, Section 35 of the United States National Banking Act of 1864 contains a similar
Chua Soco’s interest in the five hundred shares subscribed for the attached and provision and it has been held in various decisions of the United States Supreme
the receipt seized by the sheriff. The attachment was levied after the defendant Court that a bank organized under that Act can have no lien on its own stock for
bank had received notice of the fact that the receipt had been endorsed over to the indebtedness of the stockholders even when the by-laws provide that the
the plaintiff. shares shall be transferable only on the books of the corporation and that no
such transfer shall be made if the holder of the shares is indebted to the
Fua Cun thereupon brought the present action maintaining that by virtue of the corporation. (Jones on Liens, 3d ed., sec. 384; First National Bank of South Bend
payment of the one-half of the subscription price of five hundred shares Chua v. Lanier and Handy, 11 Wall., 369; Bullard v. National Eagle Bank, 18 Wall., 589;
Soco in effect became the owner of two hundred and fifty shares and praying First National Bank of Xenia v. Stewart and McMillan, 107 U. S., 676.) The
that his, the plaintiff’s, lien on said shares, by virtue of the chattel mortgage, be reasons for this doctrine are obvious; if banking corporations were given a lien
declared to hold priority over the claim of the defendant Banking Corporation; on their own stock for the indebtedness of the stockholders, the prohibition
that the defendants be ordered to deliver the receipt in question to him; and against granting loans or discounts upon the security of the stock would become
that he be awarded the sum of P5,000 in damages for wrongful attachment. largely ineffective.

The trial court rendered judgment in favor of the plaintiff declaring that Chua Turning now to the rights of the plaintiff in the stock in question, it is argued
Soco, through the payment of the P25,000, acquired the right to two hundred that the interest held by Chua Soco was merely an equity which could not be
and fifty shares fully paid up, upon which shares the plaintiff holds a lien made the subject of a chattel mortgage. Though the courts have uniformly held
superior to that of the defendant Banking Corporation and ordering that the that chattel mortgages on shares of stock and other chooses in action are valid
receipt be returned to said plaintiff. From this judgment the defendants appeal. as between the parties, there is still much to be said in favor of the defendants’
contention that the chattel mortgage here in question would not prevail over
Though the court below erred in holding that Chua Soco, by paying one-half of liens of third parties without notice; an equity in shares of stock is of such an
the subscription price of five hundred shares, in effect became the owner of two intangible character that it is somewhat difficult to see how it can be treated as
hundred and fifty shares, the judgment appealed from is in the main correct. a chattel and mortgaged in such a manner that the recording of the mortgage
will furnish constructive notice to third parties. As said by the court in the case
The claim of the defendant Banking Corporation upon which it brought the of Spalding v. Paine’s Adm’r. (81 Ky., 416), in regard to a chattel mortgage of
action in which the writ of attachment was issued, was for the non-payment of shares of stock:jgc:chanrobles.com.ph
drafts accepted by Chua Soco and had no direct connection with the shares of
stock in question. At common law a corporation has no lien upon the shares of "These certificates of stock are in the pockets of the owner, and go with him
stockholders for any indebtedness to the corporation (Jones on Liens, 3d ed., where he may happen to locate, as chooses in action, or evidence of his right,
sec. 375) and our attention has not been called to any statute creating such lien without any means on the part of those with whom he proposes to deal on the
here. On the contrary, section 120 of the Corporation Act provides that "no faith of such a security of ascertaining whether or not this stock is in pledge or
bank organized under this Act shall make any loan or discount on the security of mortgaged to other. He finds the name of the owner on the books of the
the shares of its own capital stock, nor be the purchaser or holder of any such company as a subscriber of paid-up stock, amounting to 180 shares, with the
certificates in his possession, pays for these certificates their full value, and has
the transfer to him made on the books of the company, thereby obtaining a The judgment appealed from is modified accordingly, and in all other respects it
perfect title. What other inquiry is he to make, so as to make his investment is affirmed, with the costs against the appellant Banking Corporation. So
certain and secure? Where is he to look, in order to ascertain whether or not ordered.
this stock has been mortgaged? The chief office of the company may be at one
place to-day and at another tomorrow. The owner may have no fixed or Araullo, C.J., Street, Malcolm, Avanceña, Villamor, Johns, and Romualdez, JJ.,
permanent abode, and with his notes in one pocket and his certificates of stock concur.
in the other — the one evidencing the extent of his interest in the stock of the
corporation, the other his right to money owing him by his debtor, we are asked
to say that the mortgage is effectual as to the one and inoperative as to the
other."cralaw virtua1aw library

But a determination of this question is not essential in the present case. There
can be no doubt that an equity in shares of stock may be assigned and that the
assignment is valid as between the parties and as to persons to whom notice is
brought home. Such an assignment exists here, though it was made for the
purpose of securing a debt. The endorsement to the plaintiff of the receipt
above mentioned reads:jgc:chanrobles.com.ph

"For value received, I assign all my rights in these shares in favor of Mr. Tua Cun.

"Manila, P. I., May 18, 1921.

(Sgd.) "CHUA SOCO"

This endorsement was accompanied by the delivery of the receipt to the

As against the right of the plaintiff the defendant bank had, as we have seen, no
lien unless by virtue of the attachment. But the attachment was levied after the
bank had received notice of the assignment of Chua Soco’s interests to the
plaintiff and was therefore subject to the rights of the latter. It follows that as
against these rights the defendant bank holds no lien whatever.

As we have already stated, the court erred in holding the plaintiff as the owner
of two hundred and fifty shares of stock; "the plaintiff’s rights consist in an
equity in five hundred shares and upon payment of the unpaid portion of the
subscription price he becomes entitled to the issuance of certificate for said five
hundred shares in his favor."cralaw virtua1aw library