BRITISH-AMERICAN ENGINEERING CORPORATION, PLAINTIFF AND APPELLEE, VS. ALTO SURETY AND INSURANCE COMPANY, INCORPORATED, ANTONIO QUIRINO, ET AL., DEFENDANTS AND APPELLANTS.

British-American Engineering versus Alto Surety

The Case

This is a corporate law case about who may be compelled to deliver shares of stock. British-American Engineering Corporation sued Alto Surety and Insurance Company, together with Antonio Quirino and Aleli Guzman-Quirino in their capacities as president and secretary-treasurer, to compel the issuance of certificates of stock covering 2,500 shares and to recover cash advances it claimed to have paid. The case matters because it teaches that once a corporation has actually issued certificates of stock for shares fully paid, it has no further obligation to issue a second set of certificates for the same shares; the remedy of a person claiming those shares lies against the registered holders, not against the corporation.

Procedural History

British-American Engineering Corporation filed the action in the Court of First Instance of Manila on the first day of April 1957. The trial court rendered judgment in favor of the plaintiff, ordering Alto Surety to issue in its favor certificates of stock corresponding to 2,500 shares of its capital stock. The defendants, namely Alto Surety and the Quirino spouses as its officers, appealed to the Supreme Court. The appeal was decided by the Supreme Court, which reversed the judgment of the trial court.

Facts

On the first day of April 1947, British-American Engineering Corporation paid Alto Surety, through its secretary-treasurer Aleli Guzman-Quirino, the sum of 150,000 pesos as purchase price of 1,500 shares at 100 pesos par value. On the nineteenth of November 1947, it paid a further 100,084.42 pesos for 1,000 shares at the same par value. Both payments were evidenced by vouchers. Alto Surety had been formally incorporated only on the eighth of April 1947, one week after the first voucher was issued.

In truth, the 150,000 pesos was credited as payment of the subscriptions of the original subscribers to the capital stock, namely Antonio Quirino, Aleli Guzman-Quirino, Petronila Syquia, Tomas Quirino, and Angela Guzman. The certificates for the first 1,500 shares were issued in the names of these original subscribers, and the certificates for the additional 1,000 shares were issued in the name of the Quirino spouses. British-American never received any certificate in its own name.

For almost ten years, British-American made no inquiry and no demand. Its president and managing director, Nicolas Lynevitche, made a personal demand only on the twenty-fifth of October 1956, and the corporation made its demand only on the twenty-fourth of December 1956. The action was filed on the first of April 1957, the very last day of the prescriptive period. The records also showed a close joint venture between Lynevitche and Antonio Quirino in the importation and exportation of heavy equipment, in which profits were realized.

Issues

• Whether or not the corporation, having already issued certificates of stock for the shares paid for, may be compelled to issue a second set of certificates in the name of the plaintiff.
• Whether or not the plaintiff's remedy lies against the corporation or against the persons in whose names the certificates of stock were issued.

Applicable Provisions

The decision does not quote any statutory provision. It rests on the principle that a corporation discharges its obligation by issuing certificates of stock for shares actually paid, and that the registered holder is the party against whom a claim to those shares must be asserted.

Ruling

On the first issue, the Court held that the judgment could not stand. If carried out, it would produce an anomalous and illegal situation: 2,500 shares would remain outstanding in the names of the Quirinos, and another 2,500 shares would be in the name of the plaintiff, all with a total par value of 500,000 pesos, although only one-half of that amount had actually been paid. The Court stressed that the action was precisely for the issuance of certificates, as shown by the complaint, the representation at trial, and the judgment itself, which read:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants ordering the defendant Alto Surety and Insurance Company, Incorporated to issue in favor of the plaintiff the certificates of stock corresponding to two thousand five hundred shares of its capital stock.

On the second issue, the Court held that because Alto Surety had actually issued certificates corresponding to the 250,000 pesos paid into its coffers, and the issuance in the names of the Quirinos and other parties was, if not consented to, impliedly ratified by the plaintiff, the corporation had no further obligation to perform. The plaintiff's cause of action, if any, lay exclusively against the parties in whose names the certificates were issued. The Court noted that had no certificates been issued at all and the right to the shares been the subject of adverse claims, the matter could have been a proper subject of interpleading. But the relief could not be granted in this case because the Quirinos were made parties only as officers of Alto Surety, and the other persons in whose names certificates were issued were not made parties at all.

Doctrine

A corporation that has actually issued certificates of stock for shares fully paid has performed its obligation and cannot be compelled to issue a second set of certificates for the same shares. A person claiming those shares must assert the claim against the registered holders in whose names the certificates were issued, not against the corporation. Where the right to shares is contested and no certificates have yet been issued, the proper remedy may be interpleading. A judgment that would leave the same shares outstanding in two names, for a total par value double the amount actually paid, is anomalous and illegal.

Disposition

The Supreme Court reversed the judgment of the trial court and dismissed the case, with costs against the plaintiff.

Remember This

Memorize this line: once the corporation has issued certificates for shares fully paid, it owes nothing more, and the claimant must go after the registered holders. Examiners use this case to test the corporate obligation to issue certificates and the proper party against whom a claim to shares must be brought.