ENRIQUE MONSERRAT, PLAINTIFF AND APPELLEE, VS. CARLOS G. CERON ET AL., DEFENDANTS. ERMA, INC., AND THE SHERIFF OF MANILA, APPELLANTS.

This is an appeal taken by the defendant-entity, Erma, Inc., and by the
sheriff of the City of Manila, from the judgment rendered by the Court
of First Instance of Manila, the dispositive part of which reads as
follows:

“In view of the foregoing
considerations, judgment is rendered in favor of the plaintiff
declaring the preliminary injunction issued herein final and permanent;
declaring the plaintiff herein the owner of the 600 shares of stock,
Exhibit 1; declaring the mortgage constituted oh the ownership of the
shares of stock in question null and void and without force and effect,
although the mortgage on the usufruct enjoyed by the mortgage debtor
Carlos G. Ceron in the said 600 shares of stock is hereby declared
valid, with costs against the defendants. It is so ordered.”

In support of their appeal, the appellants assign nine alleged errors
in the decision of the trial court, which we shall discuss in the
course of this decision.

Some of the following facts are undisputed and others proven by a preponderance of the evidence:

The plaintiff herein, Enrique Monserrat, was the president and manager
of the Manila Yellow Taxicab’ Co., Inc., and the owner of 1,200 common
shares of stock thereof.

On March 25, 1930, in consideration
of the interest shown and the financial aid extended him in the
organization of the corporation by Carlos G. Ceron, one of the
defendants herein, Enrique Monserrat assigned to the former the
usufruct of half of the aforesaid common shares of stock, the
corresponding certificate of stock No. 7, having been issued in the
name of said Carlos G. Ceron to that effect on March 24, 1930. (Exhibit
1.) Said assignment or transfer only gave the transferee the right to
enjoy, during his lifetime, the profits which might be derived from the
shares assigned him, prohibiting him from selling, mortgaging,
encumbering, alienating or otherwise exercising any act implying
absolute ownership of all or any of the shares in question, the
transferor having reserved for himself and his heirs the right to vote
derived from said shares of stock and to recover the ownership thereof
at the termination of the usufruct (Exhibit A). Stock certificate No. 7
was recorded in the name of Carlos G. Ceron and the aforesaid deed of
transfer Exhibit A, was noted by himself as secretary, on page 22 of
the Stock and Transfer Book of the Manila Yellow Taxicab Co., Inc.

By way of defense, the defendants herein alleged that on February 20,
1931, Eduardo R. Matute, president of the defendant corporation, Erma,
Inc., and the defendant Carlos G. Ceron, appeared at the plaintiff’s
office on Mabini Street, Manila, and there Ceron, at a distance of
about three meters from the plaintiff, showed Matute the stock book of
the Manila Yellow Taxicab Co., Inc. Matute did not see the annotation
on page 22 thereof regarding Exhibit A which, according to Ceron, was
executed two months after March 25, 1930, the date on which it appears
to have been executed. Ceron alleges that, upon instructions of the
plaintiff, he did not make any notation of said document in the stock
book until May 5, 1931, the date on which the shares of stock in
question were to be sold at public auction to satisfy his debt to
Matute.

On February 26, 1931, Carlos G. Ceron mortgaged to
Eduardo R. Matute some shares of stock of the Manila Yellow Taxicab
Co., Inc., among which were the 600 common shares of stock in question,
for the sum of P30,000. Ceron endorsed to Matute the certificate of
stock Exhibit 1, of which Matute has been in possession ever since.
When Ceron mortgaged the shares in question to Matute, he did not
inform Matute of the existence of the document, Exhibit A, and the
latter never had any knowledge thereof. When he was asked by the
plaintiff whether he succeeded in carrying out his transaction with
Matute, Carlos G. Ceron informed him of the aforesaid mortgage at the
beginning of March 1931. Ceron continued as secretary of the Manila
Yellow Taxicab Co., Inc., until May 5, 1931.

The first
question to decide in the present appeal is whether or not it is
necessary to enter upon the books of the corporation a mortgage
constituted on common shares of stock in order that such mortgage may
be valid and may have force and effect as against third persons.

Section 35 of the Corporation Law provides the following:

“Sec.
35. The capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or the
vice-president, countersigned by the secretary or clerk 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 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 entered and noted upon 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, and the number
of shares transferred.

“No share of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation.”

The legal provision just quoted does not require any entry except of
transfers of shares of stock in order that such transfers may be valid
as against third persons. Now, what did the Legislature mean in using
the word “transfer”?

It is a rule of statutory construction
that the words of a statute are to be taken in their natural, plain and
ordinary signification in accordance with the common and approved usage
of the language, giving to words of common use their popularly accepted
meaning and to technical terms or words of art, their accepted special
signification, unless there is reason to believe from the context of
the statute that such words have been used in another sense. (Black,
Construction and Interpretation of Laws, section 57.) Inasmuch as it
does not appear from the text of the Corporation Law that an attempt
was made to give a special signification to the word transfer”, we
shall construe it according to its accepted meaning in ordinary
parlance.

The word ‘transferencia” (transfer) is defined by
the “Diccionario de la Academia de la Lengua Castellana” as “accion y
efecto de transferir” (the act and effect of transferring); and the
verb “transferir”, as “ceder o renunciar en otro el derecho o dominio
que se tiene sobre una cosa, haciendole dueño de ella” (to assign or
waive the right in, or absolute ownership of, a thing in favor of
another, making him the owner thereof).

In the Law Dictionary of “Words and Phrases”, third series, volume 7, p. 586, the word “transfer” is denned as follows:

”
‘Transfer’ means any act by which property of one person is vested in
another, and ‘transfer of shares’, as used in Uniform Stock Transfer
Act (Comp. St. Supp., 690), implies any means whereby one may be
divested of and another acquire ownership of stock. (Wallach vs. Stein [N. J.], 136 A., 209, 210.)”

In view of the definitions cited above, the question arises as to
whether or not a mortgage constituted on certain shares of stock in
accordance with Act No. 1508, as amended by Act No. 2496, is a transfer
of such shares in the abovementioned sense.

Section 3 of the
aforesaid Act No. 1508, as amended by Act No. 2496, defines the phrase
“hipoteca mobiliaria” (chattel mortgage) as follows:

“Sec.
3. A chattel mortgage is a conditional sale of personal property .as
security for the payment of a debt, or the performance of some other
obligation specified therein, the condition being that the sale shall
be void upon the seller paying to the purchaser a sum of money or doing
some other act named. If the condition is performed according to its
terms the mortgage and sale immediately become void, and the mortgagee
is thereby divested of his title.”

According to the legal provision just quoted, although a chattel
mortgage, accompanied by delivery of the mortgaged thing, transfers the
title and ownership thereof to the mortgage creditor, such transfer is
not absolute but constitutes a mere security for the payment of the
mortgage debt, the transfer in question becoming null and void from the
time the mortgage debtor complies with his obligation to pay his debt.

In the case of Noble vs.
Ft. Smith Wholesale Grocery Co. (127 Pac, 14, 17; 34 Okl., 662; 46 L.
R. A. [N. S.], 455), cited in Words and Phrases, second series, vol. 4,
p. 978, the following appears:

“A
‘transfer’ is the act by which the owner of a thing delivers it to
another with the intent of passing the rights which he has in it to the
latter, and a chattel mortgage is not within the meaning of such term.”

Therefore, the chattel mortgage is not the transfer referred to in
section 35 of Act No. 1459 commonly known as the Corporation Law, which
transfer should be entered and noted upon the books of a corporation in
order to be valid, and which, as has already been said, means the
absolute and unconditional conveyance of the title and ownership of a
share of stock.

If, in accordance with said section 35 of
the Corporation Law, only the transfer or absolute conveyance of the
ownership of the title to a share need be entered and noted upon the
books of the corporation in order that such transfer may be valid,
therefore, inasmuch as a chattel mortgage of the aforesaid title is not
a complete and absolute alienation of the dominion and ownership
thereof, its entry and notation upon the books of the corporation is
not a necessary requisite to its validity.

The second
question to decide is whether or not the defendant entity, Erma, Inc.,
had knowledge of the execution of the deed Exhibit A, dated March 25,
1930, wherein the defendant Carlos G. Ceron states that the transfer to
him by Enrique Monserrat of 600 shares of common stock of the Manila
Yellow Taxicab Co., Inc., covered by certificate No. 7, was only for
the usufruct thereof, reserving to the assignor the right to vote said
shares and binding himself not to alienate nor encumber them.

The evidence shows that when Matute as president of Erma, Inc., went to
the office of the Manila Yellow Taxicab Co., Inc., at Mabini Street,
Manila, on February 20, 1931, to examine the Stock and Transfer Book of
the said corporation, for the purpose of ascertaining the actual status
of Carlos G. Ceron’s shares of stock, Ceron as secretary of said
corporation and in charge of said stock book, showed it to him, and
Matute found nothing but that the shares in question were recorded
therein in the name of said Carlos G. Ceron, free from all liens and
encumbrances and no reference made to the deed Exhibit A. The
defendant, Carlos G. Ceron himself, testified that when he mortgaged
his shares, he said nothing to Erma, Inc., about the existence of the
deed, Exhibit A, for fear he might not succeed in obtaining the loan he
applied for, with the said shares as security, and that the notation of
Exhibit A in question appearing in the books of the corporation was
placed there only on May 5, 1931, the same date on which the 600 common
shares were to have been sold at public auction, together with the
preferred shares, which were delivered to the sheriff for that purpose
by Erma, Inc., in view of Carlos G. Ceron’s default in the payment of
the loan secured by them. From the time said shares of stock in
question were mortgaged by Carlos G. Ceron on February 26, 1931, the
corresponding certificate has been in possession of the defendant
entity, Erma, Inc., without any notation thereon relative to the deed
Exhibit A. It is obvious, therefore, that the defendant entity Erma,
Inc., as a conditional purchaser of the shares of stock in question
given as security for the payment of his credit, acquired in good faith
Carlos G. Ceron’s right and title to the 600 common shares of stock
evidenced by certificate No. 7 of the Manila Yellow Taxicab Co., Inc.,
and as such conditional purchaser in good faith, it is entitled to the
protection of the law.

In view of the foregoing
considerations, we are of the opinion and so hold that, inasmuch as
section 35 of the Corporation Law does not require the notation upon
the books of a corporation of transactions relating to its shares,
except the transfer of possession and ownership thereof, as a necessary
requisite to the validity of such transfer, the notation upon the
aforesaid books of the corporation, of a chattel mortgage constituted
on the shares of stock in question is not necessary to its validity.

Wherefore, the judgment appealed from is hereby reversed and the
defendants are absolved from the complaint herein which is dismissed
with costs against the appellee. So ordered.

Malcolm, Abad Santos, Hull, and Imperial, JJ., concur.