Chua Guan v. Samahang Magsasaka Inc.
November 2, 1935
Butte, J.
FACTS: To secure the payment of a debt, Gonzalo H. Co Toco mortgage his shares to
Chua Chiu, such assignment recorded in the Office of the Register of Deeds and the
books of the corporation. For non-payment, the mortgage was foreclosed and the shares
were sold at a public auction with plaintiff Chua Guan as the highest bidder.
The Company refused to cancel the certificates of stock and issue new ones to herein
plaintiff alleging that prior to the date of plaintiff’s demand, nine attachments had been
issued and served and noted on the books of the corporation. Thus, a prayer for a writ
of mandamus.
The validity of the assignments and the mortgage is not in question.
ISSUE: WON the registration of the mortgage in the registry of chattel mortgage in the
office of the register of deeds give constructive notice to the said attaching creditors and
thus gave preference to the mortgage over the other debts?
HELD: No. In passing, let it be noted that the registration of the said chattel mortgage in
the office of the corporation was not necessary and had no legal effect. (Monserrat vs.
Ceron, 58 Phil., 469.) The long mooted question as to whether or not shares of a
corporation could be hypothecated by placing a chattel mortgage on the certificate
representing such shares we now regard as settled by the case of Monserrat vs. Ceron,
supra. But that case did not deal with any question relating to the registration of such a
mortgage or the effect of such registration. Nothing appears in the record of that case
even tending to show that the chattel mortgage there involved was ever registered
anywhere except in the office of the corporation, and there was no question involved
there as to the right of priority among conflicting claims of creditors of the owner of the
shares
Section 4 of Act No. 1508 provides two ways for executing a valid chattel mortgage
which shall be effective against third persons. First, the possession of the property
mortgage must be delivered to and retained by the mortgagee; and, second, without
such delivery the mortgage must be recorded in the proper office or offices of the
register or registers of deeds. If
a chattel mortgage of shares of stock of a corporation may validly be made without the
delivery of possession of the property to the mortgagee and the mere registration of the
mortgage is sufficient to constructive notice to third parties, we are confronted with the
question as to the proper place of registration of such a mortgage. Section 4 provides
that in such a case the mortgage resides at the time of making the same or, if he is a non-
resident, in the province in which the property is situated; and it also provides that if
the property is situated in a different province from that in which the mortgagor resides
the mortgage shall be recorded both in the province of the mortgagor's residence and in
the province where the property is situated.
If with respect to a chattel mortgage of shares of stock of a corporation, registration in
the province of the owner's domicile should be sufficient, those who lend on such
security would be confronted with the practical difficulty of being compelled not only
to search the records of every province in which the mortgagor might have been
domiciled but also every province in which a chattel mortgage by any former owner of
such shares might be registered. We cannot think that it was the intention of the
legislature to put this almost prohibitive impediment upon the hypothecation of shares
of stock in view of the great volume of business that is done on the faith of the pledge of
shares of stock as collateral.
It is a common but not accurate generalization that the situs of shares of stock is at the
domicile of the owner. The term situs is not one of fixed of invariable meaning or usage.
Nor should we lose sight of the difference between the situs of the shares and the situs
of the certificates of shares. The situs of shares of stock for some purposes may be at the
domicile of the owner and for others at the domicile of the corporation; and even
elsewhere. (Cf. Vidal vs. South American Securities Co., 276 Fed., 855; Black Eagle Min.
Co. vs. Conroy, 94 Okla., 199; 221 Pac,, 425 Norrie vs. Kansas City Southern Ry. Co., 7
Fed. [2d]. 158.) It is a general rule that for purposes of execution, attachment and
garnishment, it is not the domicile of the owner of a certificate but the domicile of the
corporation which is decisive.
By analogy with the foregoing and considering the ownership of shares in a corporation
as property distinct from the certificates which are merely the evidence of such
ownership, it seems to us a reasonable construction of section 4 of Act No. 1508 to hold
that the property in the shares may be deemed to be situated in the province in which
the corporation has its principal office or place of business. If this province is also the
province of the owner's domicile, a single registration sufficient. If not, the chattel
mortgage should be registered both at the owner's domicile and in the province where
the corporation has its principal office or place of business. In this sense the property
mortgaged is not the certificate but the participation and share of the owner in the
assets of the corporation.
In view of the premises, the attaching creditors are entitled to priority over the
defectively registered mortgage of the appellant and the judgment appealed from must
be affirmed without special pronouncement as to costs in this instance.
