Monserrat v.

Ceron

DOCTRINE:
SC holds that: since 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.

FACTS:
- Petitioner, Monserrat, was president and manager of the Manila Yellow
Taxicab Company Inc., and the owner of P1,200 common shares of stock of the company. He
assigned the usufruct (right in a property owned by another for a limited time or until death) of half
of his common shares of stock to Carlos Ceron (defendant).
- The assignment included the right to enjoy the profits from the shares, prohibiting Ceron from
selling, mortgaging, encumbering, or exercising any act implying absolute ownership.
- Ceron mortgaged some of the shares of stock of Manila Yellow Taxicab, including the 600
common shares assigned to him by Monserrat to Eduardo Matute, President to Erma, Inc as
payment of his debt.
- Matute was not informed of the document that contained Ceron’s rights and prohibitions with
regard to the 600 common shares of stock from Monserrat.
- *Original case did not mention how the case was instituted in the CFI.
- The CFI Manila rendered judgment in favor of the plaintiff declaring the
plaintiff the owner of the 600 shares of stock; and declaring the mortgage constituted on the
ownership of the shares of stock null and void and without force and effect, although the mortgage
on the usufruct enjoyed by the mortgage debtor Ceron in the said 600 shares of stock is hereby
declared valid; with costs against the defendants.
- Erma Inc. and the Sheriff of Manila, the defendants therein, appealed from the decision.

ISSUE:
1.) Whether 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.
2.) Whether or not the defendant entity, Erma, Inc., had knowledge of the document that states
that the transfer of the 600 shares of common stocks from Monseratt to Ceron was only for the
usufruct of the shares, and that Ceron bound himself not to alienate nor encumber them.
HELD:
1.)
- Section 35 of the Corporation Law provides the following: The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president or the vice-
president, counter signed 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.
- Section 35 of the Corporation Law does not require any entry except of transfers of shares of
stock in order that such transfers may be valid as against third persons.
- The word transfer is defined by the "Diccionario de la Academia de la Lengua Castellana" as
the act and effect of transferring; and the verb as to assign or waive the right in, or absolute
ownership of, a thing in favor of another, making him the owner thereof.
- Section 3 of Act No. 1508, as amended by Act No. 2496, defines the phrase (chattel mortgage)
as: a conditional sale of personal property as security for the payment of a debt... the condition
being that the sale shall be avoided 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 mortgage is hereby divested of his title.
- The chattel mortgage is not the transfer referred to in section 35 the Corporation law, which
transfer should be entered and noted upon the books of a corporation in order to be valid, and
which, means the absolute and unconditional conveyance of the title and ownership of a share of
stock.
- 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 necessary requisite to its validity.

2.)
- The evidence shows that when Matute went to the office of the Manila Yellow Taxicab Co., Inc.,
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, 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.
- The notation of liens and encumbrances 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, in view of Carlos G.
Ceron's default in the payment of the loan secured by them.
- Therefore, defendant entity Erma, Inc. as conditional purchaser of the
600 shares of stock, acquired, in good faith, Ceron’s right and title to the shares of stock.

SC holds that: since 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.

DBP vs. NLRC

FACTS:
November 14, 1986, private respondents filed with DOLE- Daet, Camarines Norte, 17 individual
complaints against Republic Hardwood Inc. (RHI) for unpaid wages and separation pay. These
complaints were thereafter endorsed to Regional Arbitration Branch of the NLRC since the
petitioners had already been terminated from employment.
RHI alleged that it had ceased to operate in 1983 due to the government ban against tree-cutting
and that in May 24, 1981, its sawmill was totally burned resulting in enormous losses and that due
to its financial setbacks, RHI failed to pay its loan with the DBP. RHI contended that since DBP
foreclosed its mortgaged assets on September 24,1985, then any adjudication of monetary claims
in favor of its former employees must be satisfied against DBP. Private respondent impleaded
DBP.
Labor Arbiter  favored private respondents and held RHI and DBP jointly and severally liable to
private respondents. DBP appealed to the NLRC. NLRC affirmed LA’s judgment. DBP filed M.R.
but it was dismissed. Thus, this petition for certiorari.

ISSUE:
(1) Whether the private respondents are entitled to separation pay.
(2) Whether the private respondents’ separation pay should be preferred than the DBP’s lien over
the RHI’s mortgaged assets.

RULING:
(1) Yes. Despite the enormous losses incurred by RHI due to the fire that gutted the sawmill in
1981 and despite the logging ban in 1953, the uncontroverted claims for separation pay show that
most of the private respondents still worked up to the end of 1985. RHI would still have continued
its business had not the petitioner foreclosed all of its assets and properties on September 24,
1985. Thus, the closure of RHI’s business was not primarily brought about by serious business
losses. Such closure was a consequence of DBP’s foreclosure of RHI’s assets. The Supreme
Court applied Article 283 which provides:
“. . . in cases of closures or cessation of operations of establishment or undertaking not due to
serious business losses or financial reverses, the separation pay shall be equivalent to 1 month
pay or at least 1/2 month pay for every year of service, whichever is higher. . . .”

(2) No. NLRC committed grave abuse of discretion when it affirmed the LA’s ruling. DBP’s lien on
RHI’s mortgaged assets, being a mortgage credit, is a special preferred credit under Article 2242
of the Civil Code while the workers’ preference is an ordinary preferred credit under Article
2244.
A distinction should be made between a preference of credit and a lien. A preference applies only
to claims which do not attach to specific properties. A lien creates a charge on a particular
property. The right of first preference as regards unpaid wages recognized by Article 110 does not
constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of
credit in their favor, a preference in application. It is a method adopted to determine and specify the
order in which credits should be paid in the final distribution of the proceeds of the insolvent’s
assets. It is a right to a first preference in the discharge of the funds of the judgment debtor.
Article 110 of the Labor Code does not create a lien in favor of workers or employees for unpaid
wages either upon all of the properties or upon any particular property owned by their employer.
Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims
established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims
for unpaid wages are already covered by Article 2241, (6)- (claims for laborers’ wages, on the
goods manufactured or the work done); or by Article 2242,(3)- (claims of laborers and other
workers engaged in the construction, reconstruction or repair of buildings, canals and other works,
upon said buildings, canals and other works.
Since claims for unpaid wages fall outside the scope of Article 2241 (6) and 2242 (3), and not
attached to any specific property, they would come within the category of ordinary preferred credits
under Article 2244.

(Note: SC favored DBP kasi yung mortgage nila against RHI was executed prior to the
amendment of Article 110. The amendment can’t be given retroactive effect daw. Pero sa present,
1st priority na talaga ang laborer’s unpaid wages regardless kung may mortgage or wala ang ibang
creditors ng employer)

Article 110 of the Labor Code has been amended by R.A. No. 6715 and now reads:
“Article 110. Worker preference in case of bankruptcy. – In the event of bankruptcy or liquidation of
an employers business, his workers shall enjoy first preference as regards their unpaid wages and
other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages,
and monetary claims shall be paid in full before the claims of the Government and other creditors
may be paid.”
The amendment “expands worker preference to cover not only unpaid wages but also other
monetary claims to which even claims of the Government must be deemed subordinate.” Hence,
under the new law, even mortgage credits are subordinate to workers’ claims.
R.A. No. 6715, however, took effect only on March 21, 1989. The amendment cannot therefore be
retroactively applied to, nor can it affect, the mortgage credit which was secured by the petitioner
several years prior to its effectivity.
Even if Article 110 and its Implementing Rule, as amended, should be interpreted to mean
`absolute preference,’ the same should be given only prospective effect in line with the cardinal
rule that laws shall have no retroactive effect, unless the contrary is provided. To give Article 110
retroactive effect would be to wipe out the mortgage in DBP’s favor and expose it to a risk which it
sought to protect itself against by requiring a collateral in the form of real property.
The public respondent, therefore, committed grave abuse of discretion when it retroactively applied
the amendment introduced by R.A. No. 6715 to the case at bar.