APOLINARIO G. DE LOS SANTOS and ISABELO ASTRAQUILLO, Plaintiffs-Appellees, v. J.

HOWARD
MCGRATH ATTORNEY GENERAL OF THE UNITED STATES, SUCCESSOR TO THE PHILIPPINE ALIEN
PROPERTY ADMINISTRATION OF THE UNITED STATES, defendant and appellant. REPUBLIC OF
THE PHILIPPINES, Intervenor-Appellant.

Jose P. Laurel, M. Almario, Adolfo A. Scheerer, Antonio Quirino, and J. C. Orendain, for Appellees.

Harold I. Baynton, Stanley Gilbert, Juan T. Santos, and Lino M. Patajo, and Perkins, Ponce Enrile
& Associates, for Appellant.

Solicitor General Pompeyo Diaz and Solicitor Pacifico P. de Castro for intervenor and appellant.
FACTS:
600,000sharesofstockoftheLepantoConsolidatedMiningCo.,Inc.,(Lepanto),acorporationduly
organizedandexistingunderthelawsofthePhilippines
Originally,1/2sharesofstockwereclaimedbyApolinariodelosSantos,andtheotherhalfbyIsabelo
Astraquillo.Duringthependencyofthiscase,theAstraquillohasallegedlyconveyedandassignedhis
interestinandtodelosSantos.
VicenteMadrigalisregisteredinthebooksoftheLepantoasownerofsaidstocksandwhose
indorsementinblankappearsonthebackofsaidcertificates
contendthatDelosSantosbought:
55,000sharesfromJuanCampos
300,000sharesfromCarlHess
800,000sharesfromCarlHessforthebenefitofAstraquillo
deliveredtostockbrokerLeonardoReciostockcertificateNo.227955,000sharestoseeMr.DeWitt,
who,probably,wouldbeinterestedinpurchasingtheshares
DeWittretainedthesharesreasoningthatitwasblockedbytheUSandreceiptwasburnedatRecio's
dwelling
ByvirtueofvestingP12,datedFebruary18,1945,titletothe1,600,000sharesofstockindispute
was,however,vestedintheAlienPropertyCustodianoftheU.S.
PlaintiffsfiledtheirrespectiveclaimswiththePropertyCustodian
DefendantAttorneyGeneraloftheU.S.,successortotheAdministratorcontends,substantially,that,
priortotheoutbreakofthewarinthePacific,sharesofstockwereboughtbyVicenteMadrigal,intrust
for,andforthebenefitof,theMitsuiBussanKaishaacorporationorganizedinaccordancewiththelaws
ofJapan,thetrueownerthereof,withbranchofficeinthePhilippines
March,1942:Madrigaldeliveredstockcertificates,withhisblankindorsementthereon,totheMitsuis,
whichkeptsaidcertificates,inthefilesofitsofficeinManila,untiltheliberationofthelatterbythe
Americanforcesearlyin1945;thattheMitsuishadneversold,orotherwisedisposedof,saidsharesof
stock;andthatthestockcertificatesaforementionedmusthavebeenstolenorlooted,therefore,duringthe
emergencyresultingfromsaidliberation.
CFI:favoredplaintiffs
DefendantsAppealed
Hess,duringthatperiod,operateasbroker,forbeingAmerican,hewasunderJapanesesurveillance,
andthatHesshadmade,duringtheoccupation,notransactioninvolvingminingshares,exceptwhenhe
sold12,000sharesoftheBenguetConsolidated,inheritedfromhismother,sometimein1943.
ISSUE:W/Ntheplaintiffsareentitledtotheshares

HELD:NO.REVERSED
burdenofproofisupontheplaintiffs
Section35oftheCorporationLawreads:
Thecapitalstockcorporationsshallbedividedintosharesforwhichcertificatessignedbythepresidentorthe
vicepresident,countersignedbythesecretaryorclerkandsealedwiththesealofthecorporation,shallbe
issuedinaccordancewiththebylaws.Sharesofstocksoissuedarepersonalpropertyandmaybetransferred
bydeliveryofthecertificateendorsedbytheownerorhisattorneyinfactorotherpersonlegallyauthorizedto
makethetransfer.Notransfer,however,shallbevalid,exceptasbetweentheparties,untilthetransferis
enteredandnoteduponthebooksofthecorporationsoastoshowthenamesofthepartiestothetransaction,
thedateofthetransfer,thenumberofthecertificate,andthenumberofsharestransferred.
Nosharesofstockagainstwhichthecorporationholdsanyunpaidclaimshallbetransferableonthebooksof
thecorporation.(Emphasissupplied.)
Certificatesofstockarenotnegotiableinstruments(post,Par.102),consequently,atransfereeundera
forgedassignmentacquiresnotitlewhichcanbeassertedagainstthetrueowner,unlesshisown
negligencehasbeensuchastocreateanestoppelagainsthim(ClarkeonCorporations,Sec.Ed.p.415).If
theownerofthecertificatehasendorseditinblank,anditisstolenfromhim,notitleisacquiredbyan
innocentpurchaserforvalue
Neithertheabsenceofblameonthepartoftheofficersofthecompanyinallowinganunauthorized
transferofstock,northegoodfaithofthepurchaserofstolenproperty,willavailasananswertothe
demandofthetrueowner
Thedoctrinethatabonafidepurchaserofsharesunderaforgedorunauthorizedtransferacquiresno
titleasagainstthetrueownerdoesnotapplywherethecircumstancesaresuchastoestopthelatterfrom
assertinghistitle....
oneoftwoinnocentpartiesmustsufferbyreasonofawrongfulorunauthorizedact,theloss
mustfallontheonewhofirsttrustedthewrongdoerandputinhishandsthemeansofinflictingsuchloss
negligencewhichwillworkanestoppelofthiskindmustbeaproximatecauseofthepurchaseor
advancementofmoneybytheholderoftheproperty,andmustenterintothetransactionitself
thenegligencemustbeinorimmediatelyconnectedwiththetransferitself
toestablishthisestoppelitmustappearthatthetrueownerhadconferreduponthepersonwhohas
divertedthesecuritytheindiciaofownership,oranapparenttitleorauthoritytotransferthetitle
Sotheownerisnotguiltyofnegligenceinmerelyentrustinganotherwiththepossessionof
hiscertificateofstock,ifhedoesnot,byassignmentorotherwise,clothehimwiththeapparenttitle.
Norishedeprivedofhistitleorhisremedyagainstthecorporationbecauseheintrustsathird
personwiththekeyofaboxinwhichthecertificatearekept,wherethelattertakesthemfromtheboxand
byforgingtheowner'snametoapowerofattorneyprocurestheirtransferonthecorporatebooks.
Noristhemereindorsementofanassignmentandpowerofattorneyinblankonacertificate
ofstock,whichisafterwardslostorstolen,suchnegligenceaswillestoptheownerfromassertinghistitle
asagainstabonafidepurchaserfromthefinderorthief,orfromholdingthecorporationliablefor
allowingatransferonitsbooks,wherethelossortheftofthecertificatewasnotduetoanynegligenceon
thepartoftheowner
stockpledgedtoabankisendorsedinblankbytheownerdoesnotestophimfromasserting
titletheretoasagainstabonafidepurchaserforvaluewhoderiveshistitlefromonewhostolethe
certificatefromthepledgee.Andthishasalsobeenheldtobetruethoughthethiefwasanofficerofthe
pledgee,sincehisactinwrongfullyappropriatingthecertificatecannotberegardedasamisappropriation
bythebanktowhosecustodythecertificatewasintrustedbytheowner,eventhoughthebankmaybe
liabletothepledgor
Hence,astheundisputedprincipalorbeneficiaryoftheregisteredowner(Madrigal),theMitsuismay
claimhisrights,whichcannotbeexercisedbytheplaintiffs,notonlybecausetheirallegedtitleis
notderivedeitherfrommadrigalorfromtheMitsuis,but,also,becauseitisinderogation,ofsaidrights.
madrigalandtheMitsuisarenotpriviestotheallegedsalesbyCamposandHesstotheplaintiffs,contrary
tothelatter'spretense.