[No.19441.

March27,1923]
FUA CUN (alias Tua Cun), plaintiff and appellee, vs.
RICARDOSUMMERS,inhiscapacityasSheriffexoficioof
the City of Manila, and the CHINA BANKING
CORPORATION,defendantsandappellants.
1. BANKING CORPORATION; SHARES OF STOCK; LIEN
OF CORPORATION UPON THE SAME.A banking
corporation has no lien upon its own stock for the
indebtedness of the stockholders even when the bylaws
providethatthesharesshallbetransferableonlyuponthe
books of the corporation and that no such transfer shall be
made if the holder of the shares is indebted to the
corporation.
2. ID.; ID.; EFFECT OF PART PAYMENT OF
SUBSCRIPTION; SPECIAL AGREEMENT.In the
absence of special agreement to the contrary, a subscriber
for a certain number of shares of stock does not, upon
payment of onehalf of the subscription price, become
entitled to the issuance of certificates for onehalf the
number of shares subscribed for; the subscriber's right
consists only in an equity entitling him to a certificate for
the total number of shares subscribed for by him upon
paymentoftheremainingportionofthesubscriptionprice.
3. ID.;ID.;ASSIGNMENTOFEQUITY.Anequityinshares
ofstockmaybeassigned,theassignmentbecomingeffective
asbetweenthepartiesandastothirdpartieswithnotice.
4. ID.;ID.;ID.; PRIORITY OF LIEN.An attachment levied
upon assigned rights or interests in an action against the
assignor after the attaching creditor has received notice of
theassignmentcreatesnolienasagainsttheassignee.
5. ID.; ID.; ID.; CHATTEL MORTGAGE.Whether in this
jurisdiction an equity in shares of stock may properly be
made the subject of a chattel mortgage, qure, but such

chattel mortgage will at least operate as a conditional

equitableassignment.

APPEALfromajudgmentoftheCourtofFirstInstanceof
Manila.Imperial,J.
Thefactsarestatedintheopinionofthecourt.
Araneta & Zaragozaforappellants.
Canillas & Cardenasforappellee.
OSTRAND,J.:
ItappearsfromtheevidencethatonAugust26,1920,one
ChuaSocosubscribedforfivehundredsharesofstock
706

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PHILIPPINEREPORTSANNOTATED

Fua Cun vs. Summers and China, Banking Corporation

of the defendant Banking Corporation at a par value of
P100pershare,payingthesumofP25,000,onehalfofthe
subscriptionprice,incash,forwhichareceiptwasissuedin
thefollowingterms:
"This is to certify, That Chua Soco, a subscriber for five hundred
sharesofthecapitalstockoftheChina Banking Corporationatits
par value of P100 per share, has paid into the Treasury of the
Corporation,onaccountofsaidsubscriptionandinaccordancewith
its terms, the sum of twentyfive thousand pesos (P25,000),
Philippinecurrency.
"Upon receipt of the balance of said subscription in accordance
withthetermsofthecallsoftheBoardofDirectors,andsurrender
of this certificate, duly executed certificates for said five hundred
sharesofstockwillbeissuedtotheorderofthesubscriber.
"It is expressly understood that the total number of shares
specified in this receipt is subject to sale by the China Banking
Corporation for the payment of any unpaid subscriptions, should
thesubscriberfailtopaythewholeoranypartofthebalanceofhis
subscription upon 30 days' notice issued therefor by the Board of
Directors.
"WitnessourofficialsignaturesatManila,P.I.,this25thdayof
August,1920.
(Sgd.)"MERWINWEBSTER
"Cashier
(Sgd.)"DEEC.CHUAN
"President"

OnMay18,1921,ChuaSocoexecutedapromissorynotein
favor of the plaintiff Fua Cun for the sum of P25,000
payableinninetydaysanddrawinginterestattherateof1
per cent per month, securing the note with a chattel
mortgage on the shares of stock subscribed for by Chua
Soco, who also endorsed the receipt above mentioned and
deliveredittothemortgagee.Theplaintiffthereupontook
the receipt to the manager of the defendant Bank and
informedhimofthetransactionwithChuaSoco,butwas
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VOL.44,MARCH27,1923

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Fua Cun vs. Summers and China Banking Corporation

told to await action upon the matter by the Board of
Directors.
In the meantime Chua Soco appears to have become
indebted to the China Banking Corporation in the sum of
P37,731.68fordishonoredacceptancesofcommercialpaper
and in an action brought against him to recover this
amount, Chua Soco's interest in the five hundred shares
subscribed for was attached and the receipt seized by the
sheriff.Theattachmentwasleviedafterthedefendantbank
had received notice of the fact that the receipt had been
endorsedovertotheplaintiff.
Fua Cun thereupon brought the present action
maintainingthatbyvirtueofthepaymentoftheonehalfof
thesubscriptionpriceoffivehundredsharesChuaSocoin
effectbecametheowneroftwohundredandfiftysharesand
praying that his, the plaintiff's, lien on said shares, by
virtueofthechattelmortgage,bedeclaredtoholdpriority
overtheclaimofthedefendantBankingCorporation;that
thedefendantsbeorderedtodeliverthereceiptinquestion
to him; and that he be awarded the sum of P5,000 in
damagesforwrongfulattachment.
Thetrialcourtrenderedjudgmentinfavoroftheplaintiff
declaring that Chua Soco, through the payment of the
P25,000,acquiredtherighttotwohundredandfiftyshares
fully paid up, upon which shares the plaintiff holds a lien
superiortothatofthedefendantBankingCorporationand
orderingthatthereceiptbereturnedtosaidplaintiff.From
thisjudgmentthedefendantsappeal.
ThoughthecourtbelowerredinholdingthatChuaSoco,
bypayingonehalfofthesubscriptionpriceoffivehundred

shares,ineffectbecametheowneroftwohundredandfifty
shares,thejudgmentappealedfromisinthemaincorrect.
The claim of the defendant Banking Corporation upon
whichitbroughttheactioninwhichthewritofattachment
was issued, was for the nonpayment of drafts accepted by
ChuaSocoandhadnodirectconnectionwiththesharesof
stockinquestion.Atcommonlawacor
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PHILIPPINEREPORTSANNOTATED

Fua Cun vs. Summers and China, Banking Corporation

porationhasnolienuponthesharesofstockholdersforany
indebtednesstothecorporation(JonesonLiens,3ded.,sec.
375) and our attention has not been called to any statute
creatingsuchlienhere.Onthecontrary,section120ofthe
Corporation Act provides that "no bank organized under
thisActshallmakeanyloanordiscountonthesecurityof
thesharesofitsowncapitalstock,norbethepurchaseror
holderofanysuchshares,unlesssuchsecurityorpurchase
shall be necessary to prevent loss upon a debt previously
contractedingoodfaith,andstocksopurchasedoracquired
shall, within six months from the time of its purchase, be
sold or disposed of at public or private sale, or, in default
thereof,areceivermaybeappointedtocloseupthebusiness
ofthebankinaccordancewithlaw."
Section35oftheUnitedStatesNationalBankingActof
1864 contains a similar provision and it has been held in
variousdecisionsoftheUnitedStatesSupremeCourtthata
bankorganizedunderthatActcanhavenolienonitsown
stockfortheindebtednessofthestockholdersevenwhenthe
bylaws provide that the shares shall be transferable only
on the books of the corporation and that no such transfer
shallbemadeiftheholderofthesharesisindebtedtothe
corporation.(JonesonLiens,3ded.,sec.384;FirstNational
Bank of South Bend vs. Lanier and Handy, 11 Wall., 369;
Bullard vs. National Eagle Bank, 18 Wall., 589; First
National Bank of Xenia vs. Stewart and McMillan, 107 U.
S.,676.)Thereasonsforthisdoctrineareobvious;ifbanking
corporations were given a lien on their own stock for the
indebtedness of the stockholders, the prohibition against
granting loans or discounts upon the security of the stock
wouldbecomelargelyineffective.
Turningnowto,therightsoftheplaintiffinthestockin

question, it is argued that the interest held by Chua Soco

wasmerelyanequitywhichcouldnotbemadethesubjectof
achattelmortgage.Thoughthecourtshave
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VOL.44,MARCH27,1923

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Fua Cun vs. Summers and China, Banking Corporation

uniformly held that chattel mortgages on shares of stock
andotherchosesinactionarevalidasbetweentheparties,
there is still much to be said in favor of the defendants'
contentionthatthechattelmortgagehereinquestionwould
not prevail over liens of third parties without notice; an
equityinsharesofstockisofsuchanintangiblecharacter
thatitissomewhatdifficulttoseehowitcanbetreatedasa
chattelandmortgagedinsuchamannerthattherecording
of the mortgage will furnish constructive notice to third
parties. As said by the court in the case of Spalding vs.
Paine'sAdm'r.(81Ky.,416),inregardtoachattelmortgage
ofsharesofstock:
"These certificates of stock are in the pockets of the owner, and go
with him where he may happen to locate, as choses in action, or
evidenceofhisright,withoutanymeansonthepartofthosewith
whom he proposes to deal on the faith of such a security of
ascertaining whether or not this stock is in pledge or mortgaged to
others.Hefindsthenameoftheowneronthebooksofthecompany
asasubscriberofpaidupstock,amountingto180shares,withthe
certificates in his possession, pays for these certificates their full
value, and has the transfer to him made on the books of the
company,therebyobtainingaperfecttitle.Whatotherinquiryishe
tomake,soastomakehisinvestmentcertainandsecure?Whereis
hetolook,inordertoascertainwhetherornotthisstockhasbeen
mortgaged?Thechiefofficeofthecompanymaybeatoneplaceto
day and at another tomorrow. The owner may have no fixed or
permanent abode, and with his notes in one pocket and his
certificates of stock in the otherthe one evidencing the extent of
his interest in the stock of the corporation, the other his right to
money owing him by his debtor, we are asked to say that the
mortgageiseffectualastotheoneandinoperativeastotheother,"

Butadeterminationofthisquestionisnotessentialinthe
presentcase.Therecanbenodoubtthatanequityin
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PHILIPPINEREPORTSANNOTATED

Fua Cun vs. Summers and China Banking Corporation

sharesofstockmaybeassignedandthattheassignmentis
valid as between the parties and as to persons to whom
notice is brought home. Such an assignment exists here,
thoughitwasmadeforthepurposeofsecuringadebt.The
endorsementtotheplaintiffofthereceiptabovementioned
reads:
"Forvaluereceived,Iassignallmyrightsinthesesharesinfavorof
Mr.TuaCun.
"Manila,P.L,May18,1921.
(Sgd.)"CHUASoco"

This endorsement was accompanied by the delivery of the

receipt to the plaintiff and further strengthened by the
executionofthechattelmortgage,whichmortgage,atleast,
operatedasaconditionalequitableassignment.
Asagainsttherightsoftheplaintiffthedefendantbank
had, as we have seen, no lien unless by virtue of the
attachment.Buttheattachmentwasleviedafterthebank
had received notice of the assignment of Chua Soco's
interests to the plaintiff and was therefore subject to the
rightsofthelatter.Itfollowsthatasagainsttheserightsthe
defendantbankholdsnolienwhatever.
Aswehavealreadystated,thecourterredinholdingthe
plaintiff as the owner of two hundred and fifty shares of
stock; "the plaintiff's rights consist in an equity in five
hundredsharesanduponpaymentoftheunpaidportionof
thesubscriptionpricehebecomesentitledtotheissuanceof
certificateforsaidfivehundredsharesinhisfavor."
Thejudgmentappealedfromismodifiedaccordingly,and
inallotherrespectsitisaffirmed,withthecostsagainstthe
appellantBankingCorporation.Soordered.
Araullo, C. J., Street, Malcolm, Avancea, Villamor,
Johns,andRomualdez, JJ.,concur.
Judgment modified.
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VOL.44,MARCH27,1923
Navas L. Sioca vs. Garcia,

711

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