[Answer/discuss the question below. Or check Mercantile Law Instructions; Mercantile Law Essay Questions: 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10; Mercantile Multiple Choice Questions: 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15; See also 2013 Bar Exam: Information, Discussions, Tips, Questions and Results]
Claude, the registered stockholder of 1,000 shares in ABC Corp., pledged the shares to Conrad by endorsement in blank of the covering stock certificates and, execution of a Deed of Assignment of Shares of Stock, intended as collateral for a loan of P1.0 Million that was also supported by a separate promissory note.
I.(1) Under these facts, is there a valid pledge of the shares of stock to Conrad? (1%)
(A) No, because shares of stock are intangible personal properties whose possession cannot be delivered and, hence, cannot be the subject of a pledge.
(B) No, because the pledge of shares of stock requires double registration with the Register of Deeds of the principal place of business of the corporation and of
the residence of the pledgor.
(C) Yes, because endorsement and delivery of the certificates of stock is equivalent to the transfer of possession of the covered shares to the pledgee.
(D) Yes, because the execution of the Deed of Assignment of Shares of Stock is equivalent to a lawful pledge of the shares of stock.
I.(2) After Claude defaulted on the loan, Conrad sought to have the shares registered in his name in the books of the corporation. If you are the Corporate Secretary of ABC Corporation, would you register the shares in the name of Conrad without any written instruction from Claude? (1%)
(A) Yes, since the endorsement and delivery of the certificates of stock executed by Claude constitute the legal authority to cancel the shares in his name and to place them in Conrad’s name.
(B) Yes, since the execution of the Deed of Assignment by Claude would constitute the legal authority to cancel the shares in his name and place them in Conrad’s name.
(C) No, because corporate officers can only take direct instructions from the registered owners on the proper disposition of shares registered in their names.
(D) No, because the corporation has a primary lien on the shares covering the unpaid subscription.