XIV SHARES AND CAPITAL STOCK
1. G.R. No. 51765 March 3, 1997
REPUBLIC
PLANTERS
BANK,
petitioner,
vs.
HON. ENRIQUE A. AGANA, SR., as Presiding Judge, Court
of First Instance of Rizal, Branch XXVIII, Pasay City,
ROBES-FRANCISCO
REALTY
&
DEVELOPMENT
CORPORATION and ADALIA F. ROBES, respondents.
TOPIC: Right to Dividends (Sec. 42, RCC)
NOTES: Stock dividends declaration requires approval of 2/3
outstanding capital stock. Sec. 42 of the RCC prohibits the
issuance of any stock dividend without the approval of
stockholders, representing not less than two-thirds (2/3) of the
outstanding capital stock, which underscores the fact that
payment of dividends to a stockholder is not a matter of right
but a matter of consensus. Furthermore, “interest bearing
stocks”, on which the corporation agrees absolutely to pay
interest before dividends are paid to be common stockholders,
is legal only when construed as requiring payment of interest
as dividends from net earnings or surplus only.
FACTS:
On 18 September 1961, the Robes-Francisco Realty &
Development Corporation (RFRDC) secured a loan from the
Republic Planters Bank in the amount of P120,000.00. As part
of the proceeds of the loan, preferred shares of stocks were
issued to RFRDC through its officers then, Adalia F. Robes and
one Carlos F. Robes. In other words, instead of giving the legal
tender totaling to the full amount of the loan, which is
P120,000.00, the Bank lent such amount partially in the form of
money and partially in the form of stock certificates numbered
3204 and 3205, each for 400 shares with a par value of P10.00
per share, or for P4,000.00 each, for a total of P8,000.00. Said
stock certificates were in the name of Adalia F. Robes and
Carlos F. Robes, who subsequently, however, endorsed his
shares in favor of Adalia F. Robes.
Said certificates of stock bear the following terms and
conditions:
The Preferred Stock shall have the following rights,
preferences, qualifications and limitations, to wit:
1. Of the right to receive a quarterly dividend of One Per
Centum (1%), cumulative and participating.
2. That such preferred shares may be redeemed, by the system
of drawing lots, at any time after two (2) years from the date of
issue at the option of the Corporation.
RFRDC and Robes proceeded against the Bank and filed a
complaint anchored on their alleged rights to collect dividends
under the preferred shares in question and to have the bank
redeem the same under the terms and conditions of the stock
certificates.
ISSUE:
Whether RFRDC and Robes are entitled to the payment of a
certain rate of interest on the stocks as a matter of right without
necessity of a prior declaration of dividend.
G.R. No. 212833
August 7, 2019
RULING:
The Court ruled that there is no legal basis for their claim.
FACTS
Both Sec. 16 of the Corporation Law and Sec. 43 of the present
Corporation Code [Sec. 42 of the Revised Corporation
Code] prohibit the issuance of any stock dividend without the
approval of stockholders, representing not less than two-thirds
(2/3) of the outstanding capital stock at a regular or special
meeting duly called for the purpose. These provisions
underscore the fact that payment of dividends to a stockholder
is not a matter of right but a matter of consensus. Furthermore,
"interest bearing stocks", on which the corporation agrees
absolutely to pay interest before dividends are paid to common
stockholders, is legal only when construed as requiring
payment of interest as dividends from net earnings or surplus
only.
1.
Respondent Kings Properties Corporation (KPC) and
Fil-Estate Golf and Development Corporation (Fil-Estate)
entered into a joint project which led to the creation of petitioner
Forest Hills Golf and Country Club, Inc. (Forest Hills), a nonprofit corporation. Forest Hills was incorporated on June 29,
1995 and its primary objective is to construct and maintain
sports and recreational facilities (project).
In compelling the bank to redeem the shares and to pay the
corresponding dividends, the Trial committed grave abuse of
discretion amounting to lack or excess of jurisdiction in ignoring
both the terms and conditions specified in the stock certificate,
as well as the clear mandate of the law.
3.
In 2008, KPC filed a complaint against Forest Hills and
the members of its Board of Directors (collectively, petitioners)
because the project remained unfinished and the Board of
Directors continued to suspend the voting rights of Forest Hills'
stockholders.
2. FOREST HILLS GOLF AND COUNTRY CLUB, INC.,
FERDINAND T. SANTOS, ROBERT JOHN L. SOBREPEÑA,
AND ROMEO G. CARLOS, petitioners, vs. KINGS
PROPERTIES CORPORATION , respondent.
2.
Forest Hills' Articles of Incorporation and By-Laws
provide that only holders of founders' shares may vote at any
meeting of the members and be elected to the Board of
Directors for a period of five years "from and after the formal
turn-over of the project" to Forest Hills.
4.
KPC argued that the suspension of the voting rights
should have ended five years after the SEC approved the
incorporation of Forest Hills, or on June 30, 2000, pursuant to
Section 7 of the Corporation Code.
5.
The RTC denied KPC's complaint in its April 4, 2013
Decision. 15 The RTC held that Section 7 of the Corporation
Code applies only to a stock corporation, and is inapplicable to
a non-stock corporation such as Forest Hills.
6.
Forest Hills argues that Section 7 of the Corporation
Code does not apply to a non-stock corporation. Rather, it is
Section 89 that determines the authority of the non-stock
corporation to impose restrictions upon its members.
Sec. 89. Right to Vote. — The right of the members of
any class or classes to vote may be limited, broadened
or denied to the extent specified in the articles of
incorporation or the by-laws. Unless so limited,
broadened or denied, each member, regardless of
class, shall be entitled to one vote.
Unless otherwise provided in the articles of
incorporation or the by-laws, a member may vote by
proxy in accordance with the provisions of this Code.
ISSUE
WON Section 89 of the Corporation Code determines the
authority of the non-stock corporation to impose restriction
upon its members.
And, on the other hand is Section 7, which allows a corporation,
whether stock or non-stock, to give certain rights and privileges
on founders' shares.
As the CA correctly ruled, Section 7 is silent as to whether its
application is only limited to stock corporation; hence, there is
no reason for us to distinguish. In fact, Section 7 is found under
the General Provisions which apply to both stock and non-stock
corporations.
Sec. 7. Founders' Shares. — Founders' shares
classified as such in the articles of incorporation may be
given certain rights and privileges not enjoyed by the
owners of other stocks, provided that where the
exclusive right to vote and be voted for in the election of
directors is granted, it must be for a limited period not to
exceed five (5) years subject to the approval of the
Securities and Exchange Commission. The five-year
period shall commence from the date of the aforesaid
approval by the Securities and Exchange Commission.
The Court has apparently conflicting provisions under the
Corporation Code governing the voting rights of a member in a
non-stock corporation. On one hand is Section 89 which
authorizes a non-stock corporation to limit, broaden or deny the
right of the members of any class, to wit:
These conflicting Sections could be interpreted in the light of
the statutory construction principle that a particular provision is
paramount to the general provision. Section 7 refers particularly
to founders' shares, while Section 89 refers to all classes of
members in a non-stock corporation.
RULING
NO. The court does not agree.
The provision of Section 89 therefore should be treated as a
general provision for non-stock corporations applicable only in
the absence of a specific provision in the Corporation Code on
a particular subject matter. In the case of founders' shares,
Section 7 of the Corporation Code specifically provides for their
rights, privileges and limitations.
To this extent, Forest Hills can lawfully suspend or define the
voting rights of its members. But with respect to founders'
shares, Forest Hills must observe the limitations imposed under
Section 7. In other words, the exclusive right to vote and be
voted for of the founders' shares should expire after five years
from the approval of the SEC.
As the CA correctly ruled, since Forest Hills' Articles of
Incorporation and By-Laws were approved by the SEC on June
29, 1995, the founders' shares exclusive rights had expired on
June 30, 2000. As a necessary consequence, the suspension
of the voting rights of the other members to give way to the
exclusive rights of Forest Hills' founders is deemed lifted.
WHEREFORE, premises considered, the petition is DENIED.
3. ) THE GOVERNMENT OF THE PHILIPPINE ISLANDS, vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO.
(LTD.) G.R. No. L-11789, April 2, 1918
FACTS:
The plaintiff brought a quo warranto action against the
respondent for the purpose of having the charter of the
defendant corporation declared forfeited. It alleged that the
corporation, for a period of eighteen months previous to the
filing of the complaint (Nov. 21, 1914), it had continuously
offended against the laws of the Philippine Islands and had
misused its corporate authority, franchises, and privileges and
had assumed privileges and franchises not granted; that it had
engaged in the business of buying and selling real estate. It had
entered into a contract with the Tayabas Land Company for the
purpose of engaging in the business of purchasing lands along
the right of way of the Manila Railroad Company through the
Province of Tayabas with a view to reselling the same to the
Manila Railroad Company at a profit. And that by such acts, the
plaintiff had forfeited its corporate rights, privileges, powers,
and franchises, dissolving it as a corporation, and to grant such
other and further relief as might seem just and equitable to the
court, and for costs. Defendant alleged that The Tayabas Land
Company was an ordinary partnership and not a corporation.
And that by virtue of the contract, the defendant delivered TLC
P304, 359.42, which amounted to a loan, and not a contribution
to the capital of TLC as alleged by the plaintiff. That the money
thus received was devoted to the purchase of the real estate in
the Province of Tayabas along the proposed right of way of the
Manila Railroad Company in that province; that the purpose of
these purchases was for resale to the Manila Railroad
Company or any other person offering an acceptable price.
ISSUE:
Whether the law require that it be dissolved or is the prohibition
of future acts of this nature sufficient in time when the
defendant engages in the business of buying and selling land
RULING:
While it is true that the courts are given a wide discretion in
ordering the dissolution of corporations for violations of its
franchises, etc., yet nevertheless, when such abuses and
violations constitute or threaten a substantial injury to the public
or such as to amount to a violation of the fundamental
conditions of the contract (charter) by which the franchises
were granted and thus defeat the purpose of the grant, then the
power of the courts should be exercised for the protection of
the people. The very and sole purpose of the intervention of the
defendants in the purchase of the land from the original owners
was for the purpose of selling the same to the Railroad
Company at profit — at an increased price, thereby directly
increasing the burden of the people by way of additional
taxation. The very and sole purpose of the intervention of the
defendants in the purchase of the land from the original owners
was for the purpose of selling the same to the Railroad
Company at profit — at an increased price, thereby directly
increasing the burden of the people by way of additional
taxation.
4.) Bayla v Silang Traffic Co.
GR. No. L-48195-96, May 01, 1942
FACTS:
Sofronio Bayla, along with the other petitioners in this case,
individually purchased shares of stock of Silang Traffic Co.
Each of the petitioners had different specified terms and
conditions of payment. Similar among them is that 5% is to be
paid upon the execution of the contract, and the remainder in
installments of 5% quarterly due within the first month of the
quarter. Deferred payments will incur 6% interest per annum
until paid, and failure to pay any of said installments when they
are due will revert the shares back to the seller and the
payments already made are to be forfeited in favor of the
company, without resort to court proceedings.
ISSUE:
Petitioners have already paid sums of money for the
shares of stock they wanted to purchase. However, they failed
to pay the installment which fell due on or before July 31, 1937.
On August 1, 1937, the board of directors of Silang Traffic Co.
released a resolution stating a rescission was to be made for
the good of the corporation and in order to terminate the then
pending civil case involving the validity of the sale of the shares
in question. Those who would agree can refund the
installments already paid. The petitioners agreed to the
rescission and demanded for the refund of the amounts they
had paid. Silang Traffic Co. refused to refund the petitioners’
money stating that because of their failure to pay the
installment due on or before July 31, the clause stating that
their shares would revert back to the corporation and their
payments forfeited had taken effect, and that there was nothing
to refund. Moreover, a later resolution on August 22 already
cancelled the resolution of August 1.
No. The Court held that for their stocks to be forfeited to the
corporation, a demand must first be given by the corporation
for the payments due on or before July 31. It did not
automatically revert to the corporation. Under Article 1100 of
the Civil Code, persons obliged to deliver or do something are
not in default until the moment the creditor demands of them
judicially or extra-judicially the fulfillment of their obligation. The
current situation does not fall under the any of the exceptions.
The contract itself did not expressly provide that the failure of
the purchaser to pay any installment would give rise to
forfeiture and cancellation without the necessity of any demand
from the seller. In fact, it states that there would be a 6%
interest on deferred payments which shows that there was no
intention of automatic forfeiture and cancellation of contract. As
such, the Court reversed the decision of the Court of Appeals
and ordered Silang Traffic Co. to refund the petitioners’ money.
Were the petitioners’ shares of stock automatically forfeited in
favor of Silang Traffic Corporation upon their failure to pay the
installment due on or before July 31?
RULING:
5. Teng v. SEC, 784 SCRA 216 (2016), Reyes, J.
The trial court absolved the corporation and forfeited the
petitioners’ shares and payments to the corporation. The Court
of Appeals affirmed the decision but allowed the petitioners 30
days to pay the arrears in their subscription. From this decision,
petitioner and respondent appealed to the Supreme Court.
Ting Ping bought the following shares:
(1)
480 shares of TCL Shares Corporation from Peter Chiu;
(2)
1,400 shares from his brother Teng Ching Lay (who is also
the President and Operations Manager of TCL), and
(3)
1,440 shares from Ismaelita Maluto.
Upon Teng Ching’s death in 1989, his son Henry Teng took over management
of TCL. To protect himself, Ting Ping on Aug. 31, 1989 requested TCL’s
corporate secretary, petitioner Anna Teng, to record the transfer in the stock
and transfer book, and also demanded issuance of new stock certificates in
his favor.
TCL and Anna refused, since there was still an issue regarding the ownership
of the 1,400 shares previously owned by Teng Ching, it being alleged that
Henry has a better right over these shares. RTC upheld’s Ting’s ownership
except for those 1,400 shares. Therefore, he filed for partial execution ordering
the registration of his ownership in the company’s book over the 480 shares
and 1,440 shares.
Does Ting Ping have to surrender his certificates of stock before registration
of the transfer may be made in the stock and transfer book?
No, he need not surrender his certificate of stock before the transfer can be
registered in the stock and transfer book
To restate the basics, a certificate of stock is prima facie evidence that the
holder is a shareholder of the corporation, but is not the stock itself.
Section 63 of the Corporation Code, which is essentially the same as the
Section 35 of the old Corporation Law, provides the manner in which a
certificate of stock may be transferred; for there to be a valid transfer of stock,
(1)
there must be delivery of the certificate;
(2)
the certificate must be endorsed by the owner or his attorney
in fact or other persons legally authorized to make the transfer; and
(3)
to be valid against third parties, the transfer must be
recorded in the books of the corporation.
It is delivery coupled with endorsement that is the operative act of transfer of
shares. However, this delivery contemplated in Section 63 is delivery from
transferor to transferee. Clearly, the contention of Anna that Ting Ping must
first surrender the certificates to the corporation before the transfers from
Peter and Ismaelita can be recorded is without legal basis. Such would amount
to a restriction on Ting Ping’s right to have the stocks transferred in his name,
which is not allowed in law.
A corporation cannot create restrictions in stock transfers; in transferring
stock, a secretary of a corporation acts in a purely ministerial capacity, and
does not decide the question of ownership. Nevertheless, to be valid against
third persons, the transfer must be recorded in the books of the corporation.
This requirement is to enable the transferee to exercise all rights of the
stockholder, to inform the corporation of any changes in stock ownership, and
to avoid fraudulent and fictitious transfers, among others.
Per the case of Bitong v. CA, the surrender of the original certificate of stock
is necessary before the new one can be issued. In this case, Ting Ping
manifested from the start his intention to surrender the certificates of stock to
facilitate the registration of the transfer and the issuance of new certificates
of stock in his name. It would be against substantial justice if the SC were to
grant the petition simply because Ting Ping has yet to surrender the
certificates.
and void. Respondents went to the SEC on appeal which overturned said
decision and confirmed the validity of cancellation of Stock Certificate No.
2.
ISSUE: WON the cancellation of the stock certificates are valid (YES)
RULING:
Section 63 the Corporation Code provides:
6. TAN vs. SEC | G.R. No. 95696 March 3, 1992 (SEC, 206 SCRA 740)
FACTS:
As incorporator, petitioner Alfonso Tan had 400 shares of the capital under
Certificate of Stock No. 2 in Visayan Co. Due to the withdrawal of other
incorporators and to complete the membership of the 5 directors of the
board, petitioner sold 50 shares out of his 400 shares of capital stock to his
brother Angel Tan. Subsequently, Angel was elected director. As a result of
the sale by petitioner of his shares of stock, Certificate of Stock No. 2 was
cancelled and the corresponding Certificates Nos. 6 for 50 shares under the
name of Angel and Stock Certificate No. 8 for 350 shares under the name
of Alfonso were issued.
Having been dislodged from his position as President, Alfonso withdrew
from the corporation. The Board of Visayan Co. effected the cancellation of
the stock certificates in the Stock and Transfer Book of Alfonso Tan, its
former President. The cancelled certificates were returned to him upon the
order of the new President because he wanted Alfonso to make the proper
indorsement but Alfonso deliberately did not indorse the certificates but
instead filed a case with the SEC arguing that there was a deprivation of his
shares despite the non-endorsement or surrender of his Stock Certificate
Nos. 2 and 8. SEC ruled the cancellation of stock certificate No. 2 as null
SEC. 63. Certificate of stock and transfer of shares. —
xxx
Shares of stocks so issued are personal property and may be
transferred by delivery of the certificate or certificates 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 recorded in 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 or
certificates and the number of shares transferred.
xxx
However, following the doctrine enunciated in the case of Tuazon v. La
Provisora Filipina, where the Court held that delivery is not essential where
it appears that the persons sought to be held as stockholders are officers of
the corporation, and have the custody of the stock book.
Here, there was already a delivery of stock certificates despite nonindorsement. For all intents and purposes, however, since the certificate
was already cancelled which cancellation was also reported to the SEC,
there was no necessity for the same to be endorsed by Alfonso. All the acts
required for the transferee to exercise his rights over the acquired stocks
were attendant and even the corporation was protected from other parties,
considering that said transfer was earlier recorded or registered in the
corporate Stock and Transfer Book.
Furthermore, there is a necessity to delineate the function of the stock itself
from the actual delivery or endorsement of the certificate of stock itself as is
the question in the case. A certificate of stock is not necessary to render
one a stockholder in corporation. The certificate is not stock in the
corporation but is merely evidence of the holder's interest and status in the
corporation, his ownership of the share represented thereby, but is not in
law the equivalent of such ownership. It expresses the contract between the
corporation and the stockholder, but it is not essential to the existence of a
share in stock or the creation of the relation of shareholder to the
corporation.
Besides, in Philippine jurisprudence, a certificate of stock is not a negotiable
instrument. "Although it is sometime regarded as quasi-negotiable, in the
sense that it may be transferred by endorsement, coupled with delivery, it is
well-settled that it is non-negotiable, because the holder thereof takes it
without prejudice to such rights or defenses as the registered owner/s or
transferror's creditor may have under the law, except insofar as such rights
or defenses are subject to the limitations imposed by the principles
governing estoppel." (De los Santos vs. McGrath, 96 Phil. 577)
To follow the argument put up by petitioner that the cancellation of Stock
Certificate Nos. 2 and 8 was null and void for lack of delivery of the cancelled
"mother" Certificate No. 2 whose endorsement was deliberately withheld by
petitioner, is to prescribe certain restrictions on the transfer of stock in
violation of the corporation law itself as the only law governing transfer of
stocks. While Section 47(s) grants a stock corporations the authority to
determine in the by-laws "the manner of issuing certificates" of shares of
stock, however, the power to regulate is not the power to prohibit, or to
impose unreasonable restrictions of the right of stockholders to transfer their
shares.
7. MAKATI SPORTS CLUB V CHENG, 621 SCRA 103 (2020)
FACTS: On October 20, 1994, Makati Sports Club (MSCI) through its BOD
adopted a resolution authorizing the sale of 19 unissued shares of Class A
and Class B.
Cecile Cheng (respondent) was the Corporate Treasurer and Director.
On July 7, 1995, Hodreal expressed his interest to buy a share and
requested that his name by included in the wait list.
Sometimne in November 1995, McFoods Inc. expressed its interest in
acquiring a share. McFoos was able to buy the Class A shares from
petitioner in the amount of P1,800,000.00. Payment for the share was made
on November 28, 1995. The Deed of Absolute Sale was executed on
December 15, 1995 and the stock certificate was issued on January 5, 1996.
By December 27, 1995, McFoods sent a notice to petitioner that it was
offering to resell the stock for P2,800,000.00.
It appear that while the sale between petitioner and McFoods was under
investigation, there was also an ongoing negotiation between McFoods and
Hodreal.
On November 24, 1995, Hodreal padi McFoods P1,400,000.00 and another
payment in the amount of P1,400,000.00 was made on December 27, 1995.
On January 29, 1996, McFoods and Hodreal executed a Deed of Sale for
the same share of stock.
Only on February 7, 1996 was petitioner was advised of the sale between
McFoods and Hodreal. A new certificate of stock was issued upon request.
However, Cheng had been accused of profiteering from the said transaction
upon an investigation conducted. Petitioner alleged that Cheng and
McFoods confabulated with one another at the expense of MSCI.
Thus, petitioner filed a complaint against Cheng and demanded to pay
P1,000,000.00 as amount allegedly defrauded with damages.
The RTC dismissed the complaint and the CA affirmed the RTC’s decision.
In this petition, petitioner contends that Cheng in collaboration with
McFoods committed fraud in transacting the transfers involving Stock
Certificate No. A 2243. Cheng is alleged to provide insider’s information as
to the status of the shares and facilitated the transfer by doctoring the books
to give a semblance of regularity to the transfer. McFoods never intended
to become a legitimate holder of Class A shares but did so for the purpose
of realising a profit in the amount of P1,000,000.00 at the expense of the
petitioner.
ISSUE: WON McFoods can validly sold his MSCI share prior to the issuance
of the certificate of sale. (YES)
RULING: Assuming the intention of McFoods was to speculate on the price
of the share of stock when it tendered payment on November 28, 1995, it
had all the right to negotiate and transact, at least on the anticipated and
expected ownership of the share with Hodreal.
There is nothing wrong with the fact that the first payment/installment made
by Hodreal to McFoods preceded or came earlier than the payment made
by McFoods to MSCI for the same share of stocks because eventually
McFoods became the owner of Class A share covered in Certificate A 2243.
Upon the payment by McFoods of P1800,000.00 to MSCI and the execution
of the Deed of Absolute Sale on December 15, 1995, McFoods then had
the right to demand the delivery of stock certificate in his name. The right of
a transfere to have the stocks transferred to its name is an inherent right
flowing from its ownership.
Petitioner’s stance that McFoods violated its By-laws on its pre-emptive right
is not correct as McFoods offered to sell the shares to MSCI on December
27, 1995 for the latter to excuse his right of first refusal. It had legally have
the right to do so by virtue of the payment made by McFoods and the
execution of the Deed of Absolute Sale even if the certificate was issued on
January 1996.
The certificate of stock is the paper representative or tangible evidence of
the stock itself and of the various interests therein. The certificate is not a
stock in the corporation but is merely evidence of the holder’s interest and
status in the corporation, his ownership of the share represented thereby. It
is not in law equivalent of such ownership. It expresses the contract between
the corporation and the stockholder, but is not essential to the existence of
a share of stock or the nature of the relation of shareholder to the
corporation.
Therefore, McFoods properly complied with the requirement of Section
30(e) of the Amended By-laws on MSCI’s pre-emptive right. Petitioenr failed
to purchase the share within 30 days from receipt of notice. It was only on
January 29, 1996 or 32 days after December 28, 1994 when McFoods and
Hodreal executed the Deed of Absolute Sale.
Registration of McFoods as owner is not essential as it is only ministerial
upon the buyer’s acquisition of ownership. The corporation cannot create
restrictions in stock transfers.
Petitioner’s allegation of Cheng’s fraudulent act was not supported by
evidence. The mere fact of receiving paymen from Hodreal in behalf of
McFoods or claiming the certificate do not show badges of fraud.
9. NORA A. BITONG vs. COURT OF APPEALS
G.R. No. 123553, July 13, 1998, 292 SCRA 503
Digested by: Palami
Facts: Nora Bitong made a claim to the Securities and
Exchange Commission (SEC), stating that she held the
positions of Treasurer and Member of the Board of Directors in
the private respondent, Mr. & Ms. Publishing Co., Inc. (Mr. &
Ms.), from the time of its incorporation on October 29, 1976,
until April 11, 1989. She also asserted that she was the
registered owner of 1,000 shares of stock out of the total of
4,088 outstanding shares.
Bitong, allegedly acting in the best interest of Mr. & Ms. Co.,
initiated a derivative suit before the SEC against the
respondent spouses, Eugenia D. Apostol and Jose A. Apostol,
who held positions in the corporation. The purpose of the suit
was to hold them accountable for fraud and mismanagement in
the management of the corporation.
The respondent spouses filed a motion to dismiss, arguing that
Bitong did not have the legal standing to bring the suit, as she
was merely a holder-in-trust of shares on behalf of JAKA
Investments Corporation (JAKA), which remained the true
stockholder of Mr. & Ms.
On the other hand, Bitong argues that she possessed valid
stock certificates and that the transfer of ownership was duly
recorded. She further asserts that even without the physical
certificates, the recorded transfer is sufficient for her to exercise
all the rights of a stockholder, including the right to file a
derivative suit on behalf of the corporation.
Issue: WON Bitong is the true holder of the stock certificates
to institute a derivative suit. (NO)
Ruling: Sec. 63 of the Corporation Code outlines the
requirements for the issuance of a formal certificate of stock.
These requirements are as follows:
a. The certificates must be signed by the president or vicepresident, countersigned by the secretary or assistant
secretary, and sealed with the corporation's seal. A mere
typewritten statement that informs a stockholder of their
ownership in the corporation, without proper qualification or
authentication, cannot be considered a formal certificate of
stock.
b. Delivery of the certificate is essential for its issuance. If a
certificate is never detached from the stock books, even if the
necessary information is filled in, it is not considered issued
unless the person named on the certificate has control over the
company's books.
c. For par value shares, the par value must be fully paid, while
for no par value shares, the full subscription amount must be
fully paid.
d. When a person requests the issuance of a certificate as a
transferee from a stockholder, the original certificate must be
surrendered.
Once issued, the certificate of stock serves as a continuous
affirmation that the stated stock is valid and genuine, and it is
considered prima facie evidence of its legal issuance. However,
this presumption can be rebutted. To validly transfer stocks, the
following requirements must be met: (a) delivery of the stock
certificate, (b) endorsement of the certificate by the owner,
attorney-in-fact, or other legally authorized individuals for
transfer, and (c) recording of the transfer in the corporation's
books to be valid against third parties.
In the present case, besides Bitong's own admissions, various
corporate documents reveal that JAKA is the true party-ininterest. Notably, JAKA executed a deed of sale for 1,000 Mr.
& Ms. shares in favor of respondent Eugenia Apostol. On the
same day, respondent Apostol signed a declaration of trust,
affirming her status as the registered owner of the mentioned
shares. There is no evidence indicating that JAKA revoked the
trust placed in respondent Apostol or that the principal
requested her to assign and transfer the shares to Bitong.
Consequently, the records do not clearly demonstrate how
Bitong supposedly acquired the JAKA shares. In this case,
Bitong has only satisfied the third requirement mentioned
earlier. Compliance with the first two requisites has not been
adequately established.
11. Santamaria vs. HSBC
G.R. No. L-2808 | August 31, 1951
Facts:
Around February 1937, Santamaria bought ten
thousand shares for the sum of about P8,000.00 of the
Batangas Minerals, Inc. through the offices of Woo, Uy-Tioco
and Naftaly, a stock brokerage firm. The buyer received the
stock certificates in the name of Woo, Uy-Tioco and Naftaly and
indorsed in blank by the firm. Subsequently, Santamaria
placed an order for ten thousand shares of the Crown Mines,
Inc. This time through another brokerage firm by the name of
R.J. Campos and Company. To secure the transaction, she
submitted the stock certificate representing her prior purchase
of Batangas Minerals, Inc. stocks which certificate was still in
the same condition as Santamaria received it. Upon
Santamaria’s return to R.J. Campos and Company for
payment, she found out that the firm was desisted by the SEC
to continue transacting business. She also learned that the
certificate that was forwarded as security was in the possession
of Hongkong and Shanghai Banking Corporation by virtue of a
document of hypothecation wherein all shares in the brokerage
firm’s custody was pledged to the bank. In this aspect, HKSBC
sent the certificate to Batangas Minerals, Inc. for registration.
Hence, this civil action.
Issue:
Whether or not the contested certificate of stock should
be returned to Santamaria.
Ruling:
The Supreme Court ruled that it should not be returned.
Santamaria was negligent in the transaction and is stopped
from claiming further title against the bona fide transfer to
HKSBC. The latter was justified in believing that R.J. Campos
and Company had title thereto considering it was indorsed in
blank, and, therefore, deemed quasi-negotiable. Thus, HKSBC
cannot be blamed for believing that such belonged to the holder
and transferor. Furthermore, the bank was not obligated to look
beyond the certificate to ascertain the ownership of the stock at
the time it received the same from R.J. Campos and Company,
for it was given to the bank pursuant to their letter of
hypothecation.
A bona fide pledgee or transferee of a stock from the
apparent owner is not chargeable with knowledge of the
limitations placed on it by the real owner, or of any secret
agreement relating to the use which might be made of the stock
by the holder (12 Fletcher, Corporations, section 5562, p. 521).
"Where one of two innocent parties must suffer by reason of a
wrongful or unauthorized act, the loss must fall on the one who
first trusted the wrongdoer and put in his hands the means of
inflicting such loss".
FACTS:
Petitioner Forest Hills Golf & Country Club (Forest Hills) is a domestic nonprofit stock corporation that operates and maintains a golf and country club
facility in Antipolo City. Forest Hills was created as a result of a joint venture
agreement between Kings Properties Corporation (Kings) and Fil-Estate
Golf and Development, Inc. (FEGDI). Accordingly, Kings and FEGDI owned
the shares of stock of Forest Hills, holding 40% and 60% of the shares,
respectively.
On August 1997, FEGDI sold to RS Asuncion Construction Corporation
(RSACC) one (1) Class "C" common share of Forest.
Despite the sale of FEGDI's Class "C" common share to Vertex, the share
remained in the name of FEGDI, prompting Vertex to demand for the
issuance of a stock certificate in its name. As its demand went unheeded,
Vertex filed a complaint for rescission with damages against defendants
Forest Hills, FEGDI, and Fil-Estate Land, Inc. (FELI) – the developer of the
Forest Hills golf course.
The RTC ruled that the non-issuance of the stock certificate is a mere casual
breach that would not entitle Vertex to rescind the sale. CA reversed the
RTC. It declared that "in the sale of shares of stock, physical delivery of a
stock certificate is one of the essential requisites for the transfer of
ownership of the stocks purchased.
14. FOREST HILLS GOLF & COUNTRY CLUB vs. VERTEX SALES AND
TRADING, INC
G.R. No. 202205 | March 6, 2013
JURISPRUDENCE:
But once issued, shares are not owned nor are they assets of the
corporation—they are owned by the shareholders of record. The corporation
whose shares are the subject of transfer transaction (through sale,
assignment, donation, or any other mode of conveyance) need not be a part
to transaction for it to be valid. However, to bind the corporation, it is
necessary that the transfer is recorded in its books
ISSUE:
Whether or not CA erred in declaring the rescission of the sale of one (1)
Class "C" common share of Forest Hills to Vertex.
RULING:
As correctly pointed out by Forest Hills, it was not a party to the sale even
though the subject of the sale was its share of stock. The corporation whose
shares of stock are the subject of a transfer transaction (through sale,
assignment, donation, or any other mode of conveyance) need not be a
party to the transaction, as may be inferred from the terms of Section 63 of
the Corporation Code.
However, to bind the corporation as well as third parties, it is necessary that
the transfer is recorded in the books of the corporation. In the present case,
the parties to the sale of the share were FEGDI as the seller and Vertex as
the buyer (after it succeeded RSACC). As party to the sale, FEGDI is the
one who may appeal the ruling rescinding the sale.
The remedy of appeal is available to a party who has "a present interest in
the subject matter of the litigation and is aggrieved or prejudiced by the
judgment. A party, in turn, is deemed aggrieved or prejudiced when his
interest, recognized by law in the subject matter of the lawsuit, is injuriously
affected by the judgment, order or decree."
The rescission of the sale does not in any way prejudice Forest Hills in such
a manner that its interest in the subject matter – the share of stock – is
injuriously affected. Thus, Forest Hills is in no position to appeal the ruling
rescinding the sale of the share. Since FEGDI, as party to the sale, filed no
appeal against its rescission, we consider as final the CA’s ruling on this
matter.
16. BATANGAS LAGUNA TAYABAS BUS COMPANY, INC vs. BITANGA
G.R. No. 137934
August 10, 2001
DOCTRINE: The transfer of shares is not valid unless the same is recorded in
the books of the corporation. Until the registration is accomplished, the transfer,
though valid between the parties, cannot be effective as against the corporation. As
such, until the transfer is registered, the transferee is not a stockholder but an
outsider. In the case at bar, it is not disputed that the transfer of the shares has not
yet been recorded in the books of the corporation. Hence, the Potenciano Group, in
whose names the subject shares still stand, were the ones entitled to attend and
vote at BLTB’s stockholders' meeting. The Bitanga group cannot vote nor be voted
for.
Until challenged in a proper proceeding, a shareholder of record has a
right to participate in any meeting; his vote can be properly counted to determine
whether a shareholders’ resolution was approved, despite the claim of the alleged
transferee. On the other hand, a person who has purchased stock, and who
desires to be recognized as a shareholder for the purpose of voting, must
secure such a standing by having the transfer recorded on the corporate
books. Until the transfer is registered, the transferee is not a shareholder but an
outsider.
FACTS:
Dolores A. Potenciano, Max Joseph A. Potenciano, Mercedelin A.
Potenciano, Delfin C. Yorro, and Maya Industries, Inc. entered into a Sale and
Purchase Agreement to sell to BMB Property Holdings, Inc., represented by its
President, Benjamin Bitanga, their 21,071,114 shares of stock in Batangas Laguna
Tayabas Bus Company, Inc. (BLTB). The said shares represented 47.98% of the
total outstanding capital stock of BLTB.
Barely a month after the agreement was executed, a meeting of the
stockholders of BLTB was held wherein Bitanga and Monina Grace Lim were elected
as directors, replacing Dolores and Max Joseph. Another stockholders' meeting was
held wherein Laureano A. Siy and Renato L. Leveriza were also elected as directors,
replacing Candido Potenciano and Yorro.
For the year 1998, before the scheduled stockholders’ meeting for the
election of directors, Michael Potenciano wrote Bitanga, requesting for a
postponement of the said stockholders' meeting due to the absence of a 30-day
advance notice. However, there was no response from Bitanga regarding the matter.
As such, on the scheduled date of the meeting, 286 stockholders, representing 87%
of the shares of stock of BLTB, arrived. The Potenciano group was then re-elected
to the Board of Directors and a new set of officers was thereafter elected.
The Bitanga group refused to relinquish their positions and continued to act
as directors and officers of BLTB. Accordingly, the Potenciano group filed a
complaint for injunction and damages. On the other hand, the Bitanga group filed
another complaint, seeking to annul the stockholders' meeting. The SEC ruled in
favor of the Potenciano group. It ruled that the stockholders’ meeting where the
Potenciano group was elected is valid considering that there was no valid transfer
yet of shares sold to BMB Property Holdings, Inc. This decision was, however,
reversed by the CA.
ISSUE: Whether there is already a valid transfer of shares. (NO)
RULING:
The transfer of shares is not valid unless the same is recorded in the books
of the corporation. Until the registration is accomplished, the transfer, though valid
between the parties, cannot be effective as against the corporation. As such, until
the transfer is registered, the transferee is not a stockholder but an outsider. The
purpose of registration is, therefore, two-fold: to enable the transferee to
exercise all the rights of a stockholder, including the right to vote and to be
voted for, and to inform the corporation of any change in share ownership so
that it can ascertain the persons entitled to the rights and subject to the
liabilities of a stockholder. Until challenged in a proper proceeding, a stockholder
of record has a right to participate in any meeting and his vote can be properly
counted to determine whether a stockholders' resolution was approved, despite the
claim of the alleged transferee.
In the case at bar, it is not disputed that the transfer of the shares has not
yet been recorded in the books of the corporation. Hence, the Potenciano Group, in
whose names the subject shares still stand, were the ones entitled to attend and
vote at BLTB’s stockholders' meeting. The Bitanga group cannot vote nor be voted
for.
XV ACQUISITIONS, MERGERS, AND
CONSOLIDATION
1.
2.