Corporation Law: The Revised Corporation Code of the Philippines - Sec 62

THE REVISED CORPORATION CODE  OF THE PHILIPPINES 

Republic Act No. 11232 

TITLE VII - STOCKS AND STOCKHOLDERS

Section 62. Certificate of Stock and Transfer of Shares. 

The capital stock of corporations shall be divided into shares for which certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the bylaws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner, his attorney-in-fact, or any 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 showing 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. The Commission may require corporations whose securities are traded in trading markets and which can reasonably demonstrate their capability to do so to issue their securities or shares of stocks in uncertificated or scripless form in accordance with the rules of the Commission.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation.

1. Quasi-Negotiable. 

• Stock certificates are non-negotiable instruments under the Negotiable Instruments Law.
• The requirements of Section 1 of the Negotiable Instruments Law are not present because there is, in the first place, no promise or order to pay money.
• However, it has been said that stock certificates are quasi-negotiable because they can be transferred by indorsement coupled with delivery.
• Nevertheless, the transferee of the stock certificate takes it subject to such rights or defenses as the registered owner or transferor's creditors may have under the law except insofar as such rights or defenses are subject to limitations imposed by the principles governing estoppel. 
• Section 62 provides for rules on transfer of shares. 
• However, Section 62 of the RCCP contemplates no restriction as to who the shares may be transferred or sold.
• "As owner of personal property, a shareholder is at liberty to dispose of them (the share/s) in favor of whomsoever he pleases, without any other limitation in this respect, than the general provisions of law."

1.01. Formalities of the Certificate.

• Section 62 provides that the certificates of stock are:
• signed by the president or vice president 
• countersigned by the secretary or assistant secretary, and 
• sealed with the seal of the corporation. 
• The certificate shall be issued in accordance with the By-Laws. 
• It should be noted that the seal of the corporation is described in the By-Laws. 
• In addition, the By-Laws may prescribe the procedure for the issuance of the certificate. 

1.02. Street Certificate. 

• When a stock certificate is endorsed in blank by the owner thereof, it constitutes what is termed as "street certificate", so that upon its face, the holder is entitled to demand its transfer into his name from the issuing corporation. 
• Such certificate is deemed quasi-negotiable, and as such, the transferee thereof is justified in believing that it belongs to the holder and transferor.
• By way of exception, where stock certificates endorsed in blank were stolen from the possession of the beneficial owners, the transfer is void for lack of delivery and want of value. 

2. How Transfer is Made. 

• Voluntary transfer of a share that is represented by a certificate must strictly comply with the following conditions to be considered binding on the corporation:

1. There must be delivery of the certificate;
2. The share certificate must be indorsed by the owner or his agent; and 
3. To be valid vis-a-vis the corporation and third parties, the transfer must be recorded in the books of the corporation.

• Note, however, that the above-enumerated requisites do not apply to subscription contracts entered into between the corporation and the subscriber. 
• The subscriber becomes a shareholder even if the corporation has not yet issued the stock certificate. 
• Full payment is not even required under Section 71 of the RCCP before a shareholder can exercise the rights of a shareholder. 

2.01. Delivery. 

• The delivery that is required is delivery from the transferor to the transferee. 
• It is not delivery to the corporation that is contemplated. 
• "It is delivery of the certificate, coupled with the endorsement by the owner or his duly authorized representative that is the operative act of transfer of shares from the original owner to the transferee." 
• The delivery or surrender from the transferor to the corporation is not a requisite before conveyance may be recorded in its books.

2.02. Who Will Transfer.

• The shareholder of record in the books of the corporation has the right to transfer the shares. 
• However, the shares may be held in trust for another person or entity. 
• The true owner (trustor) can dispose of the share in any manner he or she sees fit without interference from the trustee who already lost his right as such. 
• Thus, shares may be held in trust by an employee of a corporation with the condition that the trust is terminated when he is separated from employment from the corporation for any reason. 
• After the separation, the corporation has the right to dispose of the shares and to ask the court to enjoin any transfer thereof that is being made by its former employee-trustee.
• Although the transfer must be recorded in the books of the corporation, the corporation whose shares are subject of a transfer transaction (through sale, assignment, donation or any other mode of conveyance) is not a party to the transaction.
• Transfer of shares between spouses is void if they are governed by the system of absolute community property regime. The transfer shall be recorded only if the share is part of the excluded properties or if they are governed by the system of separation of property.

2.03. If there is no certificate. 

• If the shareholder-transferor does not have any certificate, the delivery and the indorsement requirement cannot obviously b complied with.
• The Supreme Court ruled in Vicente C. Ponce v. Alsons Cement Corporation that if the corporation never issued certificates, the transferee cannot demand for the issuance of the certificates of stock in his name. 
• The Court explained that it is a basic rule that a transfer of shares of stock not recorded in the Stock and Transfer Book of the corporation is non-existent as far as the corporation is concerned. 
• Without such recording, the transferee may not be regarded by the corporation as one of its stockholders and the corporation may legally refuse the issuance of stock certificates
• In other words, the Stock and Transfer Book is the basis for ascertaining the persons entitled to the rights of a stockholder. 
• Where a transferee is not yet recognized as a stockholder, the corporation is under no specific legal duty to issue stock certificates in the transferee's name.
• It cannot be argued that it is the duty of the corporate secretary, when presented with the document (whereby the registered stockholder acknowledges the transfer of fully paid shares) to effect the transfer by recording the transfer in the stock and transfer book and to issue stock certificates in the name of the transferee. 
• Mandamus should not issue to compel the secretary of the corporation to make a transfer of the stock on the books of the corporation unless it affirmatively appears that he has failed or refused to do so upon demand either of the person in whose name the stock is registered or of some person holding a power of attorney for that purpose from the registered owner of the stock. 
• Consequently, if the shares are not represented by the certificate (such as when the certificate has not yet been issued or where for some reason it is not in the possession of the stockholder), transfer can be made by means of a deed of assignment but the same must be duly recorded in the books of the corporation. 
• However, as required in Vicente C. Ponce v. Alsons Cement Corporation, the registered owner must execute a special power of attorney authorizing the transferee to demand the transfer in the stock and transfer books. 
• It is believed however that this authority may be included in the deed of assignment or document of transfer itself.
• It is true that there are cases where there is strict application of the requirements for transfer enumerated above. 
• It is believed however that this rule should not be applied with "pedantic rigor." 
• There have been exceptional cases decided by the Supreme Court where it did not require compliance with all the requisites for transfer of shares. 
• For instance, in one case, the Court ruled that there was no necessity to indorse the certificate because all the acts required for the transferee to exercise its rights over the acquired shares were attendant and even the corporation was protected from other parties considering that said transfer was earlier registered in the stock and transfer books. 
• In another case, delivery was not considered essential where it appears that the persons who were sought to be held as stockholders are officers of the corporation and have custody of the stock book.
• In still another case, the Deed of Transfer of shares was held to be sufficient basis to compel the corporation to record the transfer in the stock and transfer book. 
• In this connection, it was explained in Lao v. Lao, that absent a written document, the alleged transferee must prove, at the very least, possession of the certificates of shares in the name of the alleged seller. 
• To be recognized as transferee, the latter must prove possession; he must prove the due delivery of the certificates of shares of the seller to him. 
• If the alleged transferee is in possession of the certificate, the burden is on the corporation to prove that the said transferee is not a shareholder. 
• In a more recent case, the Supreme Court clarified that "the ambiguity of the alleged transferee's deed of undertaking with endorsement led the Court in Ponce to rule that mandamus would have issued had the registered owner himself requested the registration of the transfer, or had the person requesting the  registration secured a special power of attorney from the registered owner."
• Thus, if the right of the bona fide transferee is clear and well-supported by evidence, then mandamus can be resorted to compel the:
1. registration of the transfer and 
2. issuance of new certificates. 
•  In Andaya v. Rural Bank of Cabadbaran, Inc., the submitted documents did not merely consist of an endorsement. 
• The transferee was able to establish that he was a bona fide transferee by presenting the notarized Deed of Sale or Assignment, the Documentary Stamp Tax Declaration/Return, Capital Gains Tax Return, and the duly endorsed stock certificates. 
• The transferee even submitted a letter that clearly indicated that the registered owner herself had requested the registration of the transfer of shares of stock. 
• Hence, the transferee was able to successfully compel the registration of the transfer and the issuance of new certificates. 
• Even the SEC is consistent with its view that the execution of a Deed of Assignment is in order if no stock certificate has been issued or where the same is not in the possession of the transferor.
• In another case, the Supreme Court ruled that the petitioners were able to establish that they are shareholders of the corporation although they were not able to produce stock certificates and although there is no entry or record in the Stock and Transfer Book (STB) showing the petitioners to be the shareholders of the corporation. 
• The Court declared the petitioners as stockholders of the respondent corporation and ruled that the shareholdings can be established through other evidentiary means. In addition, the Supreme Court ruled that the non-recording of the transfer is not a valid justification for the refusal to order the production of the STB under the Section 1, Rule 27 of the Rules of Court provisions on discovery and production of documents.

3. Registration.

• The law requires registration of the transfer in the books of the corporation in order to be valid as to third persons and the corporation itself. 
• It is upon registration in the books of the corporation that the transferee may exercise all his rights as a stockholder. 
• Registration means recording of the transfer in the Stock and Transfer Book by the Corporate Secretary. 
• "By the import of Section 63 of the Corporation Code (now Section 62 of the RCCP), the stock and transfer book would be the main reference book in ascertaining a person's entitlement to the rights of a stockholder. Consequently, without the registration of the transfer, the alleged transferee could not be recognized as a stockholder who is entitled to be given a stock certificate."

a. Right of Registered Owner. 

• The rights of a registered shareholder are entitled to respect. 
• It is presumed that the registered shareholder is still the owner of the shares. 
• A person who claims ownership over the shares of stock must show that the same were transferred to him by proving that all the requirements for effective transfer of shares were followed.
• Thus, the registered owner of the share has to right to receive notice and attend meetings of stockholders.
• The fact that other persons are disputing the ownership of the shareholder is of no moment and an alleged unrecorded transfer to third persons will be deemed non-existent as far as the corporation is concerned.

b. Surrender of the Certificate. 

• It was pointed out earlier that delivery of the stock certificates to the transferee is what is necessary for the transfer of ownership. 
• It should also be stressed that delivery or surrender of the stock certificates to the corporation (through the Corporate Secretary) is necessary in order that the transferee can secure new stock certificates in his name. 
• "The surrender of the original certificate of stock is necessary before the issuance of a new one so that the old certificate may be cancelled. A corporation is not bound and cannot be required to issue a new certificate unless the original certificate is produced and surrendered. Surrender and cancellation of the old certificates serve to protect not only the corporation but the legitimate shareholder and the public as well, as it ensures that there is only one document covering a particular share of stock." 

c. Rationale of Registration Requirement. 

• In addition, registration serves important functions, as follows:

1. to enable the transferee to exercise all the rights of a shareholder;
2. to afford to the corporation an opportunity to object or refuse its consent to the transfer in case it has any claim against the stock sought to be transferred or for any other valid reasons;
3. it 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 — to enable the corporation to know at all times who its actual stockholders are, because mutual rights and obligations exist between the corporation and its stockholders; and 
4. to avoid fictitious transfers.

d. Third Persons Not Affected. 

• The unregistered transfer does not affect third persons. 
• For instance, an attachment lien prevails over a prior unregistered stock transfer.
• Hence, in one case, the shares were attached to answer for the obligation of the registered owner. 
• An alleged prior buyer of the shares filed a third party claim over the attached shares.
• The Court denied the third party claim because the alleged sale of the shares in favor of the third party claimant was not recorded in the books of the corporation; the transfer, not having been recorded in the corporate books in accordance with law, is not valid or binding as to the corporation or as to third persons.

3.01. Registration of Transfers Only. 

• What should be registered in the Stock and Transfer Book are transfers.
• Transfer means any act by which property of a person is vested in another and "transfer of shares" implies any means whereby one may be divested of and another acquire ownership of stock. 
• Consequently, registration in the stock and transfer book is not necessary if the conveyance is by way of chattel mortgage. 
• However, there must be due registration with the Register of Deeds.
• Inasmuch as a chattel mortgage is not a complete and absolute alienation of the dominion and ownership of the shares, its entry and notation upon the books of the corporation is not a necessary requisite to its validity. 
• Registration in the stock and transfer book is also not necessary for the creation and perfection of security interest under Republic Act No. 11057 otherwise known as the Personal Property Security Act.
• Similarly, registration in the books of the corporation of attachment of shares of stock is also not necessary for the validity thereof. 
• The same is not a transfer within the contemplation of the RCCP.

4. Unpaid Claim. 

• Section 62 provides that "no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation." 
• The term "unpaid claim" refers to any unpaid claim arising from unpaid subscription and not to any indebtedness which a subscriber may owe the corporation arising from any other transactions.

5. Transfer of Subscription. 

• While no transfer of shares shall be recorded in the books of the corporation until full payment of the subscription price, there is no prohibition for the transfer of the subscription agreement itself. 
• Subscription agreements can be assigned to third persons. 
• The Supreme Court ruled that the assignment of the subscription agreements is a form of novation by substitution of a new debtor and which requires the consent of or notice to the creditor. 
• Thus, the change of debtor takes place when a subscriber assigns the shares under Subscription Agreement to another person (assignee) so that the latter became obliged to settle the unpaid balance on the subscription. 
• The assignee shall be entitled to the issuance of shares after full payment of the subscription price.
• In Interport Resources Corp. v. Securities Specialists, Inc., the corporation was duly notified of the assignment when the assignee of the subscription tendered its payment for the unpaid balance. 
• Hence, the corporation could not anymore refuse to recognize the transfer of the subscription that the transferee sufficiently established by documentary evidence. 
• It was also held that the corporation cannot claim that the assignee waived its rights over the shares due to its failure to register the assignment in the books of the corporation and that the assignee was estopped from claiming the assigned shares, inasmuch as the assignor had already transferred the shares to the assignee. 
• The assignor is no longer entitled to the issuance of the shares because the assignee became the obligee by virtue of the novation.

6. Transfer Through Other Modes. 

• Upon the death of a shareholder, the heirs do not automatically become stockholders of the corporation and acquire the rights and privileges of the deceased as shareholders of the corporation. 
• The stocks must be distributed first to the heirs in estate proceedings, and the transfer of the stocks must be recorded in the books of the corporation. 
• The transfer by succession shall not be recognized until the transfer is recorded in the books of the corporation.
• During the interim period from the time of the stockholders' death, the heirs stand as the equitable owners of the stocks and the executor or administrator duly appointed by the court is vested with the legal title to the stocks. 
• Until a settlement and division of the estate is effected, the administrator or executor holds the stocks of the decedent. 
• Consequently, during such time, it is the administrator or executor who is entitled to exercise the rights of the deceased as stockholder . 
• Simply stated, the transfer of title by means of succession, though effective and valid between the parties involved (i.e., between the decedent's estate and her heirs), does not bind the corporation and third parties. 
• The transfer must be registered in the books of the corporation to make the transferee-heir a stockholder entitled to recognition as such both by the corporation and by third parties.
• The Supreme Court noted in Reyes v. RTC that in Abejo v. Dela Cruz and TCL Sales Corporation v. Court of Appeals, the Court did not require the registration of the transfer before considering the transferee a stockholder of the corporation (in effect upholding the existence of an intra-corporate relation between the parties and bringing the case within the jurisdiction of the SEC as an intra-corporate controversy). 
• The Court noted a marked difference between the Abejo and TCL Sales Corporation cases and Reyes v. RTC. In Abejo and TCL Sales, the transferees held definite and uncontested titles to a specific number of shares of the corporation; after the transferee had established prima facie ownership over the shares of stocks in question, registration became a mere formality in confirming their status as stockholders.
• In Reyes v. RTC, each of the subject heirs holds only an undivided interest in the shares. Such interest, at that point, was still inchoate and subject to the outcome of a settlement proceeding; the right of the heirs to specific, distributive shares of inheritance will not be determined until all the debts of the estate of the decedent are paid. In short, the heirs are only entitled to what remains after payment of the decedent's debts. 
• Consequently, an heir of the deceased stockholder has no right to inspect the books of the corporation until the transfer to the heirs is recorded in the books of the corporation
• Without registration in the books, the heir is also not entitled to the right to file a derivative action.
• Note that under Section 54 of the RCCP (previously Section 55 of the Corporation Code), executors and administrators duly appointed by the court may attend and vote in behalf of the stockholders or members without need of any written proxy.

7. Execution Sale. 

• A third party buyer of shares that were sold in an execution sale under Rule 39 of the Rules of Civil Procedure is entitled to the registration of the transfer in the books of the corporation. 
• The pendency of the case between the judgment debtor and judgment creditor is not a bar to such registration.
• However, the sale is without prejudice to the proceedings to determine the liability of the parties against each other. 

8. Regulation of Transfer. 

• Shares of corporate stock, being regarded as property, may be disposed of by the owner as he sees fit unless:
• the corporation is dissolved, or 
• the right to do so is properly restricted or the owner's privilege is hampered by his actions.
• Section 62 (previously Section 63 of the Corporation Code) "contemplates no restriction as to whom they may be transferred or sold. As owner of personal property, a shareholder is at liberty to dispose of them in favor of whomsoever he pleases, without any other limitation in this respect, than the general provisions of law."
• The corporation may regulate the transfer of its stocks by providing certain formalities and procedure in the By-Laws. 
• However, the authority granted to a corporation to regulate the transfer of its stock does not empower it to restrict the right of a stockholder to transfer his shares, but merely authorizes the adoption of regulations as to the formalities and procedure to be followed in effecting transfer.
• Any restriction on right to transfer must be construed strictly. 
• For instance, the Corporation may not put a stamp on the certificates that the same are non-transferable.
• The stamp constitutes unreasonable limitation on the right of ownership and is in restraint of trade.
•  The restriction may be embodied in a separate agreement between the parties.
• For instance, the transferor and the transferee of the share may stipulate a right of first refusal in favor of the transferor. 
• However, the private agreement is not binding on a subsequent transferee who has no knowledge of the right of first refusal. 

9. Remedies.

• The right of a transferee or assignee to have the stocks transferred to his name is an inherent right flowing from his ownership of the stocks.
• Mandamus will lie against the corporate officers who unduly bar the registration of the transfer.
• If the transfer in the books is not duly made upon request, he has the remedy to compel it to be made.
• The Supreme Court explained: 
• "The registration of a transfer of shares of stock is a ministerial duty on the part of the corporation. Aggrieved parties may then resort to the remedy of mandamus to compel corporations that wrongfully or unjustifiably refuse to record the transfer or to issue new certificates of stock. This remedy is available even upon the instance of a bona fide transferee who is able to establish a clear legal right to the registration of the transfer. This legal right inherently flows from the transferee's established ownership of the stocks. Consequently, transferees of shares of stock are real parties in interest having a cause of action for mandamus to compel the registration of the transfer and the corresponding issuance of stock certificates."
• Mandamus will not lie against the corporation where the shares of stock in question are not indorsed by the registered owner who is resisting registration thereof in the Stock and Transfer Book.
• It is the corporate secretary's obligation to register a valid transfer of stocks and if the said corporate secretary refuses to comply, the transferor-shareholder may rightfully bring suit to compel the performance. 
• The transferee, even if he is a corporate officer, cannot take the law in his own hands by making the entries himself in the stock and transfer book instead of availing of the proper remedy.
• In some cases, the transferee is given the right to rescind the transfer of shares if the transferor failed to comply with his reciprocal obligations. 
• However, rescission will not be permitted if there is merely slight or casual breach.
• The transfer may also be annulled on the ground that fraud was exerted in securing the consent of the transferee provided that fraud is sufficiently established. 
• Rescission may also be available depending on the circumstances if the transferee does not want to continue with the sale. 
• Thus, rescission may be available if the transferor failed to deliver the stock certificates within a reasonable time from the point the shares should have been delivered. 
• It is not correct to say that a sale had already been consummated even if the transferee enjoyed certain rights as a shareholder. 
• "The enjoyment of these rights cannot suffice where the law, by its express terms, requires a specific form to transfer ownership."
• If there is no indorsement in favor of the transferee, the transferee may file an action to compel the transferor to make such indorsement. 
• However, the same cannot be considered as an intra-corporate controversy because the transferee is not yet a shareholder.

9.01. Prescription. 

• Considering that the law does not prescribe a period within which the registration of the transfer of shares should be effected, the action to enforce the right does not accrue until there has been a demand and a refusal concerning the transfer. 
• Hence, the action can be filed even 24 years after the transfer.

10. Tax.

• The Documentary Stamp Tax (DST) and the applicable capital gains tax should be paid before the transfer of share is registered and before the issuance of a new certificate. 
• The corporate secretary must require the submission of the Certificate of Authority to Register (CAR) issued by the Bureau of Internal Revenue before transfer in the books of the corporation is made.
• Under Section 175 of the Tax Code, DST is imposed on the original issue of shares of stock. 
• The DST, as an excise tax, is levied upon the privilege, the opportunity and the facility of issuing shares of stock. 
• In Commissioner of Internal Revenue v. Construction Resources of Asia, Inc. the Supreme Court explained that the DST attaches upon acceptance of the stockholder's subscription in the corporation's capital stock regardless of actual or constructive delivery of the certificates of stock. 
• In Philippine Consolidated Coconut, Inc. v. Collector of Internal Revenue, the Court held that ordinarily, when a corporation issues a certificate of stock (representing the ownership of stocks in the corporation to fully paid subscription) the certificate of stock can be utilized for the exercise of the attributes of ownership over the stocks mentioned on its face. 
• The stocks can be alienated; the dividends or fruits derived therefrom can be enjoyed, and they can be conveyed, pledged or encumbered. 
• The certificate as issued by the corporation, irrespective of whether or not it is in the actual or constructive possession of the stockholder, is considered issued because it is with value and hence the DST must be paid as imposed by the National Internal Revenue Code, as amended. 
•  As regards those certificates of stocks temporarily subject to suspensive conditions they shall be liable for said tax only when released from said conditions, for then and only then shall they truly acquire any practical value for their owners.

11. Right of First Refusal.

• The Articles of Incorporation or By-laws may provide a right of first refusal to stockholders as a limitation on transfer. 
• For example, the Articles of Incorporation may provide that any stockholder who intends to sell his share must first offer the same to the other stockholders who are given a period of 15 days to purchase the share.
• The right of first refusal may also be based purely on contract.

PROBLEMS: 

Q: "A," stockholder of "X" Corporation, assigns his shares of stock to "B" for a valuable consideration. The certificate of stock was thereupon delivered to "B." A few days later, "A" died. The heirs of "N' in a Deed of Extrajudicial Partition adjudicated his shares of stock to his son "C." In the meantime, "X" Corporation declared cash dividends and sent the corresponding notice to "A's" address, "A," being the registered owner of the shares of stocks in the books of the corporation. "C" received the notice and by virtue of the aforestated Deed of Partition claimed payment of the dividend. "B" likewise claimed payment, asserting ownership of the shares by virtue of the assignment made by "A." Who has the better right? 

 A: "C" has the better right. A transfer of shares is not binding on the corporation if the same is not registered in the books of the corporation. Thus, the transfer must first be registered in the name of the transferee in the books of the corporation before he can maintain an action for dividends. 

However, as between "C" and "B," the transfer is already valid because the transfer is binding on the parties and their successors in interest. Thus, "B" can file an action against "C" to recover the dividends. (1981 Bar) 

Q: Mr. Cruz purchased from Mr. Guzman shares of stock of a mining corporation, which shares were covered by several certificates indorsed in blank by Mr. Virgilio Malic in whose name the same was registered in the books of the corporation. It was later discovered that the said shares have not been sold or otherwise disposed of by Mr. Virgilio Malic, but had been stolen from where they were kept. Who is entitled to said shares, Mr. Cruz or Mr. Malic? Reason.

Mr. Malic is entitled to the shares. The transfer to Mr. Cruz is not valid because it was not sanctioned by Mr. Malic. Transfer by Mr. Guzman of the shares to Mr. Cruz confers no title because the former has no title to the shares. In addition, the Corporation Code, now the RCCP, provides that no transfer of the shares of stock shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation. The transfer was not registered in the name of Mr. Cruz; it follows that the transfer allegedly effected by Mr. Guzman to Mr. Cruz, is not valid even against the corporation.  (1982 Bar)

Q: Ricci has in her name 1,000 shares of the capital stock of CORPO Corporation as evidenced by a stock certificate. Eddy delivered the stock certificate to Erica, who now claims to be the real owner of the shares, having paid for Ricci's subscription. CORPO Corporation refused to recognize and register Erica's ownership. Is the refusal justified? Explain. 

The refusal of CORPO to recognize and register Erica's ownership is justified. For a transfer to be valid and binding on the corporation the share must be indorsed by the owner or his agent and the transfer must be recorded in the books of the corporation. The stock certificate for the 1,000 shares in question is. in the name of Ricci and it does not appear that the same was duly endorsed by Ricci at the time it was delivered to Erica. (1996 Bar) 

Q: "A" is the registered owner of Stock Certificate No. 000011. He entrusted the possession of said certificate to his best friend "B" who borrowed the said endorsed certificate to support B's application for passport (or for a purpose other than transfer). But "B'' sold the certificate to "X," a bona fide purchaser who relied on the endorsed certificates and believed him to be the owner thereof. 

a) Can "A" claim the shares of stocks from "X"? Explain. 

a. No, A may not claim the shares from "X". A estopped from questioning the transfer. "A" placed "B" in such a position that it appeared to third parties that he ("B") is the owner of the shares. The certificate of stock covering said shares was duly endorsed by "A" and entrusted by him to "B." 

b) Would your answer be the same if "A" lost the stock certificate in question or if it was stolen from him? 

b. No, the answer would not be the same. Article 559 of the New Civil Code provides that one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same. In the present case, if the certificate of stock was lost or stolen from "A," "A" has a right to claim the certificate of stock from the thief, or the latter's transferee, who has no right or title to the same. (2001 Bar)

Q: On October 20, 1994, the Board of Directors of MSC, Inc., adopted a resolution authorizing the sale of 19 unissued shares at a floor price of P400,000.00 and P450,000.00 per share for Class A and B, respectively. 

On July 7, 1995, Mr. H expressed his interest to buy a share and requested that his name be included in the waiting list. In November 1995, M Corporation likewise expressed interest in acquiring a share of MSC and on Class "A" was acquired for Pl,800,000.00 through Urban Bank. The certificate was actually issued only on January 5, 1996. 

On December 15, 1995, the Deed of Absolute Sale was executed by MSC and M Corp. for such purpose. 

On December 27, 1995, M Corporation sent a letter to MSC giving notice of its offer to resell the share and for MSC to exercise its pre-emptive right under the By-Laws. It appears that while the sale between MSC and M Corp was still under negotiations, there were negotiations between M Corp. and Mr. H for the purchase by the latter of a share.

On November 24, 1995, Mr. H paid M Corp. Pl,400,000.00. Another payment of Pl,400,000.00 was made by Mr. H to M Corp. on December 27, 1995, to complete the purchase price of P2,800,000.00. 

On February 7, 1996, MSC was advised of the sale by M Corp. to Mr. H. MSC thereafter filed an action for damages alleging that M Corp. should be made to pay the sum of Pl,000,000.00 to MSC, representing the amount MSC had been allegedly defrauded, together with interest and damages. Will the action prosper? 

 No the action will not prosper. Undeniably, on December 27, 1995, when M Corporation offered for sale one Class "A" share of stock to MSC for the price of P2,800,000.00 for the latter to exercise its pre-emptive right it legally had the right to do so since it was already an owner of a Class "A" share by virtue of its payment on November 28, 1995, and the Deed of Absolute Share dated December 15, 1995, notwithstanding the fact that the stock certificate was issued only on January 5, 1996. 

A 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 equivalent to ownership under the law. 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.

M Corp. properly complied with the requirement of the By-Laws on MSC's pre-emptive rights. MSC failed to repurchase the Class "A" share from M Corp. Neither can MSC argue that M Corp. was not yet a registered owner of the share of stock when the latter offered it for resale, in order to void the transfer from M Corp. to Mr. H. The corporation's obligation to register is ministerial upon the buyer's acquisition of ownership of the share of stock. The corporation, either by its board, its By-Laws, or the act of its officers, cannot create restrictions in stock transfers. (Makati Sports Club, Inc. v. Cecile H. Cheng, et al., G.R. No. 178523, June 16, 2010)