4. NATURE/FUNCTION OF STOCK CERTIFICATES
PROOF OF OWNERSHIP OF SHARES
Certificate of Stock
- a written acknowledgment by the corporation of the interest,
right, and participation of a person in the management, profits, and assets of
a corporation. It is a formal written evidence of the holder's ownership of
one or more shares and is a convenient instrument for the transfer of title
(Sec.63.)
Note: The possession of a certificate of stock is not essential to ownership
of stock because the right to stock may exist independently of the
certificate. The best evidence of the rights and status of a SH (although not
a condition precedent to the acquisition of such rights), and is convenient
for the purposes of transfer.
Tan vs. Securities and Exchange Commission
Same; Nature and function of certificate of stock.— A certificate
of stock is not necessary to render one a stockholder in a corporation.
Nevertheless, 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 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. (13 Am. Jur. 2d, 769)
Same; Same.—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 transferor’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.”
5.
Nautica Canning Corp. Yumul
Same; Same; 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.—We held in Ponce v. Alsons Cement Corp. 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. As
between the corporation on one hand, and its shareholders and third persons
on the other, the corporation looks only to its books for the purpose of
determining who its shareholders are. It is only when the transfer has been
recorded in the stock and transfer book that a corporation may rightfully
regard the transferee as one of its stockholders. From this time, the
consequent obligation on the part of the corporation to recognize such rights
as it is mandated by law to recognize arises. Hence, without such recording,
the transferee may not be regarded by the corporation as one among its
stockholders and the corporation may legally refuse the issuance of stock
certificates
Lao vs. Lao
Corporation Law; A certificate of stock is the evidence of a
holder’s interest and status in a corporation—it is prima facie evidence that
the holder is a shareholder of a corporation.— Petitioners insist that they are
shareholders of PFSC. They claim purchasing shares in PFSC. Petitioner
David Lao alleges that he acquired 446 shares in the corporation from his
father, Lao Pong Bao, which shares were previously purchased from a
certain Hipolito Lao. Petitioner Jose Lao, on the other hand, alleges that he
acquired 333 shares from respondent Dionisio Lao. Records, however,
disclose that petitioners have no certificates of shares in their name. A
certificate of stock is the evidence of a holder’s interest and status in a
corporation. It is a written instrument signed by the proper officer of a
corporation stating or acknowledging that the person named in the
document is the owner of a designated number of shares of its stock. It is
prima facie evidence that the holder is a shareholder of a corporation.
Same; As between the General Information Sheet and the
corporate books, it is the latter that is controlling.—Petitioners bank heavily
on the General Information Sheet submitted by PFSC to the SEC in which
they were named as shareholders of PFSC. They claim that respondent is
now estopped from contesting the General Information Sheet. While it may
be true that petitioners were named as shareholders in the General
Information Sheet submitted to the SEC, that document alone does not
conclusively prove that they are shareholders of PFSC. The information in
the document will still have to be correlated with the corporate books of
PFSC. As between the General Information Sheet and the corporate books,
it is the latter that is controlling.
Borgona vs. Abra Valley
Mercantile Law; Corporations; Stock Certificates; 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.—A stock
certificate is prima facie evidence that the holder is a shareholder of the
corporation, but the possession of the certificate is not the sole determining
factor of one’s stock ownership. A certificate of stock is merely: x x x the
paper representative or tangible evidence of the stock itself and of the
various interests therein. 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.
6. RESTRICTIONS ON TRANSFER OF SHARES
Fleischer vs. Botica Nolasco
CORPORATIONS; CORPORATE STOCK; RlGHT OF
CORPORATIONS TO IMPOSE A LIMITATION ON TRANSFERS OF
STOCK.—A stock corporation in adopting by-laws governing the transfer
of shares of stock should take into consideration the specific provisions of
the Corporation Law. The by-laws of corporations should be made to
harmonize with the provisions of the Corporation Law. By-laws must not be
inconsistent with the provisions of the Corporation Law. By-laws of a
corporation are valid if they are reasonable and calculated to carry into
effect the objects of the corporation provided they are not contradictory to
the general policy of the laws of the land. Under a statute authorizing by-
laws for the transfer of stock of a corporation, it can do no more than
prescribe a general mode of transfer on the corporate books and cannot
justify an unreasonable restriction upon the right to sell. The shares of stock
of a corporation are personal property and the holder thereof may transfer
the same without unreasonable restrictions.
ID; TRANSFER OF SHARES OF STOCK.—The power to enact
by-laws restraining the sale and transfer of stock must be found in the
governing statute or charter. Restrictions upon the traffic in stock must have
source in legislative enactments, as the corporation itself cannot create such
impediments. By-laws of a corporation are intended merely for the
protection of the corporation, and prescribe regulations and not restrictions;
they are always subject to the charter of the corporation. The corporation, in
the absence of such a power, cannot ordinarily inquire into or pass upon the
legality of the transaction by which its stock passes from one person to
another, nor can it question the consideration upon which a sale is based. A
by-law of a corporation cannot take away or abridge the substantial rights of
stockholders. Courts will carefully scrutinize any attempt on the part of a
corporation to impose restrictions or limitations upon the right of
stockholders to sell and assign their stock. Restrictions cannot be imposed
upon a stockholder by a by-law without statutory or charter authority. The
owner of corporate stock has the same uncontrollable right to sell or
alienate, which attaches to the ownership of any other species of property.
Thomson vs. CA
Corporation Law; 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.—The Manila Polo Club does not necessarily prohibit the transfer
of proprietary shares by its members. The Club only restricts members to
deserving applicants in accordance with its rules, when the amended
Articles of Incorporation states that: “no transfer shall be valid except
between the parties, and shall not be registered in the Membership book
unless made in accordance with these Articles and the By-Laws.” Thus, as
between parties herein, there is no question that a transfer is feasible.
Moreover, 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.
Rural Bank of Salinas vs. CA
Same; A corporation cannot create restrictions in stock transfer.—
A corporation, either by its board, its by-laws, or the act of its officers,
cannot create restrictions in stock transfers. Same; Same; The right of a
transferee/assignee to have stocks transferred to his name an inherent
right.—The right of a transferee/ assignee to have stocks transferred to his
name is an inherent right flowing from his ownership of the stocks.
Same; Same; Corporation’s obligation to register is ministerial.—
The corporation’s obligation to register is ministerial. “In transferring stock,
the secretary of a corporation acts in purely ministerial capacity, and does
not try to decide the question of ownership.” “The duty of the corporation to
transfer is a ministerial one and if it refuses to make such transaction
without good cause, it may be compelled to do so by mandamus.”
7. VALIDITY OF TRANSFERS/ REGISTRATION OF SHARES
For the valid transfer of stocks, there must be strict compliance with the
mode of transfer prescribed by law, which are:
a) there must be delivery of the stock certificate;
b) the certificate must be endorsed by the owner or his attorney-in-
fact or other persons legally authorized to make the transfer; and
c) to be valid against third parties, the transfer must be recorded in
the books of the corporation.
Registration Purpose of registration
a) enable the transferee to exercise all the rights of a stockholder
b) to inform the corporation of any change in share ownership so
that it can ascertain the:
 persons entitled to the rights
 subject to the liabilities of a SH
c) until registration is accomplished, the transfer, though valid
between the parties, cannot be effective against the corporation
Effect of lack of registration:
a) transferee cannot vote
b) transferee cannot be voted for
c) transferee cannot prevail over rights of a subsequent attaching
creditor
d) transferee not entitled to dividends
e) stockholder on record has the right to participate in meetings.
Note: No registration of transfer of unpaid shares if there is any unpaid
balance on the stockholder’s subscription there can be no stock certificate
on which indorsement can issue
 Free Tranferability of Shares
General Rule: Shares of stock so issued are personal property and may be
transferred
Exception: In close corporations - considering the special circumstances
attending a close corporation (e.g. formed by persons who know each other
well, thus they would want to choose the persons who will be allowed in
their group), it is justifiable and even imperative for its stockholders to
protect themselves from future conflicts by placing restrictions on the right
of each one of them to transfer his shares to an outsider
Validity of restrictions on Transfer of Shares (Section 98)
a. Restrictions on the right to transfer shares must appear in the
articles of incorporation and in the by-laws as well as in the
certificate of stock; otherwise, the same shall not be binding on any
purchaser thereof in good faith.
b. Restrictions shall not be more onerous than granting the existing
stockholders or the corporation the option to purchase the shares of
the transferring stockholder with such reasonable terms, conditions
or period stated therein. If upon the expiration of said period, the
existing stockholders or the corporation fails to exercise the option
to purchase, the transferring stockholder may sell his shares to any
third person.
Presumptions:
If the stock certificate CONSPICUOUSLY shows the restriction, the
purchaser or transferee is conclusively presumed to have notice of the
restriction, provided this appears in the AOI. He cannot prove that he acted
in good faith.
Where a conclusive presumption of notice arises, the corporation may, at its
option, refuse to register the transfer, unless
a. all the stockholders have consented to the transfer, or
b. the AOI have been properly amended to remove the
restriction.
c. If it appears in the certificate, but NOT CONSPICUOUSLY,
then although he may be presumed to have notice of the restriction,
he can prove the contrary.
Razon vs. IAC
Corporation Law; Transfer of stock certificates.—The law is clear
that in order for a transfer of stock certificate to be effective, the certificate
must be properly indorsed and that title to such certificate of stock is vested
in the transferee by the delivery of the duly indorsed certificate of stock.
(Section 35, Corporation Code) Since the certificate of stock covering the
questioned 1,500 shares of stock registered in the name of the late Juan
Chuidian was never indorsed to the petitioner, the inevitable conclusion is
that the questioned shares of stock belong to Chuidian. The petitioner’s
asseveration that he did not require an indorsement of the certificate of
stock in view of his intimate friendship with the late Juan Chuidian can not
overcome the failure to follow the procedure required by law or the proper
conduct of business even among friends. To reiterate, indorsement of the
certificate of stock is a mandatory requirement of law for an effective
transfer of a certificate of stock.
Rural Bank of Lipa
Corporation Law; The rule is that the delivery of the stock
certificate duly endorsed by the owner is the operative act of transfer of
shares from the lawful owner to the transferee.— Petitioners argue that by
virtue of the Deed of Assignment, private respondents had relinquished to
them any and all rights they may have had as stockholders of the Bank.
While it may be true that there was an assignment of private respondents’
shares to the petitioners, said assignment was not sufficient to effect the
transfer of shares since there was no endorsement of the certificates of stock
by the owners, their attorneys-in-fact or any other person legally authorized
to make the transfer. Moreover, petitioners admit that the assignment of
shares was not coupled with delivery, the absence of which is a fatal defect.
The rule is that the delivery of the stock certificate duly endorsed by the
owner is the operative act of transfer of shares from the lawful owner to the
transferee. Thus, title may be vested in the transferee only by delivery of the
duly indorsed certificate of stock.
Same; Requirements to Have a Valid Transfer of Stocks.—We
have uniformly held that for a valid transfer of stocks, there must be strict
compliance with the mode of transfer prescribed by law. The requirements
are: (a) There must be delivery of the stock certificate; (b) The certificate
must be endorsed by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and (c) To be valid against third
parties, the transfer must be recorded in the books of the corporation.
Torres vs. CA
Corporation Law; Corporate Secretary; It is the corporate
secretary’s duty and obligation to register valid transfers of stocks and if
said corporate officer refuses to comply, the transferorstockholder may
rightfully bring suit to compel performance.—It is precisely the brewing
family discord between Judge Torres and private respondents-his nephew
and nieces that should have placed Judge Torres on his guard. He should
have been more careful in ensuring that his actions (particularly the
assignment of qualifying shares to his nominees) comply with the
requirements of the law. Petitioners cannot use the flimsy excuse that it
would have been a vain attempt to force the incumbent corporate secretary
to register the aforestated assignments in the stock and transfer book
because the latter belonged to the opposite faction. It is the corporate
secretary’s duty and obligation to register valid transfers of stocks and if
said corporate officer refuses to comply, the transferor-stockholder may
rightfully bring suit to compel performance. In other words, there are
remedies within the law that petitioners could have availed of, instead of
taking the law in their own hands, as the cliché goes.
Ponce vs. Alsons Cement
Corporation Law; Corporation Code; Shares of Stock; Transfer of
Shares; Registration; Pursuant to the Corporation Code, 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.—The Corporation Code
states that: SEC. 63. Certificate of stock and transfer of shares.—The capital
stock of stock 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 by-laws. Shares of stock 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. No shares of stock against which the
corporation holds any unpaid claim shall be transferable in the books of the
corporation. Pursuant to the foregoing provision, 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. As between the corporation
on the one hand, and its shareholders and third persons on the other, the
corporation looks only to its books for the purpose of determining who its
shareholders are. It is only when the transfer has been recorded in the stock
and transfer book that a corporation may rightfully regard the transferee as
one of its stockholders. From this time, the consequent obligation on the
part of the corporation to recognize such rights as it is mandated by law to
recognize arises.