Facts:
Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co. filed a derivative suit before the SEC against respondent spouses Apostol, who were officers in said corporation, to hold them liable for fraud and mismanagement in directing its affairs. Respondent spouses moved to dismiss on the ground that petitioner had no legal standing to bring the suit as she was merely a holder-in-trust of shares of JAKA Investments which continued to be the true stockholder of Mr. & Ms. Petitioner contends that she was a holder of proper stock certificates and that the transfer was recorded. She further contends that even in the absence of the actual certificate, mere recording will suffice for her to exercise all stockholder rights, including the right to file a derivative suit in the name of the corporation. The SEC Hearing Panel dismissed the suit. On appeal, the SEC En Banc found for petitioner. CA reversed the SEC En Banc decision.
Issue:
Whether or not petitioner is the true holder of stock certificates to be able institute a derivative suit.
Ruling: NO.
Sec 63 of the Corporation Code envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. First, the certificates must be signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock. Second, delivery of the certificate is an essential element of its issuance. Hence, there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company. Third, the par value, as to par value shares, or the full subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder.
The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However, this presumption may be rebutted. Aside from petitioner’s own admissions, several corporate documents disclose that the true party-in-interest is not petitioner but JAKA. It should be emphasized that JAKA executed, a deed of sale over 1,000 Mr. & Ms. shares in favor of respondent Eugenio D. Apostol. On the same day, respondent Apostol signed a declaration of trust stating that she was the registered owner of 1,000 Mr. & Ms. shares covered by a Certificate of Stock. And, there is nothing in the records which shows that JAKA had revoked the trust it reposed on respondent Eugenia D. Apostol. Neither was there any evidence that the principal had requested her to assign and transfer the shares of stock to petitioner. In fine, the records are unclear on how petitioner allegedly acquired the shares of stock of JAKA.
Thus, for a valid transfer of stocks, the requirements are as follows: (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. At most, in the instant case, petitioner has satisfied only the third requirement. Compliance with the first two requisites has not been clearly and sufficiently shown.
*The basis of a stockholder’s suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation.
The Student and The Law 