G.R. No. 74306, 16 March 1992
E. Razon, Inc. was organized by petitioner Enrique Razon in 1962. However, it began operations only in 1966 since the other incorporators withdrew from the said corporation. The petitioner then distributed the stocks previously placed in the names of the withdrawing nominal incorporators to some friends, among them the late Juan T. Chuidian to whom he gave 1,500 shares. The shares of stocks were registered in the name of Chuidian only as nominal stockholder and with the agreement that the said shares of stock were owned and held by the petitioner but Chuidian were given the option to buy the same. Chuidian delivered to petitioner the stock certificate in 1966, and since then petitioner had in his possession such certificate, until the time, he delivered it for deposit with PBCom under the parties’ joint custody pursuant to their agreement embodied in the trial court’s order.
Whether or not petitioner Razon is the rightful owner of the shares.
No. In the case of Embassy Farms, Inc. v. Court of Appeals:For an effective, transfer of shares of stock the mode and manner of transfer as prescribed by law must be followed. Under Section 3 of the Corporation Code, shares of stock may be transferred by delivery to the transferee of the certificate properly indorsed. Title may be vested in the transferee by the delivery of the duly indorsed certificate of stock. However, no transfer shall be valid, except as between the parties until the transfer is properly recorded in the books of the corporation (Sec. 63, Corporation Code of the Philippines; Section 35 of the Corporation Law)
In the instant case, there is no dispute that the questioned shares of stock of E. Razon, Inc. are in the name of the late Juan Chuidian in the books of the corporation. Moreover, the records show that during his lifetime Chuidian was elected member of the Board of Directors of the corporation which clearly shows that he was a stockholder of the corporation. (See Section 30, Corporation Code) From the point of view of the corporation, therefore, Chuidian was the owner of the 1,500 shares of stock. In such a case, the petitioner who claims ownership over the questioned shares of stock must show that the same were transferred to him by proving that all the requirements for the effective transfer of shares of stock.
The petitioner failed in both instances. The petitioner did not present any by-laws which could show that the 1,500 shares of stock were effectively transferred to him. In the absence of the corporation’s by-laws or rules governing effective transfer of shares of stock, the provisions of the Corporation Law are made applicable to the instant case.
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 cannot 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.
*Case Digest by Krishianne Louise C. Labiano, JD – 4, Andres Bonifacio College, SY 2019 – 2020