The Supreme Court ruled that merely being listed as a shareholder in a corporation’s General Information Sheet (GIS) is not sufficient proof of ownership. To be recognized as a shareholder, an individual must have their shares registered in the corporation’s stock and transfer book, possess a stock certificate, and demonstrate a valid transfer of shares.

From Paperwork to Proof: Unraveling Stock Ownership Disputes

This case, David C. Lao and Jose C. Lao v. Dionisio C. Lao, revolves around a dispute over stock ownership in Pacific Foundry Shop Corporation (PFSC). David and Jose Lao claimed they were shareholders and directors of PFSC, relying on the company’s General Information Sheet (GIS) filed with the Securities and Exchange Commission (SEC). They sought to be formally declared stockholders, to receive stock certificates, and to inspect corporate books. The respondent, Dionisio Lao, the president of PFSC, contested their claims, arguing that their inclusion in the GIS was inadvertent and that they never legally acquired shares through subscription, purchase, or transfer. The central legal question is whether the mere inclusion of someone as a shareholder in a corporation’s GIS is sufficient proof of stock ownership, overriding the absence of stock certificates and registration in the corporate books.

The Regional Trial Court (RTC) sided with Dionisio Lao, finding that David and Jose Lao did not appear to have acquired shares as subscribers or purchasers, nor did they possess stock certificates in their names. The Court of Appeals (CA) initially reversed this decision, giving weight to the GIS, but later reversed course and affirmed the RTC’s decision in its Amended Decision. The CA held that there was no evidence of a valid transfer of stocks to the petitioners.

The Supreme Court upheld the CA’s Amended Decision. The Court emphasized that a stock certificate serves as prima facie evidence of stock ownership. The Court also pointed out the importance of registration of the stock transfer. Furthermore, no documentation for the transfer could be produced, failing to demonstrate sale or purchase. Section 63 of the Corporation Code governs the transfer of shares.

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.

The Court found that Dionisio Lao had possession of Hipolito Lao’s stock certificates, properly endorsed to him, and that the transfer was registered in the corporate stock and transfer book. These actions supported that valid stock transfer occurred. David and Jose Lao failed to provide evidence of endorsement or stock certificate, further contributing to the dismissal.

Building on this principle, the Supreme Court clarified the evidentiary weight of the General Information Sheet. The Court declared that the mere inclusion of names in the GIS is not conclusive proof of stock ownership. Information needs to be correlated with corporate books. As between the GIS and the official corporate records, the latter holds precedence in determining shareholder status. The Court stated:

We agree with the trial court that mere inclusion in the General Information Sheets as stockholders and officers does not make one a stockholder of a corporation, for this may have come to pass by mistake, expediency or negligence. As professed by respondent-appellee, this was done merely to comply with the reportorial requirements with the SEC. This maybe against the law but “practice, no matter how long continued, cannot give rise to any vested right.”

The Supreme Court highlighted that the burden of proof rested on David and Jose Lao to demonstrate their shareholding. Since they did not have stock certificates and their names were absent from the corporate books, this burden became critical. The Supreme Court thus denied the petition. The final verdict affirmed the importance of proper documentation and registration in establishing shareholder rights.

FAQs

What was the key issue in this case?	The primary issue was whether being listed as a shareholder in a General Information Sheet (GIS) is sufficient proof of stock ownership without corresponding stock certificates and registration in the corporate books.
What did the Supreme Court rule?	The Supreme Court ruled that mere inclusion in the GIS is insufficient proof of stock ownership. Proper stock certificates, endorsement of shares, and registration in the stock and transfer book are all required.
What is a General Information Sheet (GIS)?	A General Information Sheet is a document that corporations are required to submit to the Securities and Exchange Commission (SEC), containing information about the corporation, its officers, directors, and shareholders.
What is the significance of a stock certificate?	A stock certificate is a written instrument acknowledging that a person is the owner of a designated number of shares of a corporation’s stock, serving as prima facie evidence of ownership.
Why is registration in the stock and transfer book important?	Registration in the stock and transfer book is crucial because it officially records the transfer of shares and allows the transferee to exercise the rights of a stockholder against the corporation.
What evidence did David and Jose Lao present to support their claim?	David and Jose Lao primarily relied on the General Information Sheet (GIS) submitted by PFSC to the SEC, where they were listed as shareholders.
What evidence did Dionisio Lao present?	Dionisio Lao presented evidence that he was in possession of Hipolito Lao’s stock certificates, that the certificates were properly endorsed to him, and that the transfer was duly registered in the stock and transfer book.
What is the burden of proof in cases like this?	In cases where individuals lack stock certificates or their names do not appear in the corporate books, they bear the burden of proving that they are shareholders.
What does ‘prima facie’ evidence mean?	Prima facie evidence refers to evidence that is sufficient to prove a fact unless rebutted by contrary evidence.

This ruling underscores the importance of properly documenting stock transfers and ensuring they are recorded in the corporation’s books. Failing to comply with these requirements can lead to disputes and jeopardize one’s claim to shareholder rights, irrespective of appearances in the corporation’s General Information Sheet.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: David C. Lao and Jose C. Lao v. Dionisio C. Lao, G.R. No. 170585, October 06, 2008