SC reverses own ruling on what defines a stockholder

Being listed in a corporation’s General Information Sheet (GIS) is not enough to prove that an individual is a stockholder, the Supreme Court said in a recent ruling that reversed its earlier stand after a motion for reconsideration.

It clarified that the stock and transfer book is the primary and official record of a company’s stockholders.

In a decision promulgated on April 21 but only made public on Thursday, the high court’s First Division ruled that, despite being listed in the GIS of LC Lopez and Conqueror submitted to the Securities and Exchange Commission, Ma. Christina Patricia Lopez and John Rusty Lito Lopez are not stockholders of the two companies.

This is because their names do not appear in the stock and transfer books of either corporation.

“It is established in jurisprudence that the mere inclusion as shareholder in the GIS of a corporation is by itself insufficient proof that such person is a shareholder. Between the stock and transfer book and the GIS, the former is controlling,” the high tribunal said in the ruling penned by Associate Justice Ramon Paul Hernando.

Proxies

The case stemmed from special stockholders’ meetings held by LC Lopez and Conqueror to elect new board members. Christina and John Rusty sent proxies to participate, but were rejected by the companies stating that their principals were not registered stockholders. The meetings proceeded, and new directors were elected.

The two challenged the elections before the Marikina City Regional Trial Court (RTC) and argued that their exclusion invalidated the election due to a lack of quorum.

The RTC initially found that both petitioners were stockholders and directors of LC Lopez and Conqueror since their names were in the GIS of the corporations despite not being listed in the companies’ stock and transfer books.

The Court of Appeals (CA), however, overturned the trial court’s decision, saying that the two were not stockholders because their names did not appear in the stock and transfer book of either corporation, and they did not show any sufficient proof of ownership of their shares.

In a 2022 decision, the high court set aside the CA decision, ruling that the GIS and witness testimonies were sufficient evidence.

But the high court reexamined the case after a motion for reconsideration was filed and reversed its earlier decision.

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Sufficient proof

In granting the motion, the high court clarified that the stock and transfer book is the primary and official record of a corporation’s stockholders.

It further noted that a person must also present a stock certification issued in their name to prove ownership of shares. It cited Section 62 of the Revised Corporation Code which states that a transfer of shares is not valid, except between the parties, until it is properly recorded in the company’s books.

In this case, the Court said, Christina and John Rusty failed to present enough proof to challenge the records in the stock and transfer books. Therefore, they are not stockholders of record, and their exclusion from the meetings did not affect the quorum or invalidate the board elections.

In his dissenting opinion, Associate Justice Ricardo Rosario agreed that stock certificates and stock and transfer books have more weight than the GIS.

He, however, emphasized that these documents were neither conclusive nor an absolute proof of stock ownership.