BITONG vs. CA G.R. No.

123553 July 13, 1998

FACTS: Alleging before the SEC that she had been the Treasurer and a Member of the Board of Directors of Mr. & Ms. from the time it was incorporated on 2 !ctober " #$ to "" April " % & and was the registered owner of "&''' shares of stoc( out of the )&'%% total outstanding shares& petitioner *ora Bitong complained of irregularities committed from " %+ to " %# b, Eugenia Apostol& -resident and Chairperson of the Board of Directors. -etitioner claimed that e.cept for the sale of the name Philippine Inquirer to Philippine Daily Inquirer all other transactions and agreements entered into b, Mr. & Ms. with -D/ were not supported b, an, bond and0or stoc(holders1 resolution. And& upon instructions of Eugenia Apostol& Mr. & Ms. made se2eral cash ad2ances to -D/ on 2arious occasions amounting to -+.2#$ million. !n some of these borrowings -D/ paid no interest whatsoe2er. Despite the fact that the ad2ances made b, Mr. & Ms. to -D/ were boo(ed as ad2ances to an affiliate& there e.isted no board or stoc(holders1 resolution& contract nor an, other document which could legall, authori3e the creation of and support to an affiliate. She further alleged that on 2 Ma, " %$ respondents Eugenia Apostol& 4eticia Magsanoc and Adoracion *u,da subscribed to -D/ shares of stoc( at -5'&'''.'' each or a total of -"5'&'''.''. The stoc( subscriptions were paid for b, Mr. & Ms. and initiall, treated& as recei2ables from officers and emplo,ees. But& no pa,ments were e2er recei2ed from respondents& Magsanoc and *u,da. -etitioner then filed a deri2ati2e suit before the SEC allegedl, for the benefit of pri2ate respondent Mr. & Ms. Publishing Co., Inc., against respondent spouses Eugenia Apostol and 6ose Apostol. 7owe2er& pri2ate respondents contended that petitioner& being merel, a holder8in8trust of 6A9A shares& onl, represented and continued to represent 6A9A in the board. -ri2ate respondents argued that petitioner was not the true part, to this case& the real part, being 6A9A which continued to be the true stoc(holder of Mr. & Ms. 7ence& petitioner did not ha2e the personalit, to initiate and prosecute the deri2ati2e suit which& conse:uentl,& must be dismissed. At the trial& petitioner contends that she became the registered and beneficial owner of # shares of stoc( of Mr. & Ms. out of the )&'%% total outstanding shares after she ac:uired them from 6A9A through a deed of sale e.ecuted on 25 6ul, " %+ and recorded in the Stoc( and Transfer Boo( of Mr. & Ms. under Certificate of Shares of Stoc( *o. ''%. She pointed out that Senator Enrile decided that 6A9A should completel, di2est itself of its holdings in Mr. & Ms. and this resulted in the sale to her of 6A9A1s interest and holdings in that publishing firm. -ri2ate respondents refuted the statement of petitioner that she was a stoc(holder of Mr. & Ms. since 25 6ul, " %+ as respondent Eugenia D. Apostol signed Certificate of Stoc( *o. ''% onl, on "# March " % & and not on 25 6ul, " %+. And& since the Stoc( and Transfer Boo( which petitioner presented in e2idence was not registered with the SEC& the entries therein including Certificate of Stoc( *o. ''% were fraudulent. !n + August " +& after trial on the merits& the SEC 7earing -anel dismissed the deri2ati2e suit filed b, petitioner. !n 25 August " + petitioner Bitong appealed to the SEC En Banc. The SEC En Banc re2ersed the decision of the 7earing -anel. Conse:uentl,& respondent Apostol spouses& Magsanoc& *u,da& and Mr. & Ms. filed a petition for re2iew before respondent CA& while respondent Edgardo Espiritu filed a petition for certiorari and prohibition also before respondent Court of Appeals. Said two petitions were consolidated. !n +" August " 5 CA rendered a decision re2ersing the SEC En Banc and held that petitioner was not the owner of an, share of stoc( in Mr. & Ms. and therefore not the real part,8in8interest to prosecute the complaint she had instituted against pri2ate respondents. ;or not being the real part,8in8interest& petitioner1s

complaint did not state a cause of action& a defense which was ne2er wai2ed. Motion for reconsideration was li(ewise denied. 7ence& this petition. ISSUE: <hether or not petitioner is a bona fide stoc(holder of Mr. & Ms. at the time of the transaction complained of which in2ests him with standing to institute a deri2ati2e action for the benefit of the corporation. RULING: Sec. $+ of the Corporation Code en2isions a formal certificate of stoc( which can be issued onl, upon compliance with certain re:uisites. First& the certificates must be signed b, the president or 2ice8president& countersigned b, the secretar, or assistant secretar,& and sealed with the seal of the corporation. A mere t,pewritten statement ad2ising a stoc(holder of the e.tent of his ownership in a corporation without :ualification and0or authentication cannot be considered as a formal certificate of stoc(. econd& deli2er, of the certificate is an essential element of its issuance. 7ence& there is no issuance of a stoc( certificate where it is ne2er detached from the stoc( boo(s although blan(s therein are properl, filled up if the person whose name is inserted therein has no control o2er the boo(s of the compan,. !hird& the par 2alue& as to par 2alue shares& or the full subscription as to no par 2alue shares& must first be full, paid. Fourth& the original certificate must be surrendered where the person re:uesting the issuance of a certificate is a transferee from a stoc(holder. The certificate of stoc( itself once issued is a continuing affirmation or representation that the stoc( described therein is 2alid and genuine and is at least pri"a facie e2idence that it was legall, issued in the absence of e2idence to the contrar,. 7owe2er& this presumption ma, be rebutted. Similarl,& boo(s and records of a corporation which include e2en the stoc( and transfer boo( are generall, admissible in e2idence in fa2or of or against the corporation and its members to pro2e the corporate acts& its financial status and other matters including one1s status as a stoc(holder. The, are ordinaril, the best e2idence of corporate acts and proceedings. 7owe2er& the boo(s and records of a corporation are not conclusi2e e2en against the corporation but are pri"a facie e2idence onl,. -arol e2idence ma, be admitted to suppl, omissions in the records& e.plain ambiguities& or show what transpired where no records were (ept& or in some cases where such records were contradicted. The effect of entries in the boo(s of the corporation which purport to be regular records of the proceedings of its board of directors or stoc(holders can be destro,ed b, testimon, of a more conclusi2e character than mere suspicion that there was an irregularit, in the manner in which the boo(s were (ept. These considerations are founded on the basic principle that stoc( issued without authorit, and in 2iolation of law is 2oid and confers no rights on the person to whom it is issued and sub=ects him to no liabilities. <here there is an inherent lac( of power in the corporation to issue the stoc(& neither the corporation nor the person to whom the stoc( is issued is estopped to :uestion its 2alidit, since an estopped cannot operate to create stoc( which under the law cannot ha2e e.istence. -etitioner in her repl, admitted that while respondent Eugenia D. Apostol signed the Certificate of Stoc( *o. ''% in petitioner1s name onl, in " % & it was issued b, the corporate secretar, in " %+ and that the other certificates co2ering shares in Mr. & Ms. had not ,et been signed b, respondent Eugenia D. Apostol at the time of the filing of the complaint with the SEC although the, were issued ,ears before. Based on this admission of petitioner& there is no truth to the statement written in Certificate of Stoc( *o. ''% that the same was issued and signed on 25 6ul, " %+ b, its dul, authori3ed officers specificall, the -resident and Corporate Secretar, because the actual date of signing thereof was "# March " % . >eril,& a formal certificate of stoc( could not be considered issued in contemplation of law unless signed b, the president or

2ice8president and countersigned b, the secretar, or assistant secretar,. /n this case& contrar, to petitioner1s submission& the Certificate of Stoc( *o. ''% was onl, legall, issued on "# March " % when it was actuall, signed b, the -resident of the corporation& and not before that date. <hile a certificate of stoc( is not necessar, to ma(e one a stoc(holder& e.g.& where he is an incorporator and listed as stoc(holder in the articles of incorporation although no certificate of stoc( has ,et been issued& it is supposed to ser2e as paper representati2e of the stoc( itself and of the owner1s interest therein. 7ence& when Certificate of Stoc( *o. ''% was admittedl, signed and issued onl, on "# March " % and not on 25 6ul, " %+& e2en as it indicates that petitioner owns # shares of stoc( of Mr. & Ms.& the certificate has no e2identiar, 2alue for the purpose of pro2ing that petitioner was a stoc(holder since " %+ up to " % . The basis of a stoc(holder1s suit is alwa,s one in e:uit,. 7owe2er& it cannot prosper without first compl,ing with the legal re:uisites for its institution. The most important of these is the bona fide ownership b, a stoc(holder of a stoc( in his own right at the time of the transaction complained of which in2ests him with standing to institute a deri2ati2e action for the benefit of the corporation. <7E?E;!?E& the petition is DE*/ED.