Lao vs. Lao

Mere inclusion of a person's name in a corporation's General Information Sheet filed with the Securities and Exchange Commission is insufficient proof of stock ownership; such claim must be supported by evidence of valid transfer (endorsement, delivery, and registration in the Stock and Transfer Book) or possession of stock certificates, and the corporate books prevail over the GIS in determining stockholder status.

The case involves an intra-corporate dispute among members of the Lao family regarding the ownership of shares in Pacific Foundry Shop Corporation (PFSC), a domestic corporation. Following the enactment of Republic Act No. 8799 (the Securities Regulation Code), jurisdiction over intra-corporate disputes was transferred from the Securities and Exchange Commission to the Regional Trial Courts, leading to the consolidation of this case with other related disputes before the RTC of Cebu City.

• Petitioners David C. Lao and Jose C. Lao claimed they were stockholders of Pacific Foundry Shop Corporation (PFSC), with David alleging he acquired 446 shares from his father, Lao Pong Bao (who purchased them from Hipolito Lao), and Jose alleging he acquired 333 shares from respondent Dionisio C. Lao.
• Petitioners relied on General Information Sheets (GIS) filed with the SEC from 1987 to 1998, which listed them as stockholders and directors, as well as minutes of stockholders' and board meetings showing their participation as officers.
• Respondent Dionisio C. Lao, president of PFSC, denied the claims, alleging the inclusion of petitioners' names in the GIS was inadvertent and done merely to comply with reportorial requirements, and that petitioners did not acquire shares through any recognized mode (subscription, purchase, or transfer).
• Respondent possessed the stock certificates for the disputed shares, which were properly endorsed to him by Hipolito Lao and registered in the corporation's Stock and Transfer Book, whereas petitioners had no stock certificates in their names.
• The parties agreed to submit the case for resolution based on the evidence on record without presenting testimonial evidence.

• Petitioners argued that Justice Magpale's voluntary inhibition was improper because there was no "extrinsic evidence of bias, bad faith, malice, or corrupt purpose" as required in Webb v. People, and constituted forum shopping under Section 5, Rule 7 of the Rules of Court.
• They contended that determination of share ownership should not be based solely on the Stock and Transfer Book but could be based on other evidence, citing Tan v. Securities and Exchange Commission.
• They asserted that the GIS filed with the SEC from 1987-1998, the sworn statements of the former corporate secretary, and the minutes of meetings constituted sufficient proof of their stock ownership.
• They claimed respondent was estopped from denying their stockholder status due to his admissions and representations in the GIS where he consistently named them as stockholders and officers of the corporation.

• Respondent argued that voluntary inhibition is within the sound discretion of a judge under Section 1, Rule 137 of the Rules of Court, and that Justice Magpale properly exercised this discretion to free the court from any suspicion of bias.
• He maintained that petitioners failed to prove valid transfer of shares as required under Section 63 of the Corporation Code, which requires endorsement, delivery, and registration in the Stock and Transfer Book.
• He asserted that the GIS is not conclusive proof of stock ownership and must be correlated with the corporate books, which showed he was the registered owner of the disputed shares.
• He argued that petitioners had no stock certificates in their names and failed to present any deed of assignment or written document evidencing the alleged transfers from the original shareholders.

• Procedural Issues:
  • Whether the voluntary inhibition of Justice Arsenio J. Magpale from resolving the motion for reconsideration was proper despite the absence of extrinsic evidence of bias, bad faith, malice, or corrupt purpose.
  • Whether such voluntary inhibition constituted forum shopping.
• Substantive Issues:
  • Whether petitioners proved they are stockholders of PFSC, specifically: (1) whether determination of share ownership must be based solely on the Stock and Transfer Book or if other evidence may be considered; (2) whether the GIS and related documents constitute sufficient proof of stock ownership; and (3) whether respondent is estopped from denying petitioners' stockholder status based on the GIS representations.

• Procedural:
  • The Supreme Court held that voluntary inhibition is within the sound discretion of a judge under Section 1, Rule 137 of the Rules of Court, which allows a judge to disqualify himself for "just or valid reasons other than those mentioned above."
  • The Court found that Justice Magpale properly exercised this discretion to free the entire court from the slightest suspicion of bias and prejudice, and that petitioners could not use this voluntary inhibition to nullify the subsequent Amended Decision or assume that Justice Magpale would have ruled in their favor.
• Substantive:
  • The Court denied the petition and affirmed the CA's Amended Decision, ruling that mere inclusion in the GIS is insufficient proof of stock ownership; as between the GIS and the corporate books, the latter is controlling.
  • The Court held that petitioners failed to prove valid transfer under Section 63 of the Corporation Code, as they presented no evidence of endorsement, delivery, or registration in the Stock and Transfer Book, nor did they possess the stock certificates.
  • The Court ruled that a stock certificate is prima facie evidence of ownership, which respondent possessed and petitioners did not, and that the burden of proof was on petitioners to establish their stockholder status, which they failed to discharge.
  • The Court rejected the estoppel argument, noting that "practice, no matter how long continued, cannot give rise to any vested right," and that respondent had proven his ownership through possession of properly endorsed certificates registered in the corporate books.

• Voluntary Inhibition of Judges — Under Section 1, Rule 137 of the Rules of Court, a judge may, in the exercise of sound discretion, disqualify himself from sitting in a case for just or valid reasons other than those specifically enumerated, such as to free the court from any suspicion of bias or prejudice.
• Transfer of Shares under Section 63 of the Corporation Code — Shares of stock may be transferred by delivery of the certificate endorsed by the owner, but no transfer shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation to show the names of the parties, date of transfer, certificate numbers, and shares transferred.
• General Information Sheet as Evidence of Stock Ownership — Mere inclusion in the GIS filed with the SEC does not conclusively prove stock ownership; the information must be correlated with the corporate books (Stock and Transfer Book), and the latter prevails over the former.
• Certificate of Stock as Prima Facie Evidence — A certificate of stock is the evidence of a holder's interest and status in a corporation and constitutes prima facie evidence that the holder is a shareholder.
• Burden of Proof in Stock Ownership Claims — The burden of proving stock ownership lies with the claimant, especially when the claimant does not possess stock certificates or appear in the corporate books as a registered shareholder.

• "The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC is insufficient proof that they are shareholders of the company."
• "As between the General Information Sheet and the corporate books, it is the latter that is controlling."
• "A certificate of stock is the evidence of a holder's interest and status in a corporation... It is prima facie evidence that the holder is a shareholder of a corporation."
• "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."
• "A judge may, in the exercise of his sound discretion, disqualify himself from sitting in a case, for just or valid reasons other than those mentioned above."

• Webb v. People of the Philippines, 276 SCRA 243 (1997) — Cited by petitioners regarding the requirement of extrinsic evidence of bias for disqualification; distinguished by the Court in the context of voluntary inhibition.
• Tan v. Securities and Exchange Commission, 206 SCRA 740 — Cited by petitioners regarding the determination of share ownership; the Court noted that while other evidence may be considered, petitioners still failed to prove ownership.
• Uson v. Diosomito, 61 Phil. 535 — Cited by the RTC regarding the necessity of registration of transfer for validity against the corporation.
• Price & Sulu Development Corp. v. Martin, 58 Phil. 707 — Cited by the RTC regarding the rights of unrecorded transferees and the requirement of registration to exercise stockholder rights.
• Rivera v. Florendo, G.R. No. L-57586, October 8, 1986 — Cited by the RTC regarding the status of unregistered transferees as outsiders.

• Section 63 of the Corporation Code of the Philippines — Governs the issuance of certificates of stock and the requirements for valid transfer of shares (endorsement, delivery, and recording in the corporate books).
• Section 1, Rule 137 of the Revised Rules of Court — Provides for the disqualification of judges and the grounds for voluntary inhibition.
• Section 5, Rule 7 of the Rules of Court — Cited by petitioners regarding forum shopping (though the Court found no forum shopping occurred).