In a dispute over the transfer of shares, the Supreme Court clarified the obligations of corporations and their officers in registering stock transfers, emphasizing the ministerial nature of this duty under Section 63 of the Corporation Code. This decision underscores the protection afforded to innocent purchasers of shares traded on the stock market, ensuring that corporations cannot arbitrarily refuse to record legitimate transfers and issue new certificates.

Trading Controversial Shares: When Does a Corporation Have the Right to Refuse Stock Transfer?

The legal battle began when Pacific Basin Securities, Inc. (Pacific Basin) purchased shares of Oriental Petroleum and Minerals Corporation (OPMC) through the stock market. However, Equitable Banking Corporation (EBC), OPMC’s stock transfer agent, refused to record the transfer, citing issues with the previous owner, Piedras Petroleum. Pacific Basin then filed a petition for mandamus, seeking to compel OPMC and EBC to fulfill their alleged ministerial duty to register the stock transfer and issue corresponding certificates. This case raised critical questions about the extent of a corporation’s discretion in handling stock transfers, especially when the underlying shares are subject to disputes or government sequestration.

OPMC and EBC argued that the shares were initially ceded by Roberto S. Benedicto to the government in exchange for immunity, but a Temporary Restraining Order (TRO) had been issued against the compromise agreement, casting doubt on the government’s title. They further contended that even if the government had a valid title, the sale to Pacific Basin was void because Piedras Petroleum allegedly failed to comply with public bidding requirements for disposing of government-owned assets, per Proclamation No. 50. The Securities and Exchange Commission (SEC) initially ruled in favor of Pacific Basin, ordering the transfer of shares and awarding damages, but the SEC en banc later deleted the damages. The Court of Appeals (CA) affirmed the SEC’s decision, leading to multiple petitions to the Supreme Court.

The Supreme Court addressed the contention that the shares should have been subject to public bidding under Proclamation No. 50, which governs the disposition of government assets. The Court clarified that the fact Piedras Petroleum was under sequestration by the PCGG did not automatically classify the shares as government-owned. The Court referenced Bataan Shipyard & Engineering Company, Inc. v. Presidential Commission on Good Government, emphasizing that sequestration is akin to preliminary attachment or receivership, intended to preserve property until its true ownership is determined through judicial proceedings.

By the clear terms of the law, the power of the PCGG to sequester property claimed to be “ill-gotten” means to place or cause to be placed under its possession or control said property… for the purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and preserving, the same- until it can be determined, through appropriate judicial proceedings, whether the property was in truth “ill- gotten.”

The Court reasoned that PCGG, as a conservator, does not automatically become the owner of sequestered property. A final judicial determination is necessary to establish that the property was acquired using government funds, thus, OPMC could not conclusively claim the shares as government property based solely on the sequestration order. The Court further reasoned that, even assuming the shares were government assets, selling them through the stock exchange constituted substantial compliance with public bidding requirements. The Court of Appeals correctly pointed out that sales through the stock exchange offer transparent and fair competition, and the pricing of shares is a specialized field best left to experts. Stock market pricing is considered analogous to public bidding as the market itself determines the share price.

The Court underscored the **ministerial duty** of corporations to register stock transfers under Section 63 of the Corporation Code, which states:

Sec. 63. 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.

Building on this principle, the Court cited Rural Bank of Salinas, Inc. v. Court of Appeals, emphasizing that the right of a transferee to have stocks registered in their name flows directly from their ownership. The only limitation, as provided by Section 63, is when the corporation holds an unpaid claim against the shares. Since Pacific Basin had fully paid for the OPMC shares, OPMC’s refusal to record the transfer was a violation of Section 63 and its own by-laws mandating the issuance of stock certificates to fully paid shareholders.

Concerning the claim for actual damages, the Court agreed with the CA that Pacific Basin failed to provide sufficient evidence. The Court held that actual damages must be proven with a reasonable degree of certainty and cannot be based on speculation or conjecture. The testimonial assertions of Pacific Basin’s Vice-President, without supporting documentary evidence, were deemed inadequate. However, the Court found that OPMC and EBC could not escape liability entirely and awarded temperate damages. Temperate damages are appropriate when pecuniary loss is evident but cannot be precisely quantified.

The Court reasoned that OPMC and EBC’s refusal to register the transfer prevented Pacific Basin from reselling the shares, constituting a demonstrable loss even if the exact amount was difficult to prove. Therefore, the Court imposed joint and several liability on OPMC, EBC, and their respective officers, Roberto Coyiuto and Ethelwoldo Fernandez, for temperate damages of P1,000,000.00. As for exemplary damages, the Court aligned with the SEC en banc and CA, finding no evidence of bad faith on the part of OPMC and EBC. Exemplary damages require a showing of bad faith, malice, or wanton conduct, which was not proven in this case. The Court, however, upheld the award of attorney’s fees to Pacific Basin. Pacific Basin was compelled to file a case for Mandamus because the OPMC officers refused to perform the ministerial act of registering the purchase of shares and issuing new certificates for shares that had been fully paid for.

FAQs

What was the key issue in this case?	The central issue was whether OPMC and EBC were justified in refusing to register the transfer of OPMC shares purchased by Pacific Basin, and what damages, if any, should be awarded for the refusal.
Is a corporation obligated to transfer stock to a new owner?	Yes, under Section 63 of the Corporation Code, a corporation has a ministerial duty to register stock transfers in its books for fully paid shares, unless the corporation has a claim against those shares.
Does PCGG sequestration automatically make a company government owned?	No, placing a company under PCGG sequestration does not automatically transfer ownership to the government; it merely places the assets under conservatorship pending a judicial determination of whether the assets were ill-gotten.
What are temperate damages?	Temperate damages are awarded when a court acknowledges that a party has suffered some pecuniary loss, but the exact amount cannot be proven with certainty.
When are exemplary damages awarded?	Exemplary damages are awarded as a form of punishment or as an example, typically when the defendant has acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, and the plaintiff has established a right to moral, temperate, or compensatory damages.
Why were OPMC officers held jointly and severally liable?	Corporate directors or officers can be held jointly and severally liable for damages resulting from patently unlawful acts they willfully and knowingly approved.
Does selling shares through the stock market satisfy public bidding requirements?	The Supreme Court suggested that the sale of shares through the stock exchange offers transparent and fair competition, substantially complying with public bidding requirements, particularly when market mechanisms determine the price.
What factors influence the trading of stocks?	The factors include earning potential, dividend history, business risks, capital structure, management, asset values of the company, prevailing business climate, and political and economic conditions.

The Supreme Court’s decision reinforces the importance of upholding the rights of investors in the stock market and ensures that corporations cannot arbitrarily obstruct the transfer of shares. By clarifying the ministerial duty of corporations to register legitimate stock transfers, the ruling promotes confidence and stability in the market.

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: PACIFIC BASIN SECURITIES CO. VS. ORIENTAL PETROLEUM AND MINERALS CORP., 44299