SEC-OGC Opinion No. 23-04: Remedies for lost stock and transfer book

On 14 March 2023, the Office of the General Counsel (“OGC”) of the Securities and Exchange Commission (“SEC”) issued SEC-OGC Opinion No. 23-04, where the SEC explained the remedies available if: (i) a stock and transfer book (“STB”) is lost or destroyed, and (ii) when a corporation wrongfully refuses to issue a certificate of stock. 

Remedy if the STB is lost

In case the STB is lost or destroyed, an action for reconstitution of the STB must be filed so that proper entries therein can be made. 

In Yujuico and Sumbilla vs. Umali-Paco and Quiambao, the SEC ruled that when the original STB is lost or destroyed, the STB may be reconstituted and the reconstituted STB must be registered with the SEC, accompanied by a sworn statement executed by any responsible corporate officer setting forth the circumstances attending the loss. 

Remedies when a corporation wrongfully refuses to issue a certificate of stock

The following are the remedies available to an assignee or transferee of shares of stock in cases when a corporation wrongfully refuses to issue a certificate of stock:

1. File a suit for specific performance of an express or implied contract. An action for specific performance is a remedy to require exact performance of a contract in the specific form in which it was made, or according to the precise terms agreed upon. Before this remedy may be availed of, there must be a breach of contract. The transferee may opt to avail of an action of specific performance against the transferor who refuses or neglects to endorse the certificates of stock and to provide for an instruction to transfer the same in the name of the transferee. 

2. File for an alternative relief by way of damages where specific performance cannot be granted. An aggrieved party may ask for damages in conjunction with the action for specific performance or damages may be awarded by the pertinent court when specific performance is not available. This is because a corporation has a ministerial duty to issue a certificate of stock to a stockholder who has fully paid for his subscription. Should the corporation refuse upon demand to issue a stock certificate to the person entitled thereto, the latter may sue the corporation for damages. 

3. File a petition for mandamus to compel issuance of a certificate. The duty of a corporation to transfer is a ministerial one and if it refuses to make such transfer without good cause, it may be compelled to do so by mandamus. 

The SEC cited Andaya vs. Rural Bank of Cabadbaran, where the Supreme Court discussed the remedies available to a transferee, to wit:

“It is already settled jurisprudence that the registration of a transfer of shares of stock is a ministerial duty on the part of the corporation. Aggrieved parties may then resort to the remedy of mandamus to compel corporations that wrongfully or unjustifiably refuse to record the transfer or to issue new certificates of stock. This remedy is available even upon the instance of a bona fide transferee who is able to establish a clear legal right to the registration of the transfer.

xxx xxx xxx” 
The SEC also stated that the writ will only be granted if it is shown that the transferee has no other plain, speedy, and adequate remedy and that there are no unpaid claims against the stocks whose transfer is sought to be recorded. The SEC cited Rivera vs. Florendo, where the Supreme Court ruled that there should be compliance with the mode of transfer prescribed by law and as such, mandamus will not lie against the corporation where the shares of stock in question are not indorsed by the registered owner who refused registration thereof in the STB. In such case, the rights of the parties will have to be threshed out in an ordinary action (and not through the special civil action of mandamus).