Case Digest on ESCANO V.

FILIPINAS MINING CORP

74 PHIL 711 (1944)

Facts: A garnishment was served in favor of Escano over certain shares of Filipinas Mining
Corporation named under Salvosa but was held in escrow also by Filipinas Mining Corporation.
Despite that, Salvosa managed to sell, subsequently, the said shares to Bengzon who also later
on sold the same to Standard Investment of the Philippines. Filipinas Mining Corporation then
issued the corresponding certificates over the said shares in favor of Standard Investment of the
Philippines. The trial court ruled for Escano.

Issue: Whether or not the issuance of the certificate of stock to Standard was valid against the
attaching judgment creditor of the original owner.

Decision: The Supreme Court affirmed the decision of the lower court. Section 35 of the
Corporation Law, which requires that registration of transfer of shares of stock upon the books
of the corporation as a condition precedent to their validity against the corporation and third
parties, is also applicable to unissued shares held by the corporation in escrow.

Additional Important Points from the Case of Escano:

Reasons of the Law Requiring Recording of Transfer in the Corporate Books:
(1) to enable the corporation to know at all times who its actual stockholders are, because
mutual rights and obligations exist between the corporation and its stockholders;
(2) to afford to the corporation an opportunity to object or refuse its consent to the transfer in
case it has any claim against the stock sought to be transferred, or for any other valid reason;
and,
(3) to avoid fictitious or fraudulent transfers.

III. No Registration of Transfer of Unpaid Shares

If there is any unpaid balance on the stockholder’s subscription, there can be no stock certificate
on which an indorsement may be made. The shares are thus not transferable on the corporate
books. However, there is nothing to prevent the stockholder from transferring his interest in
the corporation by way of a deed of assignment.
The words “unpaid claim” in the second paragraph of section 63 quoted above does not
necessarily mean that there should have been a previous call by the board of directors. As long
as any portion of the subscription price remains unpaid, the corporation has a claim on the
shares, payment for which it may demand either on the agreed date of payment or, if there be
no such agreed date, by making a call at any time in accordance with section 67 of the Code.
The corporation may however agree to record a transfer although there still remains an unpaid
balance on the subscription, provided the transferee assumes the obligation to pay the unpaid
balance.

IV. Remedy if Registration Refused

The right to have the transfer registered exists from the time of the transfer and it is to the
transferee’s benefit that the right be exercised early. However, since the law does not prescribe
any period within which the registration should be effected, the action to enforce the right does
not accrue until there has been a demand and a refusal to record the transfer.
If the corporation should wrongfully refuse to record the transfer or issue a new certificate in
favor of the transferee, the latter may petition the court for a writ of mandamus to compel the
corporation to do so and the writ will be granted provided it is shown that the transferee has not
other plain, speedy and adequate remedy and that there are no unpaid claims against the
stocks whose transfer is sought to be recorded. Unless the latter fact is alleged, mandamus
will be denied due to failure to state a cause of action.

Section 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or vice president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance
with the by-laws. 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 showing 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.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books
of the corporation. (35)