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200 Escaño v. Filipinas Mining Corp.

74 PHIL. 711 (1944) NOTES:
TOPIC: Transfer of shares; effect of lack of registration
PONENTE: Ozaeta, J.

Escaño obtained a judgment in the CFI of Manila against Silverio Salvosa (shareholder of FMC).
 Salvosa was ordered to transfer and deliver to Escano 116 active shares and an undetermined number of shares in
escrow of the Filipinas Mining Corporation and pay 500 as damages.

On June 25, 1937, a garnishment was served by the Sheriff of Manila upon the Filipinas Mining Corporation to satisfy
judgment. Subsequently, Filipinas Mining Corporation advised the Sheriff that Salvosa was the owner of 1,000 active
shares and 21,399 unissued shares held in escrow. Hence, Sheriff sold the 1,000 shares worth Php10.

During the proceedings in the original case but before finality of judgment, Salvosa sold to Jose Bengzon all his right, title,
and interest in the 18,580 shares of stock of the FMC held in escrow. Subsequently, Bengzon sold it to Standard
Investment of the Philippines (SIP).

However, these transfers were not recorded in the books of FMC until December 7, 1940 (more than 3 years after the
escrow shares in question were attached by garnishment served upon FMC)

On January 24, 1931, FMC issued in favor of SIP certificate of stock for 18,580 shares.

TC: the transfer of the escrow shares in question from Salvosa to Bengzon and from Bengzon to the Standard Investment
of the Philippines, not having been recorded in the books of the corporation as required by section 35 of the
Corporation Law, could not prevail over the garnishment previously made by the plaintiff of the said shares.
Defendants must issue to Escano out of the escrow shares which formerly belonged to Salvosa.

Hence, SIP appealed.

ISSUE(S): Whether the issuance by the Filipinas Mining Corporation of the said 18,580 shares of its stock to the Standard
Investment of the Philippines was valid as against the attaching judgment creditor of the original owner, Silverio Salvosa,
namely, the present plaintiff-appellee Antonio Escaño.

HELD: No. The transfer was invalid for not having been registered.

Sec. 35 of the Corporation Law requires the 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.

This provision similarly applies to unissued shares.

The court cited three main reasons why the law requires 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.

The court sees no logical reason in treating unissued shares any different from issued shares insofar as their sale and
transfer is concerned. In both cases the corporation is entitled to know who the actual owners of the shares are, and to
object to the transfer upon any valid ground. Likewise, in both cases the possibility of fictitious or fraudulent transfers

Though there is no certificate number to be recorded in case of unissued shares, it does not make it impossible to record
the names of the parties to the transaction, date of transfer, and number of shares transferred.