Uson vs. Diosomito, et al.

An unregistered transfer of corporate shares is invalid as against a subsequent lawful attachment by a creditor of the transferor, regardless of whether the attaching creditor had actual notice of the transfer, because Section 35 of the Corporation Law provides that no transfer shall be valid except as between the parties until entered and noted upon the books of the corporation.

Toribia Uson was a creditor of Vicente Diosomito, who originally owned 75 shares of stock in North Electric Company, Inc. The shares were later claimed by Emeterio Barcelon and H.P.L. Jollye through transfers from Diosomito. The governing statute was Section 35 of the Corporation Law, Act No. 1459, which regulated transfers of shares and provided that no transfer shall be valid except as between the parties until entered and noted on the corporation’s books. The case was the first in which the Supreme Court squarely addressed whether an unregistered transfer prevails over a subsequent attachment under that statute.

Toribia Uson filed a civil action for debt in the Court of First Instance of Cavite, Civil Case No. 2525, against Vicente Diosomito. Upon institution of the action, an attachment was duly issued and levied on Diosomito’s property, including 75 shares of stock in North Electric Company, Inc., which stood in his name on the books of the company when the attachment was levied on January 18, 1932. Subsequently, on June 23, 1932, Uson obtained judgment against Diosomito for P2,300 with interest and costs. To satisfy the judgment, the sheriff sold the shares at public auction in accordance with law on March 20, 1933; Uson was the highest bidder and the shares were adjudicated to her for P2,617.18, as shown in Exhibit K.

Diosomito was the original owner of the 75 shares, which had a par value of P7,500. On February 3, 1931, he sold the shares to Emeterio Barcelon and delivered to Barcelon the corresponding certificates Nos. 2 and 19. Barcelon did not present these certificates to the corporation for registration until September 16, 1932, when they were cancelled and a new certificate, No. 29, was issued in Barcelon’s favor. Barcelon then transferred the shares to H.P.L. Jollye, to whom a new certificate, No. 25, was issued on February 13, 1933.

In the present action, Jollye claimed to be the owner of the 75 shares and presented the certificate of stock issued to him by the company on February 13, 1933. The transfer from Diosomito to Barcelon had not been registered or noted on the books of the corporation until September 16, 1932, which was some nine months after the attachment had been levied on the shares in Civil Case No. 2525. At the time of the attachment, the shares still stood in Diosomito’s name on the corporate books.

The lower court’s factual findings, as reflected in the decision, included that Diosomito was the original owner, that he sold the shares to Barcelon on February 3, 1931, and that the transfer was not registered until September 16, 1932. The record further showed that when the attachment was levied on January 18, 1932, the shares still stood in Diosomito’s name on the books of the corporation, and that the transfer to Barcelon was not entered until September 16, 1932.

• Unregistered Transfer vs. Attachment Lien: Appellants cited decisions from a number of American states holding that an unregistered transfer is valid as against the lien of a subsequent attachment sued out by a creditor of the assignor, whether or not the creditor had notice of the transfer.
• Theory of Attachment: Appellants argued that an attachment reaches only such title or interest as the defendant may have in the property at the time of the levy; if all title and interest had previously passed by assignment from the debtor to a third person, the attaching creditor obtains nothing by the levy.
• Common Law Right of Disposition: Appellants maintained that the owner of shares of stock has the common law right to dispose of the same as personal property, and that this right supported the validity of the unregistered transfer against the attaching creditor.
• Statutory Construction: Appellants invoked the rule and doctrine of the third group of American jurisdictions, which, by amendment of statutes, was becoming the prevailing rule in the United States.

• Validity of Unregistered Stock Transfer Against Attaching Creditor: Whether a bona fide transfer of shares of a corporation, not registered or noted on the books of the corporation, is valid as against a subsequent lawful attachment of said shares, regardless of whether the attaching creditor had actual notice of the transfer.
• Application to the Diosomito-Barcelon Transfer: Whether the transfer of the 75 shares in North Electric Company, Inc., made by Diosomito to Barcelon, was valid as to Toribia Uson on January 18, 1932, the date on which she obtained her attachment lien on the shares.

• Validity of Unregistered Stock Transfer Against Attaching Creditor: No. Under Section 35 of the Corporation Law, no transfer of shares is valid, except as between the parties, until entered and noted on the books of the corporation; an unregistered transfer is therefore invalid as against a subsequent attaching creditor, regardless of notice.
• Application to the Diosomito-Barcelon Transfer: No. The transfer by Diosomito to Barcelon was not valid as to Uson on January 18, 1932, because it was not registered until September 16, 1932, while the shares still stood in Diosomito’s name on the corporate books when the attachment was levied.

• Validity of Unregistered Stock Transfer Against Attaching Creditor: Section 35 of the Corporation Law provides that shares of stock are personal property and may be transferred by delivery of the certificate indorsed by the owner or his attorney in fact or other person legally authorized to make the transfer, but it expressly qualifies that “No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon 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, and the number of shares transferred.” The appellants relied on American state decisions holding that an unregistered transfer prevails over a subsequent attachment lien, but, except for California, none of the cited decisions construed statutes identical with Section 35. The statutes were grouped into three: those making no transfer valid for any purpose unless registered; those, like Act No. 1459, making no transfer valid except as between the parties until registered; and those following the liberal rule invoked by appellants. The California case National Bank of the Pacific vs. Western Pacific Railway Company construed an identical statute but left the Court unconvinced that the second group should be given the same effect as the third without legislative amendment. The line followed by the Supreme Courts of Massachusetts and Wisconsin was preferred, particularly In re Murphy, where a statute identical with Section 35 was held to mean that all transfers not entered on the corporate books are invalid as to attaching or execution creditors of the assignors, as well as to the corporation and subsequent purchasers in good faith, and are absolutely void by statute, not because of lack of notice or fraud. The principle that its function is jus dicere non jus dare was adhered to, and the language of the legislature was found plain: the right to transfer shares by delivery of the certificate is limited and restricted by the express requirement of registration. Accordingly, the unregistered transfer did not defeat Uson’s attachment lien.
• Application to the Diosomito-Barcelon Transfer: Diosomito sold the 75 shares to Barcelon on February 3, 1931, and delivered certificates Nos. 2 and 19, but Barcelon did not present them to the corporation for registration until September 16, 1932, when they were cancelled and certificate No. 29 was issued in his favor. The attachment in Civil Case No. 2525 was levied on January 18, 1932, while the shares still stood in Diosomito’s name on the books of the corporation. Because the transfer was not registered or noted until some nine months after the attachment, it was not valid as to Uson on the date she obtained her attachment lien. The later transfer to Jollye and the issuance of certificate No. 25 on February 13, 1933, did not alter that result. The remaining assignments of error were found to have no merit, and the judgment was affirmed with costs against the appellants.

• Unregistered Transfer of Shares of Stock — Under Section 35 of the Corporation Law, shares of stock are personal property transferable by delivery of the certificate indorsed by the owner or his authorized representative, but no transfer is valid except as between the parties until it is entered and noted upon the books of the corporation. An unregistered transfer is invalid as against attaching or execution creditors of the transferor, regardless of whether the creditor had actual notice. The Court applied this rule to hold that Uson’s attachment lien, levied while the shares still stood in Diosomito’s name, prevailed over the earlier unregistered sale to Barcelon.
• Jus Dicere Non Jus Dare — The judicial function is to declare the law, not to make it. The Court declined to adopt the more liberal American rule validating unregistered transfers against attaching creditors absent legislative amendment, because the language of Section 35 was plain and the legislature had not changed it.
• Attachment Reaches Only Debtor’s Interest (Rejected Under Section 35) — The appellants’ theory that an attachment reaches only the debtor’s actual interest at the time of levy was rejected in the face of the statutory rule that an unregistered transfer is invalid except between the parties. Because the transfer to Barcelon was not registered when the attachment was levied, the shares remained subject to attachment as property standing in Diosomito’s name on the corporate books.

• “No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon 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, and the number of shares transferred.” — Section 35 of the Corporation Law, quoted by the Court as the controlling provision; it establishes that registration on the corporate books is required for a transfer to bind third persons such as attaching creditors.
• “All transfers not so entered on the books of the corporation are absolutely void; not because they are without notice or fraudulent in law or fact, but because they are made so void by statute.” — Quoted from In re Murphy and adopted by the Court; it states the strict statutory rule that unregistered transfers are void as to attaching or execution creditors regardless of notice or fraud.
• “This court still adheres to the principle that its function is jus dicere non jus dare.” — The Court’s reason for refusing to follow the more liberal rule of other jurisdictions; any change in the statutory rule must come from the legislature.
• “Therefore, the transfer of the 75 shares in the North Electric Company, Inc., made by the defendant Diosomito to the defendant Barcelon was not valid as to the plaintiff-appellee, Toribia Uson, on January 18, 1932, the date on which she obtained her attachment lien on said shares of stock which still stood in the name of Diosomito on the books of the corporation.” — The Court’s application of Section 35 to the facts, resolving the specific dispute in favor of the attaching creditor.

• National Bank of the Pacific vs. Western Pacific Railway Company, 157 Cal. 573; 108 Pac. 676 (1910) — California decision construing a statute identical to Section 35; considered but unconvincing, and not followed.
• In re Murphy, 51 Wis. 519; 8 N.W. 419 — Wisconsin decision construing an identical statute; its holding that unregistered transfers are invalid as to attaching or execution creditors and are void by statute was adopted.
• Clews vs. Friedman, 182 Mass. 555; 66 N.E. 201 — Massachusetts decision cited as part of the line preferred on the effect of unregistered stock transfers.
• Uy Piaco vs. McMicking, 10 Phil. 286 (1908) — Distinguished as having arisen before the Philippine Corporation Law, Act No. 1459, took effect, and thus not controlling.
• Fua Cun vs. Summer and China Banking Corporation, 44 Phil. 705 (1923) and Fleischer vs. Botica Nolasco Co., 47 Phil. 583 (1925) — Cited as not in point on the question presented.
• Lanci vs. Yangco, 52 Phil. 563, 567 — Cited in Justice Hull’s concurrence as involving a Torrens title and Section 50 of Act No. 496, which he considered analogous to Section 35 of the Corporation Law.

• Section 35, Corporation Law (Act No. 1459) — Provides that shares of stock are personal property and may be transferred by delivery of the certificate indorsed by the owner or his attorney in fact or other person legally authorized to make the transfer, but that no transfer shall be valid, except as between the parties, until entered and noted upon the books of the corporation showing the parties, date, certificate number, and number of shares transferred. Applied to hold that the unregistered transfer from Diosomito to Barcelon was invalid as against Uson’s prior attachment lien.
• Section 50, Act No. 496 (Land Registration Law) — Mentioned in Justice Hull’s concurring opinion as analogous to Section 35 of the Corporation Law; he suggested consistency would require similar judgments in cases involving Torrens titles and corporate shares. This was not part of the majority’s ratio.

• Malcolm and Diaz, JJ., concurred.
• Hull, J., filed a separate concurring opinion. He agreed that the majority opinion was sound in reason and upon authority, but called attention to Lanci vs. Yangco, 52 Phil. 563, 567, which involved a Torrens title and the Land Registration Law, Act No. 496. He noted that Section 50 of Act No. 496 seemed analogous to Section 35 of the Corporation Law and that consistency would indicate similar judgments in the two cases.
• Goddard, J., agreed with Justice Hull.