Garcia v. Jomouad
REITERATIONFacts
The Antecedents: Nemesio Garcia (petitioner) filed an action for injunction against Spouses Jose and Sally Atinon (respondents) and Nicolas Jomouad, Provincial Sheriff of Cebu. This stemmed from a collection case where the Atinons obtained a judgment against Jaime Dico. In execution of the judgment, the sheriff levied on a Proprietary Ownership Certificate (POC) No. 0668 in the Cebu Country Club, which was in Dico's name. Petitioner claimed ownership of the POC. Procedural History: The Regional Trial Court (RTC) dismissed petitioner's complaint. The Court of Appeals (CA) affirmed the RTC's decision. Petitioner sought review from the Supreme Court. The Petition: Petitioner argued that the CA erred in upholding the levy on the POC. He contended that even before the collection case was filed, Dico had already transferred ownership of the POC to him, the spouses Atinon had knowledge of this transfer, and Dico had resigned from the club. Petitioner asserted that the transfer was valid between him and Dico, and the club was furnished a copy of the deed of transfer.
Issue(s)
Whether the levy on execution of the Proprietary Ownership Certificate (POC) No. 0668 in the name of Jaime Dico is valid to satisfy the judgment debt of the spouses Atinon against Dico, considering the unrecorded transfer of the POC from Dico to Nemesio Garcia. Whether the unrecorded transfer of the POC from Dico to Nemesio Garcia is valid as against the spouses Atinon, the judgment creditors, specifically regarding the requirement of recording the transfer in the corporation's books as per Section 63 of the Corporation Code.
Ruling
The petition is without merit. The Supreme Court affirmed the decision of the Court of Appeals, holding that the levy on execution was valid. The Court ruled that the transfer of the subject certificate from Dico to petitioner was not valid as to the spouses Atinon, the judgment creditors, because the certificate still stood in Dico's name at the time of the levy on execution. The Court reiterated that for a transfer of shares to be valid against third parties, it must be recorded in the books of the corporation.
Ratio Decidendi
On the validity of the levy on execution and the unrecorded transfer: The Court reiterated the principle laid down in Section 63 of the Corporation Code, which states that shares of stock are personal property and may be transferred by delivery of the certificate. However, the law explicitly provides that "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." This provision is crucial for the validity of the transfer as against third parties, including attaching or execution creditors. The Court emphasized that the sole issue is whether a bona fide transfer of shares, not registered in the corporation's books, is valid against a subsequent lawful attachment of said shares, regardless of whether the attaching creditor had actual notice of the transfer. Applying the ruling in Uson vs. Diosomito, the Court held that the attachment prevails over the unrecorded transfer. On the validity of the unrecorded transfer against judgment creditors: The Court stated that the intention of the legislature was that all transfers of shares must be entered on the books of the corporation, and any transfer not so entered is invalid as to attaching or execution creditors. Therefore, the transfer of the subject certificate by Dico to petitioner was not valid as to the spouses Atinon, the judgment creditors, as it remained in Dico's name at the time of the levy. The entry in the minutes of the club's board of directors regarding Dico's resignation did not constitute compliance with Section 63 of the Corporation Code, as the law strictly requires recording in the corporation's books, not elsewhere, for validity against third parties. Consequently, the CA committed no reversible error.
Main Doctrine
A transfer of shares of stock is valid as between the parties upon delivery of the certificate duly indorsed, but it is valid as against third persons only when it is recorded in the books of the corporation. An unrecorded transfer is void as to attaching or execution creditors.