Sale of shares unrecorded in corporation's books

CASE DIGEST: 10 Phil. 286 [ G.R. No. 4237, March 05, 1908 ] SERAFIN UY PIAOCO, PLAINTIFF AND APPELLANT, VS. JOSE MCMICKING, SHERIFF OF THE CITY OF MANILA, ANTONIO R. BAYAN JU, YAP QUI CHIN, AND KHY PACK, DEFENDANTS AND APPELLEES.

FACTS: A corporate stockholder sold his share to another, but the sale has not yet been recorded in the books of the corporation.

ISSUE: Is the sale valid?

HELD: As between the seller and the buyer, the sale is perfectly valid since the seller was the owner of the corporate shares. However, as between the corporation and the buyer, the latter has acquired only an equitable title which may eventually ripen into a legal title after he presents himself to the corporation and performs the acts required by its charter or by-laws, and which are needed to effectuate the transfer.

Similar questions have been discussed at length in many of the courts of last resort in the United States, and the better doctrine is well stated in the case of New York and New Haven K. R Co, vs. Schuyler (34 N. Y. 79): "Where the stock of a corporation is, by the terms of its charter or by-laws, transferable only on its books, the purchaser who receives a certificate, with power of attorney, gets the entire title, legal and equitable, as between himself and his seller, with all the rights the latter possessed; but as between himself and the corporation he acquires only an equitable title, which they are bound to recognize and permit to be ripened into a legal title, when he presents himself, before any effective transfer on the books has been made, to do the acts required by the charter or by-laws in order to make a transfer. Until those acts be done he is not a stockholder, and has no claim to act as such, but possesses, as between himself and the corporation, by virtue of the certificate and power, the right to make himself, or whomsoever he chooses, a stockholder by the prescribed transfer. The stock not having passed by the delivery of the certificate and power of attorney, the legal title remains in the seller so far as affects the company and subsequent bona fide purchasers who take by transfer duly made on the books . The non-production and surrender of the certificate at the time of the transfer is not fatal to the title of the transferee. It is only essential to the safety of the corporation."