G.R. No. 49003 ; July 28, 1944
ANTONIO ESCAÑO, plaintiff-appellee, vs. FILIPINAS MINING CORPORATION, ET AL., defendants. STANDARD INVESTMENT OF THE PHILIPPINES, appellant.

FACTS

On March 8, 1937, plaintiff-appellee Antonio Escaño obtained a judgment against Silverio Salvosa, ordering Salvosa to transfer and deliver to Escaño 116 active shares and an undetermined number of escrow shares of the Filipinas Mining Corporation, and to pay P500 as damages, with the proviso that the escrow shares would be transferred only after release by the company. On June 25, 1937, a writ of garnishment was served on the Filipinas Mining Corporation to satisfy the judgment. The corporation informed the sheriff that Salvosa was the registered owner of 1,000 active shares and about 21,339 unissued shares held in escrow. The sheriff sold the 1,000 active shares at auction for P10, partially satisfying the damages award.
Before the judgment in Escaño vs. Salvosa was rendered (on November 21, 1936), Salvosa sold his right, title, and interest in 18,580 escrow shares to Jose P. Bengzon, who later sold them to defendant-appellant Standard Investment of the Philippines. Neither sale was notified to or recorded in the books of the Filipinas Mining Corporation until December 7, 1940—over three years after the garnishment. On January 24, 1941, the corporation issued a stock certificate for the 18,580 escrow shares to Standard Investment. The trial court found that the corporation’s secretary had repeatedly promised Escaño to notify him upon release of the escrow shares, but instead issued them to Standard Investment.

ISSUE

Whether the issuance of the 18,580 escrow shares to Standard Investment was valid against Escaño, the attaching judgment creditor of Salvosa, despite the prior garnishment and the lack of recording of the transfers in the corporation’s books.

RULING

The Supreme Court affirmed the trial court’s judgment in favor of Escaño.
1. Applicability of Section 35 of the Corporation Law: The Court held that the requirement under Section 35 of the Corporation Law—that no transfer of shares is valid against third parties until entered and noted upon the corporation’s books—applies by analogy to unissued shares held in escrow. The reasons for this requirement (to enable the corporation to know its stockholders and to protect innocent third parties) are equally pertinent to escrow shares. Since the transfers from Salvosa to Bengzon and then to Standard Investment were not recorded until after the garnishment, they could not prevail over Escaño’s prior attachment. The garnishment under Sections 431 and 432 of the Code of Civil Procedure made the corporation liable to Escaño for the shares from the time of service.
2. Laches and Abandonment: The Court rejected Standard Investment’s claim that Escaño was guilty of laches for not enforcing the levy promptly. The trial court found that the corporation’s secretary had promised to notify Escaño upon release of the shares, and the judgment itself stipulated transfer only after release. Escaño had the right to wait for release within the five-year execution period, and he only learned of the transfers to Standard Investment after the shares were issued. The delay did not mislead or prejudice Standard Investment, so there was no waiver or abandonment.
The Court ordered the defendants to issue 4,152 shares from the escrow shares to Escaño, pay corresponding dividends, and allow execution on the remaining shares to satisfy the balance of the judgment, with costs against the defendants.