The principle of invalidity of a transfer prior to a recording of the same in the books of a corporation under Section 62 of the Revised Corporation Code (“RCC”) has been consistently upheld on numerous occasions by the Supreme Court and by the SEC.
In the case of Teng vs. Securities and Exchange Commission and Ting Ping Lay (G.R. No. 184332, 17 February 2016), the Supreme Court explained the reasons for the necessity of registration of the transfer in the corporate books, to wit:
“Nevertheless, to be valid against third parties and the corporation, the transfer must be recorded or registered in the books of the corporation. There are several reasons why registration of the transfer is necessary: one, to enable the transferee to exercise all the rights of a stockholder; two, to inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and subject to the liabilities of a stockholder; and three, to avoid fictitious or fraudulent transfers, among others. Thus, in Chita Giian v. Samahang Magsasaka, Inc., the Court stated that the only safe way to accomplish the hypothecation of share of stock is for the transferee [a creditor, in this case] to insist on the assignment and delivery of the certificate and to obtain the transfer of the legal title to him on the books of the corporation by the cancellation of the certificate and the issuance of a new one to him.”
In the earlier case of Kiat v. Ayala Corporation, (G.R. No. 192530, 07 March 2018) the Supreme Court elaborated:
“This argument is off-tangent. Meaning, even if it could be assumed that the sale of shares of stock contained in the photocopies had indeed transpired, such transfer is only valid as to the parties thereto, but is not binding on the corporation if the same is not recorded in the books of the corporation. Section 63 of the Corporation Code of the Philippines provides that: “No transfer, x x x 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.” Here, the records show that the purported transaction between Tee Ling Kiat and Dewey Dee has never been recorded in VIP’s corporate books. Thus, the transfer, not having been recorded in the corporate books in accordance with law, is not valid or binding as to the corporation or as to third persons.”[1]
Moreover, in Ponce v. Alsons Cement Corporation (G.R. No. 139802, December 10, 2002), the Supreme Court ruled that it is only when the transfer is recorded in corporate books that a corporation may rightfully regard the transferee as one of its stockholders, viz:
[A] transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned. As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. It is only when the transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From this time, the consequent obligation on the part of the corporation to recognize such rights as it is mandated by law to recognize arises.” (Emphasis supplied)
The SEC also consistently upheld this rule as seen in a plethora of SEC-OGC Opinions. In SEC-OGC Opinion No. 19-09 dated 19 March 2019, the SEC reiterated the rule that the transfer of shares to be valid against third parties and the corporation, must be recorded in the corporate books, as follows:
“To reiterate, the transfer to be valid against third parties and the corporation, the same must be recorded in the corporate books indicating the names of the parties to the transaction, the date of the transfer, and the number of shares transferred.”
In the same vein, the SEC held in SEC-OGC Opinion No. 19-51 dated 11 October 2019, the SEC held that:
“With regard to your fifth query, Section 62 of the RCC (previously Section 63 of the Corporation Code) states that ‘[s]hares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates endorsed by the owner, his attorney-in-fact, or any other person legally authorized to make the transfer. 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 Commission has already opined that “[m]ere endorsement of the certificate of stock shall be sufficient to legally effect the transfer of title to a share of stock, even without executing a deed of assignment of the shares, provided the same is coupled with delivery and recorded in the stock and transfer book of the corporation. An unrecorded transfer, though valid between the parties, cannot be effective as against the corporation. The right of a stockholder accrues only upon entry of his name in the books of the corporation.” (Emphasis supplied)
Further, in SEC-OGC Opinion No. 07-06, dated 19 April 2007, where the SEC found:
“Note that for the transfer to be valid against third parties and the corporation, the same must be recorded in the corporate books. An unrecorded transfer, though valid as between the parties, cannot be effective as against the corporation. The rights of a stockholder accrues only upon entry of his name in the books of the corporation.” (Emphasis supplied)
This is also echoed in SEC-OGC Opinion No. 08-08, dated 31 March 2008, where the SEC explained that even if there is a deed of assignment, the transaction must be recorded in the corporate books for the same to be valid against third parties and the corporation:
“In a previous opinion, the Commission opined that a deed of assignment is necessary only when no certificate of stock has yet been issued or where the same is not in the possession of the transferor. On the assumption that the subject shares are not yet covered by stock certificates, the execution of the deed of assignment is in order. To reiterate, the transfer, to be valid against third parties and the corporation, the same must be recorded in the corporate books indicating the names of the parties to the transaction, the date of the transfer, and the number of shares transferred.” (Emphasis supplied)
Based on the foregoing, any transfer of shares should have been recorded in the stock and transfer book to effect the corporation. In compliance with the RCC, the transfer, to be valid against third parties and the corporation, the same must be recorded in the corporate books indicating the names of the parties to the transaction, the date of the transfer, and the number of shares transferred.
