Transfer of Partially Paid Subscription

March 24, 1966 CBP MEMORANDUM CIRCULAR TO ALL RURAL BANKS NO. 10-66 SUBJECT : Transfer of Partially Paid Subscription Supplementary to Memorandum Circular To All Rural Banks No. 64-20 dated October 28, 1964, we are presenting hereunder cases affecting transfers of partially paid subscription together with our comments thereon, based on the opinion of the Securities and Exchange Commission contained in their letters dated June 2, 1965 and January 20, 1966. LLphil FACTS OF THE CASE : A, B, C, D and E subscribed to 500 shares each of the capital stock of a Bank. One-half () of the subscription price was paid by each of the above subscribers. Subsequently, A, B, C, D and E assigned 250 shares each of their subscribed stock to F, who assumed the unpaid subscriptions of A, B, C, D and E. QUESTIONS AND ANSWERS 1. Is the assignment proper considering that F did not pay anything to the Bank upon assignment of the 250 shares? The assignment is valid and proper as between the Assignor (A, B, C, D and E separately) and the Assignee (F). 2. Presuming that the Bank has taken notice of the assignment, can such assignment be recorded in the stock and transfer book of the Bank? How shall it be enforced against the Bank? Assignment may be recorded after approval has been obtained, provided, the bank has no claims against the stock for unpaid subscriptions which are due and payable (see Sec. 35, Corporation Law, Hager v. Bryan, 19 Phil. 138, and Bank of P.I. v. Caridad Estates, 40 O.B., Sycip 4-14 p. 265-267). Such assignment may not, however, be enforced against the subject bank until it is accepted by it and recorded in its stock and transfer book. (Butt v. King, 125 Atl. 654.) 3. By virtue of the assignment alone, can F be considered a stockholder of the bank, and if so, is he qualified to be elected a member of the Board of Directors? It must be said that by virtue of the assignment alone, F cannot be considered a stockholder of the Bank. It has been held that the original subscriber as between himself and his transferee may vest in the transferee his subscription rights to these shares but he cannot by his act alone cast upon the transferee the obligation to pay the unpaid subscription price as called for and relieve himself of his liability to pay the same (Hood v. McNaught 54 H.S. 425). Hence, until such acceptance and recording, the original subscriber will continue to be liable for all calls made for the unpaid subscription price (Sause v. Essex Baptist Society, 14 Comm. 582). It is only upon acceptance and recording that the relation of the subscriber to the corporation exists (Butts v. King, 125 Atl. 654), hence, until this is done F cannot be elected as member of the Board of Directors. 4. Assuming that the rural bank has accepted and recorded such transfers in its stock and transfer book, may the bank issue to stockholders A, B, C, D and E their respective certificates of stock for 250 shares each considering that there has been a novation of the original subscriptions or will issuance of certificates of stocks not lie in view of Sec . 37 of the Corporation Law? Although there was a transfer of 250 shares from each subscription, yet inasmuch as only one-half of each of the original subscription contracts for 500 shares was paid at the time of the transfer, such partial or half payments are made applicable to each subscription contract. This is so because part payments on account of subscriptions are applied to the whole number of shares subscribed for. (See Fua Cun v. Summers, 44 Phil. 708). Consequently, any unpaid portion of the original subscription is borne and shared by the transferor and transferee and until the whole unpaid portion thereof is fully paid, no certificate of stock can be issued to either of them. Please be guided accordingly. (SGD.) HONESTO O. FRANCISCO Director