Atty. Emmanuel de Castro

March 6, 1984 Atty. Emmanuel de Castro Armal Bldg.,Pasig Blvd. Ext. Pasig, Metro Manila Sir : This has reference to your letter dated November 14, 1983 requesting opinion on the following queries: 1. A stockholder of the corporation intends to transfer his shares of stocks to his children who are already of age. Is mere indorsement of the certificate of stocks without executing any document of conveyance like deed of sale or donation sufficient to effect the transfer? cdlex 2. A shareholder of the corporation sold his shares in favor of his children of age. Is the sale valid? Can the creditors of the corporation go after the children as far as their shareholding are concerned? 3. Is the company under obligation to retain canceled certificate of stocks? 4. How will you interpret Sec. 63 of the Corporation Code that "No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation". Section 63 of the Corporation Code of the Philippines, partly quoted hereunder, prescribes the manner by which shares of stocks may be transferred: "Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or 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." (emphasis supplied) Thus, mere indorsement of the certificate of stock shall be sufficient to effect the transfer provided the same is coupled with delivery. But to make the transfer valid against third parties and the corporation, the same must be recorded in the stock and transfer book of the corporation. In your second query, please note that shares of stock in a corporation are personal property. As such, the owner, as in the case of other personal property has an absolute and inherent right, as incident of his ownership, to sell and transfer the same at will except insofar as the right may be restricted by the charter of the corporation or the general law, or a valid agreement between him and the corporation, provided the transfer is in good faith, and to a person capable of assuming the obligations of a stockholder. ( SEC Opinion dated November 10, 1976 ) In the absence of restrictions and if the requirements of Section 63 on transfer of stocks have been complied with, the sale of stocks to children of age shall be deemed valid. The answer to the question on whether the creditors of the corporation can go after the children as far as their shareholdings are concerned has to be qualified. If their subscription are fully paid, the reply will be in the negative. If not, the creditors can go after the unpaid subscription of the children based on the trust fund doctrine which is expressed by the following authority: "The rule is now well established that unpaid subscriptions, or balances due on stock subscriptions, are a trust fund for the benefit of the creditors, they being a part of the assets of the corporation" (15-A Fletcher 7383) "Subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims" (Philippine Trust Co. v. Rivera, GR No. 19761, Jan. 29, 1923, 44 Phil. 469). For the third query, the Corporation Code does not impose any obligation on corporations to retain canceled certificates of stocks. After issuance of a new certificate and its notation in the stock and transfer book, the old certificate duly canceled becomes a worthless paper. It will only be a matter of corporate policy to keep canceled certificates for record purposes. Lastly, as to the interpretation of the last sentence of Article 63 of the Corporation Code, this Commission is of the opinion that this provision is one of the restrictions imposed by the Code on transfer of stocks. This refers to stocks declared delinquent by the Board of Directors upon failure of shareholders to pay their subscription. The stockholders may transfer their shares of delinquent stocks, but the transfer would not be registered in the books of the corporation. (Agbayani, Commercial Laws of the Philippines Vol. III, p. 485). Please be advised accordingly. llcd Very truly yours, (SGD.) MANUEL G. ABELLO Chairman