Atty. Damaso P. Uy

June 6, 1991 Atty. Damaso P. Uy Cebu International Finance Corp. CIFC Building, Osmea Boulevard Corner P. Zamora Street Cebu City S i r : This refers to your letter of May 10, 1991, requesting opinion on the following queries: 1. Can a stockholder, who has not fully paid his entire subscription, be issued a certificate of stock corresponding to his partially paid subscription and consider the unpaid subscription as being waived, considering that a subscription for corporate shares is one, entire, and indivisible whole contract? 2. Can a stockholder, after full payment but before issuance of the corresponding stock certificate, assign or transfer his fully paid subscribed shares to third persons? Anent your first query, the pertinent provision of the Corporation Code provides: "SECTION 64. Issuance of stock certificates . No certificate of stock shall be issued to a subscriber until the full amount of his subscription together with interest and expenses (in case of delinquent shares),if any is due, has been paid." The above-provision implicitly sets forth the doctrine that a subscription is one, entire, and indivisible contract. It cannot be divided into portions so that the stockholder shall not be entitled to a certificate of stock until he has remitted the full payment of his subscription together with the interest and expenses, if any is due. ( SEC letter dated January 6, 1983 addressed to Bay Sunset Tours & Travel Corporation ). As to whether unpaid subscription can be waived, the rule is that a corporation has no power to release a subscriber from the payment of his unpaid subscription. Thus, it was held: "A corporation has no power to release an original subscriber of its capital stock from the obligation of paying for his shares, and as against creditors a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statutes. The capital stocks constitute the sole fund to which creditors look for liquidations of their demands; it is regarded in law as a trust fund, pledged for the payment of the debts of the corporation, and subscribed shares can not be cancelled by the board of directors without justifiable cause which vitiates a simple contract as this is tantamount to relieving an original subscriber from his subscription which a corporation has no power to do." (Velasco v. Poizat, G.R. L-11528, March 15, 1918, 37 Phil. 802 (1918);Philippine Trust Co. v. Rivera, G.R. No. 19761 January 29, 1923, 44 Phil. 469 (1923),cited in SEC opinions dated July 12, 1965; October 12, 1966 ) The only exception to the foregoing rule is when the release of the subscriber from his unpaid subscription is approved by all the stockholders of record as decided by the Court in Lingayen Gulf Electric Power Co. v. Baltazar G. R. No. L-4824, June 30, 1953. (SEC Opinions, Supra.) But even then, such release must not prejudice creditors of the corporation. "The management of a corporation may release a subscriber from liability on his subscription, in whole or in part, only with the express or implied consent of all the stockholders, and if there is no fraud upon existing or subsequent creditors." (SEC Opinion dated September 24, 1987 citing Ballantine on Corporations, sec. 196 at 460) Relative to your second query, the Commission, in a letter dated May 2, 1983 addressed to Oriental Photographix & Equipment Corporation , previously opined that endorsement of the certificate is not necessary to pass title where a deed has been executed, assigning and authorizing the transfer of the books. (12 Fletcher Cyc. Corps. Sec. 5480 citing Curtis V. Crossly, 59 N.J. Eq. 358, 44 Atl. 905) "A formal contract of purchase and sale set in a notarial document is equivalent to the actual delivery of the certificates themselves."(Uy Piaoco v. McMicking, G.R. No. L-4237, March 5, 1908, 10 Phil. 286) Accordingly, fully paid subscriptions may be transferred by means of a deed of assignment where no certificate has been issued or where it is not in the possession of the transferor. We, therefore, answer your query in the affirmative. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman