Atty. Elpidio M. Gamboa

October 30, 1989 Atty. Elpidio M. Gamboa Philippine National Oil Company PNOC Building, 7901 Makati Ave., Makati, Metro Manila Philippines P.O. Box 1031 MCPO S i r : This has reference to your letter dated September 12, 1989, requesting guidelines with respect to the manner by which employees of PNOC and its subsidiary corporations may become stockholders of Kenmare Gold Philippines, Inc. (Kenmare Gold). It appears that Kenmare Gold is a joint venture corporation formed by PNOC-Energy Development Corporation, (PNOC-EDC), a corporate entity established under the Corporation Code and a 100% owned subsidiary of the Philippine National Oil Company, and Kenmare Philippines Company, Limited of Northern Ireland (Kenmare Ireland). Its authorized capital stock consisting of P10 million equivalent to 10 million shares at a par value of P1.00 per share is divided into 4 million class "A" shares for PNOC-EDC; 4 million class "B" shares for Kenmare and 2 million class "C" shares for private Philippines investors, where 1 million shares are available for subscription by nominees of PNOC-EDC, and the other 1 million by nominees of Kenmare Ireland. In order to preserve the right of PNOC and its subsidiaries employees as nominees to subscribe to class "C" shares, Petron Corporation, a sister company of PNOC-EDC, entered into a Trust Agreement wherein you subscribe to 250,000 class "C" shares for the sole purpose of later transferring the shares by assignment to employees of PNOC and its subsidiary corporations who are interested in subscribing to class "C" shares .Under the Trust Agreement, Petron Corporation advanced the amount of P62,500.00 which you used as payment of the "C" shares you subscribed. To effect the transfer, you presented the following alternative procedures for consideration by the Commission. a. by transfer of legal title through the execution of deed of assignment, the assignees assuming payment of the balance on the subscription upon call by Kenmare Gold; b. by cancellation of the original subscription and transferring the same directly in the name of interested employees who will pay in full the unpaid portion of the said subscription and return to you the P62,500.00 paid as installment for the 250,000 class "C" shares which in turn will be returned to Petron Corporation. In connection with the first proposal 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-quoted provision implicitly sets forth the doctrine that a subscription is one, entire and indivisible whole contract. It cannot be divided into portions so that the stockholders 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 ). cdll Accordingly, if the stockholder has not paid the full amount of his subscription, he cannot transfer part of it in view of the indivisible nature of subscription contract. It is only upon full payment of the whole subscription that a stockholder can transfer the same to several transferees. However, the entire subscription , although not yet fully paid, may be transferred. It is necessary, however, to secure the consent of the corporation since the transfer of subscription right contemplates a novation of contract which under Article 1293 of the Civil Code of the Philippines, cannot be made without the consent of the creditor. Likewise, it has to be emphasized that under Section 63 of the Corporation Code, no transfer shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation. ( SEC letter dated September 12, 1989, addressed to Mr. Jose P. LLopis. ) Relative to the second alternative proposal, it is well-settled that the stockholder has no right to demand refund of his investment conformably to the general rule that the subscription to the capital stock of a corporation constitutes a trust fund for the benefit of the creditors and no valid agreement can be made which a subscriber can be relieved therefrom. ( SEC letter to Europhil Shipping Agency, Inc., dated June 23, 1987 , citing 4 Fletcher, Cyc. Corps., 1947). Moreover, "a contract of subscription is at least in the sense which creates an estoppel, a contract among the several subscribers. For this reason, no one of the subscribers can withdraw from the contract without the consent of all the others and thereby diminish without the universal consent, the common fund in which all have acquired an interest. (Ibid, citing Agbayani, Commercial Laws of the Phil. Vol. 3, 1984 ed., citing Lingayen Gulf Electric Power Co. v. Baltazar, GR No. L-4824, June 30, 1953, 49 O.G. 809). Accordingly, it is suggested that to carry out the intention of the parties, the whole class "C" shares specifically including that of Atty. Elpidio Gamboa shall be registered in accordance with the provisions of the Revised Securities Act, wherein Kenmare Gold and Atty. Elpidio Gamboa shall be co-registrants of the issues. In this manner, transfer of shares shall be conveniently made. Please be guided accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman