Atty. A.B.F. Gaviola, Jr.

October 9, 1995 Atty. A.B.F. Gaviola, Jr. Gaviola Law Offices Suite 702, Windsor Tower 163 Legaspi St.,Legaspi Village Makati City S i r : This refers to your letter dated October 3, 1995, requesting opinion whether or not it is necessary to report/register with the SEC any transfer of fully or partially paid subscription of shares of stock in an unlisted corporation. LibLex Transfer of shares from existing stockholders of a corporation to third parties need not be reported to or approved by the Commission because the question of whether or not such transfer should be recorded in the corporate books is a matter that only the corporation itself can resolve (SEC Opinion dated April 27, 1990 addressed to Romulo, Mabanta, Buenaventura, Sayoc & De los Reyes, citing previous SEC Opinions). However, to be valid as against the corporation and third persons, the transfer must be recorded in the books of the corporation pursuant to the following provisions of the Corporation Code: "SECTION 63. Certificate of stock and transfer of shares . ...Shares of stocks 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 so as to show 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 provided). "SECTION 74. Books to be kept; stock transfer agent . ...Stock corporations must also keep a book to be known as the " stock and transfer book " , in which must be kept a record of all stocks in the names of the stockholders alphabetically-arranged; the installments paid and unpaid on all stock for which subscription has been made, and the date of payment of any installment; a statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom made ;..." (Emphasis supplied). Regarding transfer of " unpaid subscription " your attention is invited to the following provision of the Corporation Code: "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 the interest and expenses ( in case of delinquent shares),if any, is due, has been paid ." (Emphasis supplied). 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. Thus, the Commission had previously opined that a stockholder who has not paid the full amount of his subscription cannot transfer part of his subscription in view of the indivisible nature of a subscription contract. (SEC Opinion dated June 3, 1994 addressed to Ms. Concepcion C. Madarang citing previous SEC Opinions) The reason behind the principle disallowing transfer of not fully paid subscription to several transferees is that it would be difficult to determine whether or not the partial payments made should be applied as full payment for the corresponding number of shares which can only be covered by such payment or as proportional payment to each and all of the entire number of subscribed shares. Consequently, it would be difficult to determine the unpaid balance to be assumed by each transferee (SEC Opinion dated March 8, 1990 addressed to Mr. Manuel R. de Jesus) Thus, 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 to a single transferee, who as a result of the transfer must assume the unpaid balance .It is necessary, however, to secure the consent of the corporation since the transfer of subscription rights and obligations 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. (SEC Opinion dated June 3, 1994 citing SEC Opinion dated September 17, 1990 addressed to Atty. Luciano S. Borja). cdlex Please be advised accordingly. (SGD.) PERFECTO R. YASAY, JR. Acting Chairman