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code, a condition dependent on the sole will of the debtor renders the obligation void.
However, a condition dependent upon chance or upon the will of a third person is valid.
7. When can subscription be made?
Sec. 60 provides
i. Pre-incorporation subscription subscription of shares of stock of a corporation
still be formed.
ii. Post incorporation subscription subscription of those made or executed after the
formation or organization of the corporation.
Sec. 61. Pre-incorporation subscription. - A subscription for shares of stock of a
corporation still to be formed shall be irrevocable for a period of at least six (6) months
from the date of subscription, unless all of the other subscribers consent to the revocation,
or unless the incorporation of said corporation fails to materialize within said period or
within a longer period as may be stipulated in the contract of subscription: Provided, That
no pre-incorporation subscription may be revoked after the submission of the articles of
incorporation to the Securities and Exchange Commission. (n)
Sec. 61 gives an immediate binding effect on pre-incorporation subscriptions as against
the subscribers of the capital stock of a corporation still be formed. Pre-incorporation
subscription is MANDATORY1.
Pre-incorporation subscription is also IRREVOCABLE for a given period of time:
1. They shall be irrevocable for a period of at least 6 months from the date of
subscription unless:
a. All the subscribers consent to the revocation;
b. The incorporation of the said corporation fails to materialize within
said period or within a longer period as may be stipulated in the
contract of subscription.
SIR: When there is subscription, there is actual issuance of shares. Such issuance must be made for a
valid consideration.
8. What may be used as consideration for the issuance of shares of stock?
Sec. 62. Considering for stocks. - Stocks shall not be issued for a consideration less than
the par or issued price thereof. Consideration for the issuance of stock may be any or a
combination of any two or more of the following:
1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually received by the corporation and necessary or
convenient for its use and lawful purposes at a fair valuation equal to the par or issued
value of the stock issued;
3. Labor performed for or services actually rendered to the corporation;
4. Previously incurred indebtedness of the corporation; (a set-off)
5. Amounts transferred from unrestricted retained earnings to stated capital; and
1 Sec. 13 and 14 of Corp Code: Mandates that a corporation may be registered as
such if at least 25% of its authorized capital stock has been subscribed and that at
least 25% of the subscribed capital has been paid.
e.g. Founders shares with exclusive voting rights which shall not exceed 5 years, may be
converted into common or other type of shares upon the expiration of the period agreed
upon or as may be fixed in the AOI or by-laws.
12. How is the value of no par shares determined?
It may be fixed in
a. Articles of incorporation; or
b. Board of directors pursuant to an authority conferred upon them by the Articles
of Incorporation and by-laws;
c. Stockholders representing at least a majority of the OCS at a meeting duly
called for that purpose, provided that the value of the no-par value shares
would not be less than 5php.
13. Can promissory notes or future services be a consideration for shares of stock? Why?
NO. As explicitly provided for in sec. 62 of the Corporation Code, promissory notes or
future services cannot be made for considerations for shares of stock as their realization is
not certain. It would prejudice the creditors who shall rely on the shares for payment.
This is in relation to the trust fund doctrine.
14. May shares of stock be issued without consideration? Like the consideration shall be paid out of
the dividends?
NO. It is illegal and void as in fraud of other stockholders and creditors, or both,
and cannot be either enforced by the subscriber or interposed as a defense in an action for
subscription (in relation to the trust fund doctrine). Subscribers, all alike, are bound to
pay full par value in cash or its equivalent, and any attempt to discriminate in favor of
one subscriber by relieving him of this liability wholly or in part is forbidden. (National
Exchange Co. Inc. vs. Dexter)
NATIONAL EXCHANGE CO. INC. vs. DEXTER
FACTS:
Dexter signed a subscription of capital stock where there is a stipulation that it is
payable from the fist dividends declared of the capital stocks until the subscription is
paid.
ISSUE: Whether the stipulation is valid?
HELD: NO. The stipulation is not valid.
It shall be unlawful to issue stock otherwise than what is stated in the law. It is
self-evident that a stipulation such as that now under consideration is illegal; for the
stipulation obligates the subscriber to pay nothing for the shares except as dividends may
accrue upon the stock. In the contingency that no dividends are declared and paid, there is
no liability at all. This is a discrimination in favor of the particular subscriber, and hence,
is unlawful.
It is illegal and void as in fraud of other stockholders and creditors, or both, and
cannot be either enforced by the subscriber or interposed as a defense in an action for
subscription.
The rule is that conditions attached to subscriptions, which, if valid, lessen the
capital of the company, are fraud upon the grantor of the franchise, and upon those who
may become creditors of the corporation, and upon unconditional stockholders.
Subscribers, all alike, are bound to pay full par value in cash or its equivalent,
and any attempt to discriminate in favor of one subscriber by relieving him of this
liability wholly or in part is forbidden.
public auction. Monserrat alleged ownership of the same. The trial court ruled in favor of
Monserrat and declared the mortgage null and void.
ISSUE: Whether or not it is necessary to enter upon the books of the corporation a
mortgage in order to be valid and enforceable against third persons.
HELD: NO.
What the law refers to as to the word transfer is the unconditional transfer or
absolute conveyance of ownership of title. Hence, the requirement for registration in the
books of the corporation is not required for a mortgage of stocks to be valid. Cerron,
having acquired the shares in good faith, is entitled to the protection of the law.
22. Must the mortgage be registered in the register of deeds in order to have force and effect against
third persons or creditors?
YES. While it is true that the registration of the mortgage in the books of the corporation
is not required in order for the mortgage to be valid (Monserrat vs. Cerron). However, the
said mortgage must be registered in the REGISTRY OF DEEDS of the residence of the
mortgagor AND the register of deeds in the province where the principal office of the
corporation is situated. A defective registration of mortgage in the register of deeds shall
not have any priority over attaching creditors. (Chua Guan vs. Samahang Magsasaka)
CHUA GUAN vs. SAMAHANG MAGSASAKA, INC.
FACTS:
Respondent is a corporation with a principal office at Cabanatuan, Nueva Ecija. Co Toco,
the owner of 5,894 shares of the said corporation, mortgaged the same to Chua Chiu, a resident of
Manila, to guarantee the payment of a debt. Chua Chiu registered the deeds of assignment in the
Register of Deeds of Manila.
Co Toco defaulted on his payment, hence, the mortgaged was foreclosed and was sold at
a public auction, Chia Chiu being the highest bidder. Co Toco then demanded the corporation for
the cancellation of the old certificates of stocks and the issuance of new ones in his name.
It must be noted that before notice of the mortgage, there were already writ of
attachments served to the corporation.
ISSUE: Whether or not the registration of the chattel mortgage in the Register of Deeds of
Manila gave constructive notice to the attaching creditors?
HELD: NO.
It has been already settled that registration in the corporate books is not a requirement for
the validity of mortgage of stocks. However, the under the chattel mortgage law, when such
mortgage has been made, it must be registered in the following:
xxx
(c)If the residence of the mortgagor is different from the place where the property is
located, the mortgage must be BOTH recorded in the mortgagors residence and the
province where the property is situated.
In the present case, the registration of the mortgage was defective as it was only
registered in the residence of the mortgagor and not with the province where the property was
situated. Hence, the attaching creditors are entitled to priority over the defectively registered
mortgage.
Whenever a corporation refuses to transfer and register stock in cases like the present,
mandamus will lie to compel the officers of the corporation to transfer said stock in the books of
the corporation.
The corporations obligation to register is a ministerial one and if it refuses to make such
transaction without good cause, it may be compelled so by mandamus.
TAY vs. CA
FACTS:
Respondent secured a loan from petitioner, in order to secure the loan, respondent
executed a contract of pledge whereby he pledged 300 shares of stock from respondent
corporation. Respondent failed to pay his loan. Hence, petitioner filed a petition for mandamus in
order to register the stock transfers and issue new certificates in his favor.
ISSUE: Whether or not the respondent corporation may be compelled by mandamus to register
the said stocks.
HELD: NO.
The reliance over the case of Rural Bank of Salinas vs. CA has been misplaced. In the
said case, the contract of transfer / sale has already been perfected. In this case, the petitioners
ownership over the said shares was not yet perfected when the complaint was filed. The contract
of pledge certainly does not make him the owner of the shares pledged.
In Rural Bank of Salinas, the transferees were already prima facie shareholders when the
deeds of assignment were questioned. If the said deeds were to be annulled later on, respondents
would still be considered shareholders of the corporation from the time of the assignment until
the annulment of such contracts.
In order that a writ of mandamus may be issued, it is essential that the person petitioning
for the same has a clear legal right to the thing demanded and that is the imperative duty of the
respondent to perform the act required. It neither confers powers nor imposes duties and is never
issued in doubtful cases. It is simply a command to exercise a power already possessed and to
perform a duty already imposed.
In the present case, the petitioner failed to establish this legal right. Under the civil code,
in order to become the owner of the pledged thing, there must first be a public auction. Absent
such requirement, the ownership of the shares could not have passed to him and the pledgor
remains the owner of the thing pledged.
NAVA vs. PEERS MARKETING
FACTS:
Teofilo Po is a stockholder in respondent corporation. However, no certificate of stock
was issued to him. He then sold his shares to petitioner. Petitioner then requested the corporation
to register to his name the transfer made by Po. The said request was denied because Po has not
fully paid the amount of his subscription.
ISSUE: Whether or not the respondent corporation may be compelled to register the stocks sold
by Po to Nava.
HELD: NO.
The transfer made by Po to Nava is not alienation, sale or transfer of stock that is
supposed to be recorded in the stock and transfer book, as contemplated in sec. 63 of the
Corporation Code.
As a rule, the shares which may be alienated are those which are covered by certificates
of stock. To validly transfer the same, they must be indorsed and properly delivered by the
transferee. Title may be vested in the transferee by delivery of the certificate with a written
assignment or indorsement thereof.
In the case given, there was no certificate of stock issued to Po as he has not yet fully
paid his subscription. Hence, without the said certificate of stock, he cannot validly transfer the
said certificates.
26.