TITLE VI — iT STOCKS AND STOCKHOLDERS 617 | | | 1) The mg Oy rahe eae must be Something that the corporation ‘© carrying out its Purpose or reasonabl; necessary or convenient in the pursuit of business; | pecuniary value capable of ascertainment (at fair valuation equal to the par or issued value of the stock issued); ® The right over the property must actually be transferred to the corporation and no creditors of the property held in common shalll be prejudiced by the transfer; and (4) The transfer shall be subject to Articles 1620 and j 1623 of the New Civil Code.** This means that there must be | Waiver of Rights signed by all possible co-owners stating that they waive their right of redemption or pre-emption in relation to the transfer. The co-owner who is transferring his undivided interest in the shares shall execute an affidavit stating that he already gave notice to the other co-owners and the 30-day redemption period had already expired. In the alternative, the SEC also requires an affidavit executed by the co-owners that they were given the required notice and that the 30-day redemption period had already expired. g. Labor performed for or services actually rendered to the | corporation are acceptable. For example, shares can be issued as a bonus that is formally given out as additional compensation for satisfactory service rendered. Under this concept, the bonus takes iit the form of additional expenses on the part of the paying corporation | for services rendered by the grantee.” (1) However, future services are not acceptable. vi i t be accepted as Consequently, “movie star contracts” cannot be a z a tion inasmuch as the services of movie payment for subscrip' : stars under such contracts are not yet considered as actually rendered/received as their services would still be performed in rvices that have been actually rendered the future, Only such ser’ iN are acceptable subscription payment. (2) The interest in the co-ownership must have a | "“gucoaec 3, 2008. ¥SEC-OGC Opinion No, 08-02 dated von cated in SEC-OGC Opinion N "'SEC-OGC Opinion No. 10-21, May 26, "14-28 dated October 13, 2014. aie. "SEC.OGC Opinion No, 14-28 dated October 13, 201 “8EC Opinion dated July 18, 1995 “SEC Opinion dated December 1, 199 Scanned with CamsScannerPRUDENCE ON Np JURIS! COMMENTARIES CORPORATION CODE 618 THE nts THE PHILIPPINE! debtedness es the corporatig, i i indebtedness involyeg ; “ay h. Previously 37 tion. The indel volved ig ideratio! On, also be used as & one the Board. Moreover, even indebte, ne le that is acknowledged by e Securities and Ryo) ation of th : , ig subject to the conivtr iion. To prevent watering of git Commission regard jabilities to be settle g, sndebtedness oF lial Shoy the amoust ot pa ntjue of the shares of stock, whicy wld e at least ich the saatie.t corporation intends to issue. Pt (1) Itis legally acceptable for one block of shareholde, to be allowed to pay through a previously incurred indebtedne while others will pay in cash. The set-off of the debt is equivalen, to payment for the stock in cash. §. Amounts transferred from unrestricted retained earning, to stated capital are also acceptable consideration. This happeng whenever there is a declaration of stock dividends. ly jncurred in j. The corporation cannot agree that the subscription price shall be paid only through the dividends that will be declared later. In effect, this stipulation obligates the subscriber to pay nothing for the shares in the contingency that dividends will not be declared later. This is illegal and in fraud of the other subscribers. It is settled that a corporation has no power to receive a subscription upon such terms as will operate as a fraud upon the other subscribers by subjecting the particular subscriber to lighter burdens or by giving him greater rights and privileges. k. One of the additional considerations provided under Section 61 of the RCCP is “shares of stock in another corporation” With respect to the Shares of stock in another corporation, the Se of shares is subject to the provisions of Section 41 of the se Tr abot also be noted that shares in another corporation is to theta Property. Hence, the acceptance of shares is subj © on approval of valuation of property, 101. , Boction Bic the Sea pecepted Form of Consideration: consideration” inthe list ofeemenaet et Eenerally accepted for The records of Congress darnit*tations for subscription of sh, not reveal the intent with resPe —_ "'SEC-OGC Opi pia," NO. 18-08 dated Apri 17 2018. National Exch, nee Company v. Dexter, 61 Put; aon, vebruary 21 Scanned with CamScannerile the term is quite broad, it i eration does not justify the acer” at is not similar to those spec! cally ey Cot y OT As stated earlier, Article 1350 of the New Civi jaontifie’’ rat “in onerous contracts the cause is unders' racting party, the prestation or promise of 7 Tf the prestation is “to give: QL perties that are described in Section en is get ge RCCP. I the Pigation is to do or not to do, 0) oe “labor” that must be already performed or ren un to eed under ‘Section 61(¢) of the RCCP. 1.02. Conversion. on may accept as ‘anding shares excl ks in ation or conversion. of a single includes conversion ration or & spin-off of one these cases is is jderation. Wh t pis ON gjon of this consid te other consideration thi vides preach cont! ce bY the other. service “pither cash oF Pol dered a8 consideration The corporati the event of the outst hanged for stoc! reclassific also hip into a corpo! any. The ‘consideration in ‘iges or units. “Conversion” torship oF partners. division of the comp: net assets of those enterpr’ into a corporation pb. The partnership that will be converted it must be dissolved and a duly executed Articles of Dissolution of Partnership should be submitted. In addition, considering that two personalities are involved, there must also be transfer of the properties of the single proprietorship or partnership to the corporation hence, SEC requires 4 Deed of Assignment of the assets and liabilities to the corporat arate Deed of the Assignment for land with primary en! if Deeds. proprie tion and a se] try by Register of consent to the conversion; hence, SIC sth the amount due to each creditor wirtified under oath’ by the company sent of each creditor. & The creditors mus! requires a list of creditors, certified by the auditor or accountant and the written con! ‘hey 2. Watered stocks. Watere ed for a consideration less than the par or iss' bar & Issued Price. It is necessary to fix the issued price of no- Value lue shares, Section 61 of the RCCP provides that the issued may be fixed in any of the following: (1) The Articles of Incorporation; oF d stocks are stocks that are ued price thereof. i ‘Section , RCCP. Scanned with CamScannerISPRUDENCE ON ES AND JURI 620 ol NI any CORPORATION CODE THE Rr THE PHILIPPINES «om issued by the Board of Directors (2) A resolution issued! 4 by the Articles of Tneony to authority conferred up mat or the By-Laws; or . . 3) In the absence of Pee ts ia ' the Articles , ¢ ration or if the power is not delegates a the Bo, solution ofthe stockholders representing a least ngs 8s ofthe outstanding capital stock at a meeting duly called fy e purpose. a. The “issued value” of the shares may be higher than j 1 i may also appreciate in Jue. A share is a property that ae Hence it may happen that the fair market value or the book y, alg may be greater than the par value. The Board can therefore gy selling/subscription price that is greater than the par value, (1) It is important to point out in this Connection that a stock certificate represents an interest in the corporation that is based on the number of shares owned by a stockholder regardless of the amount paid for such shares. The capital Paid in excess of the par value cannot be again issued a stock certificate if the share to which the paid-up surplus was applied as payment had already been previously issued a stock certificate. . It should be recalled that the amount of the Authorized Capital Stock is present only if the shares of a corporation have pat 4. Deposit on ‘Subbustives pean ait subscription refers toan are esctiPtion. The deposit ons! onre amount of ma i tit as a deposit with the the ‘oney received by the corpo" fot the future issuance of eo tY of applying the same as paymen 1 of capi payee subject to documentary canes ” Deposit on subscription S°SEC Opinion dat ‘ ted J “Manning, p,29, uly 5, 1994, "Commissioner of In Inc, G.R. Nos. 1-172045.46, Se evenuo v. a Ni ‘ComP' “Ibid, 009, “* First Express PawnshoP Scanned with CamScannerTITLE vit — Vil — STOCKS AND sTocKHOLDERS ea PROBLEM: @ Assume that you want to bea participant in the business: independently of your being its legal counsel, and that more investors are expected after the firm is formally organized. Explain briefly with legal reasons. Citing the proper law or laws, how may you lawfully charge your fee pad them to the payment of your share in the capital of the ‘m? A: Imay use the chargeable fee as payment for shares in the ‘corporation provided that the corporation ratifies or adopts the agreement for the services that I rendered before incorporation. Section 61 of the RCCP provides that consideration for the issuance of stock may be, among other enumerated items, “labor performed for or services actually rendered to the corporation.” Compensation for services actually rendered to the corporation is credit that is property, with ascertainable value. Hence, I can continue to perform services for the ‘company after its organization and thereafter ask as payment shares in the corporation. With respect to the services performed prior to incorporation, the agreement with the incorporators or promoters is not necessarily binding on the corporation. The corporation can however ratify the same. In such a case, the services can then be used as consideration for shares in the corporation. (1973 Bar) SEC. 62. Certificate of Stock and Transfer of Shares. — The capital stock of corporations shall be divided into shares for which certificates signed by the president or vice president, countersigned by the Secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the bylaws. Shares of stock so issued are personal Property and may be transferred by delivery of the certificate or certificates indorsed by the owner, his attorney-in-fact, or any other person legally authorized to make the transfer. No transfer, however, shall be Valid, except as between the parties, until the transfer “Ibid. ia Scanned with CamScanner1SPRUDENCE ON $ AND JUR) 622 COMMENTARIES CORPORATION CODE THE neva ee PHILIPPINE: f the corporation showing th, ety A eto ths transaction, the date Of tj . names of the pal ber of the certificate or Certificates, cee er of shares transferred. The Commission and the hare rations whose securities are tradeq in may | re which can reasonably demonstrate pid ability to do so to issue their Securities or stat 5 of stocks in uncertificated or scripless form in Sedans with the rules of the Commission. i ich the corporatio hares of stock against which oration holds any ‘inpaid claim shall be transferable in the books of the corporation. NOTES 1. Quasi-Negotiable. Stock certificates are non-negotiable instruments under the Negotiable Instruments Law.” ‘The requirements of Section 1 of the Negotiable Instruments Law. are not Present because there is, in the first place, no promise or order to pay money. However, it has been said that stock certificates are quas. negotiable because they can be transferred by indorsement coupled with delivery,7! Nevertheless, the transferee of the stock certificate takes it subject to such rights or defenses as the registered owner 8. Section 62 provides for rules . ti on transfer of shares However, Section 62 of the RCCP contemplatés no restriction as #0 7 ‘0 the shares may be transferred oy Sold.” “As owner of perso Property, a vinta erty to dispose of them (the share!) : ham eet he pleases, with imitation ut limitatio ‘hls respect, than the gener? Provisions of Jomo 101, F : ‘ormal of the Cert ides that 0 rtifica i ee ‘he certificates of stack ant signed by the pene Act No, 2031, a ‘De los 96 Phil. 59g," 7"!9% € 4. Macteuty "an v. SEC, 09g , 206 8 ' 31, 2005, CRA 140, cite i SEC Opinion No, 05-09 dated 0" ‘eng V. Secu, ys 2016 citing Fisher 8 And Bch, ie th “ta HM Bota ach oo reat No. 184892, Febru" z “ (1925), 955, "al. GR. No, Lagia, February 28 ! Scanned with CamScannerTIT! — ‘LE VII — STOCKS AND STOCKHOLDERS ae countersigned by the secretary or assistal . a int secret: with the seal of the corporation. The certificate hall ba lasnealia accordance wi ae and Ms should be noted that the seal of the corporation e By-Laws. In addition, the By. may prescribe the procedure for the issuance of the ecrtifenta, 1.02. Street Certificate. When a stock certificate is endorsed in blank by the owner thereof, it constitutes what is termed as “street certificate, 50 that upon its face, the holder is entitled to demand its transfer into his name from the issuing corporation. Such certificate ig deemed quasi-negotiable, and as such, the transferee thereof is justified in believing that it belongs to the holder and transferor.” By way of exception, where stock certificates endorsed in blank were stolen from the possession of the beneficial owners, the transfer is void for lack of delivery and want of value.” 2. How Transfer is Made. Voluntary transfer of a share that is represented by a certificate must strictly comply with the following conditions to be considered binding on the corporation: (1) There must be delivery of the certificate; (2) The share certificate must be indorsed by the owner or his agent; and (3) Tobe valid vis-a-vis the corporation and third parties, the transfer must be recorded in the books of the corporation.” that the above-enumerated requisites contracts entered into between the ‘The subscriber becomesa shareholder even if the corporation has not yet issued the stock certificate. Full payment is not even required under Section 71 of the RCCP before a shareholder can exercise the rights of a shareholder. 2.01. Delivery. The delivery that is required is delivery from the transferor to the transferee. It is not delivery to the corporation a. Note, however, do not apply to subscription corporation and the subscriber. eae "Santamaria v, Hongkong and Shanghai Banking Corp, 89 Pail 10, 78-780 (0951); Guy, ef al. v. Guy, G.R. Nos, 189486 and 189609, September 6 2012, *Neugene Marketing, Ine., et al. v. Court of Appeals, 362 Phil, 633, 644 (1999); uy, et ob v Ces tong v. Securities and Exchange Commission ORM at, Peony i .R, No. 12 a . 2: Raval Bank fe oe Appeals, y, Vortox Sales and Trading, t, Ine, ef ‘ > Inge Fibstate Golf and Deegan delivery ofthe crtfont is essential. Scanned with CamScanner{UDENCE ON ES AND JURISPRI aa COM EVISED CORPORATION CODE OF THE PHILIPPINES “Tt is delivery of the carticate Coupled With his duly authorize Tepresenta dorsement by the owner or pre ie ea is the operative act of ‘transfer of shares from the origina} ow, to the transferee.” The delivery or surrender from the transferop the corporation is nota requisite before conveyance may be recoyjy in its books.” 2.02. Who Will Transfer. The shareholder of record in 4, books of the corporation has the right to transfer the shares, a. However, the shares may be held in trust for another person or entity. The true owner (trustor) can dispose of the share in any manner he or she sees fit without interference from the trustes who already lost his right as such." Thus, shares may be held in trust by an employee of a corporation with the condition that the trust is terminated when he is separated from employment from the corporation for any reason. After the separation, the corporation has the right to dispose of the shares and to ask the court to enjoin any transfer thereof that is being made by its former employee-trustee,2 b. Although the transfer must be recorded in the books of the corporation, the corporation whose shares are subject of a transfer transaction (through sale, assignment, donation or any other mode of conveyance) is not a party to the transaction.® that is contemplated.” ¢c. Transfer of shares between spouses is void if they are governed by the system of absolute community property regime. The transfer shall be recorded only if the share is part of the excluded Properties or if they are governed by the system of separation of property," 2.03, If there is no certificate. If the shareholder-transferor does not have any certificate, the delivery and the indorsement ee ee ¥ Securitios and Exchange Commission, G.R, No. 184982, February 17, 2016. bid, “Ibid, mime Dasky Piipings In, v. Jonus B, Mendoza, G,R, Név 308047, Jn 1 2018; Thompson v, Court of Appeals, Octobur 26, 1990 soe Soi 208. ‘Sime Darby Pilipinas, Ine v, Josue 3, Menton ‘Fil-Estate Golf and Development, Ine v, Verner a No, 202078, June 10,2018, (Ite presumed that Foreat Hilla ina separate and Id be apr stock corporation from the petitioner, otharwiee ‘shoul rule on subscription.) ert earola Ck “' SEC-OGC Opinion No, 19-09 dated March 10, 2019. lied the Scanned with CamScannerTITLE vir— VII — STOCKS AND STOCKHOLDERS eas : he corporation is con i recording, the transferee may not be rogandedsby the eneperation as one of its stockholders and the corporation may legally refuse the issuance of stock certificates. In other words the Stock and Transfer Book is the basis for ascertaining the persons entitled to the rights of a stockholder. Where a transferee is not yet recognized as a stockholder, the corporation is under no specific legal duty to issue stock certificates in the transferec’s name. (1) It cannot be argued that it is the duty of the corporate secretary, when presented with the document (whereby the registered stockholder acknowledges the transfer of fully paid shares) to effect the transfer by recording the transfer in the stock and transfer book and to issue stock certificates in the name of the transferee. Mandamus should not issue to compel the secretary of the corporation to make a transfer of the stock on the books of the corporation unless it affirmatively appears that he has failed or refused to do so upon demand either of the person in whose name the stock is registered or of some person holding a power of attorney for that purpose from the registered owner of the stock. (2) Consequently, if the shares are not represented by the certificate (such as when the certificate has not yet been issued or where for some reason it is not in the possession of the stockholder), transfer can be made by means of a deed of assignment but the same must be duly recorded in the books of the corporation. However, as required in Vicente C. Ponce v. Alsons Cement Corporation,” the registered owner must izing the transferee jal power of attorney authorizing , idsmaa ca ransfot in the stock and transfer books. It is believed however that this authority may be included in the deed of assignment or document of transfer itself. ——— G.R, No, 139802, Dece! "Ponce y. Alsons Cement Corp» asi, "Supra. umber 10, 2002. upra, citing Hager v. Bryan, 10 Phil, 198 Scanned with CamScannerURISPRUDENCE ON COMMENTARIES be D PORATION CODE 626 THE REVISED PHILIPPINES where there j, § e there are cases eis gy (3) It ig true roments for transfer enumerated aby \e . not ii 'e, paearieved however that this rule shoul ane case. plied With It is believe or.” There have been excep 20% deci, “pedantic rigor nt whore it did not require complianes y the Supreme ge for transfer of shares. For instance, in a oo t ruled that there was no necessity to in, te case, the Court cts required for the tranefe, ii I the a the certificate because @ hanes to exercise its rights over the acquired sl were attendan, poration was protected from other parg, and oven tvpat said transfer was earlier registered in yy crck and transfer books." In another case, delivery was ny considered essential whereit appears that the persons who wer, sought to be held as stockholders are officers of the corporatioy and have custody of the stock book.® In still another case, the Deed of Transfer of shares was held to be sufficient basis tp compel the corporation to record the transfer in the stock and transfer book.” (4) In this connection, it was explained in Lao », Lao," that absent a written document, the alleged transferee must prove, at the very least, possession of the certificates of shares in the name of the alleged seller. To be recognized as transferee, the latter must prove possession; he must prove the due delivery of the certificates of shares of the seller to him. If the alleged transferee is in possession of the certificate, the burden is on the corporation to prove that the said transferee is not a shareholder. application 0 a, %_, na more recent case, the Supreme Court clarified that the ambiguity of the alleged transferee’s deed of undertakins with endorsement led the Court in Ponce to rule that mandamus Would have issued had the registered owner himself request © registration of the transfer, or had the person requesting & even elected as di Sune 36, 2030, Se also Makati Sp “Tuazon v, La Pri ria Filini, “Rural Bank of Galion N67 Phil, 6, cited in Tan v. SEC ib 1992 cited i winas, Ine. v, Court v ‘ dune ‘ited in Teng v, Securit of Appeals, G.R. No. 96674 a and Ex wa, No. 170585, October , ae Commission, supra. Scanned with CamScannerTITLE VII — STOCKS AND STOCKHOLDERS a registration secured a Hever of attorney from the registered owner. y ight of the bon i Galksupported by evidence, then mandamus ea te secetod wa compel the (1) registration of the transfer and (2) issuance of new certificates. In Andaya v. Rural Bank of Cabadbaran, Inc.,*® the submitted documents did not merely consist of an endorsement. The transferee was able to establish that he was a bona fide transferee by presenting the notarized Deed of Sale or Assignment, the Documentary Stamp Tax Declaration/Return, Capital Gains Tax Return, and the duly endorsed stock certificates. The transferee even submitted a letter that clearly indicated that the registered owner herself had requested the registration of the transfer of shares of stock. Hence, the transferee was able to successfully compel the registration of the transfer and the issuance of new certificates. Even the SEC is consistent with its view that the execution of a Deed of Assignment is in order if no stock certificate has been issued or where the same is not in the possession of the transferor.” b. In another case, the Supreme Court ruled that the petitioners were able to establish that they are shareholders of the corporation although they were not able to produce stock certificates and although there is no entry or record in the Stock and Transfer Book (STB) showing the petitioners to be the shareholders of the corporation.* The Court declared the petitioners as stockholders of the respondent corporation and ruled that the shareholdings can be established through other evidentiary means. In addition, the Supreme Court ruled that the non-recording of the transfer is not a valid justification for the refusal to order the production of the STB under the Section 1, Rule 27 of the Rules of Court provisions on discovery and production of documents.” 3. Registration. The law requires registration of the transfer in the books of the corporation in order to be valid as to third persons and the corporation itself. It is upon registration in the books of the corporation that the transferee may exercise all his rights as a stockholder. Registration means recording of the transfer “Andaya v. Rural Bank of Cabadbaran, Ine.,G.R. No. 188769, August 3, 2016, “Ibid. wind baran, Inc., supra. Andaya v, Rural Bank of Cabadbaran, Inc. supra. 5 Opini 19, 2019, *'$EC-0GC Opinion No. 19-09 dated March 19 *Borgoria y, Abra Colleges, Inc., G.R. No. 204089, July 29, 2016. “Ibid. Scanned with Cam:D JURISPRUDENCE ON ENTARTES AND oe ON CODE COMMENTARIES oRPO! 628 THE REST PHILIPPINES Corporate Secretary « Book by the tary, in the Stock and Aranetey He rporntion Code (now Section gy 9 te import of Section 63 0) afer book would be the main Teferencg) ROCP), the stock ante ‘entitlement to the rights of a stock in ascertaining tL the registration of ta transfer, the Ale duet on ot be recognized as a stockholder who ig one je anote,l tot be given a stock certificate. ; ht of Registered Owner. The rights of a regig Right orate d to respect. It is presumed that the vntered shareholder is still the owner of the shares. A person y Seims ownership over the shares of stock must show that the ga, dai : : % were transferred to him by proving that en i Tequirements fy effective transfer of shares were followed.'°' Thus, the registers owner of the share has to right to receive notice and attend meetings of stockholders. The fact that other persons i disputing the ownership of the shareholder is of no moment and an alleged unrecorded transfer to third persons will be deemed non-existent as far as the corporation is concerned.'”? a. shareholder are b. Surrender of the Certificate. It was pointed out earlier that delivery of the stock certificates to the transferee is what is necessary for the transfer of ownership. It should also be stressed that delivery or surrender of the stock certificates to the corporation (through the Corporate Secretary) is necessary in order that the transferee can secure new stock certificates in his name. “The surrender of the original certificate of stock is necessa"} before the issuance of a new one so that the old certificate may b cancelled. A corporation is not bound and cannot be required © 'Ssue # new certificate unless the original certificate is produced am! surrendered. Surrender and cancel]; ft cert lation of the old certificates and the public as well, i as well, as it ensures : eine covering a particular share of stock, hat there ia only ane d ©. Rationale of registration sen Registration Requirement, In ait ‘ves important functions, as follows; (1) to enable # ‘Andaya V. Rural Bank of ¢ "'Razo0 v. Intermedinns of Cabadbaran, Ine. mediate A; Aran, Ine., supra, 16,1992, 207 BORA zu4, n4q. Plate Court and Chuidan, Q.R. No. 14300, ‘eVillongeo v. Yabut, GR, Nos, Je ene ¥: Becuritin und Baer, oO And 226024, February 6, 2018 17, 2016. Exchange Con at ; fgg, FOO Scanned with CamScannerTITLE VII — STOCKS AND STOCKHOLDERS () transferee to exercise all the rights of a shareholder; (2) to afford to the corporation an opportunity to object or refuse its consent to the transfer in case it has any claim against the stock sought to be transferred or for any other valid reasons; (3) it inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and subject to the liabilities of a stockholder — to enable the corporation to know at all times who its actual stockholders are, because mutual rights and obligations exist between the corporation and its stockholders; and (4) to avoid fictitious transfers. d. Third Persons Not Affected. The unregistered transfer does not affect third persons. For instance, an attachment lien prevails over a prior unregistered stock transfer.’ Hence, in one case, the shares were attached to answer for the obligation of the registered owner. An alleged prior buyer of the shares filed a third party claim over the attached shares. The Court denied the third party claim because the alleged sale of the shares in favor of the third party claimant was not recorded in the books of the corporation; the transfer, not having been recorded in the corporate books in accordance with law, is not valid or binding as to the corporation or as to third persons." 3.01. Registration of Transfers Only. What should be registered in the Stock and Transfer Book are transfers. Transfer means any act by which property of a person is vested in another and “transfer of shares” implies any means whereby one may be divested of and another acquire ownership of stock.'*” (1) Consequently, registration in the stock and transfer book is not necessary if the conveyance is by way of chattel there must be due registration with mortgage. However, : 108 Tnasmuch as a chattel mortgage is the Register of Deeds. o ities and Exchange Commission, ibid.; Escano v. Filipinas Mining Gees i No. 49003, July 28, 1944, 74 Phil. 711, 716; Republic of the Philippines v. Sandiganbayan, 450 Phil. 98, 129 (2008) citing Batangas Laguna Tayabas Bus Company, Ine. v. Bitanga, 415 Phil. 43, 57 (2001); De Erquiza v. Court of Appeals, 258 Phil. 626, 637 (1989). 2 seomit June 17, 1986. 15Yjson v, Diosomito, et al., G-R. No. 42186, rf oree Lee Kiat vy, Ayala Corporation, G.R. No, 192530, March 7, 2018. 11Chemphil Export & Import Corporation v. Court of Appeals, G.R. Nos. 112438-39, Di 12, 1996, 251 SCRA 267, 284, inion Gee savahang Magaasake, Inc, G.R, No, 42091, November 2, 1935, 62 Phil. 472. Scanned with CamScannerJURISPRUDENCE ON COMMENTARIES AN RATION CODE 630 THE REE ‘PHILIPPINES ienation of the domin; jute alienation of the domin, not a complete ee its entry and notation Upon any ownership of the jon is not a necessary requigit, | ‘ books of Satan jn the stock and transfer iy validity * Ree for the creation and perfection of gq “i sroest under Republic Act No. 11057 otherwise known gg Personal Property Security Act. (2) Similarly, registration in the books of the corporat of attachment of shares of stock is also not necess, the validity thereof. The same is not a transfer within 4, contemplation of the RCCP."” 4, Unpaid Claim. Section 62 provides that “no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation.” The term “unpaid claim” refers to any unpaid claim arising from unpaid subscription and not to any indebtedness which a subscriber may owe the corporation arising from any other transactions." 5. Transfer of Subscription. While no transfer of shares shall be recorded in the books of the corporation until full payment a sleepin Price, there is no prohibition for the transfer }e subscrip ‘ion agreement itself. Subscription agreements can pa by ait persons. The Supreme Court ruled that the ae i subscription agreements is a form of novation by 8 ‘on of a new debtor and which requires the consent of or a In Inter Inc." the corporation Resources Corp, v, Securities Specialis!s ‘as duly Notified of the assignment whe? rs ‘Monserrat v, ™*Chemphil Export 9’ oo No. 87078, jt China Banking Gor Import Co orat arabe svproseoamnaa wee 1897, 270 SCRA 603, G25, "tion v. Counpar COUPE of Appeals, suPra a "Inerport Recocey at °f Appeals, G.R, No, 117604, Mar mp. June 6, 2016, Y. Seo, bid, Yie8 Specialists, Ine, G.R. No- 16 Scanned with CamScannerTn LE VI — stocks anp STOCKHOLDERS oes the assignee of the subscription t unpaid balance. Hence, the corporat to pecnb ined fe of the subscription that the transferee saficontly oan ished by documentary evidence. It was also held at poration cannot claim that the asi ived its ri inot cl ignee waived its rights over the shares due to its failure to register the assignment in the books of the corporation and that the assignee was estopped from claiming the assigned shares, inasmuch as the assignor had already ‘e assignee. The assignor is no longer the shares because the assignee became the obligee by virtue of the novation," eee endered its payment for the tion could not anymore refuse 6. Transfer Through Other Modes. Upon the death of a shareholder, the heirs do not automatically become stockholders of the corporation and acquire the rights and privileges of the deceased as shareholders of the corporation. The stocks must be distributed first to the heirs in estate proceedings, and the transfer of the stocks must be recorded in the books of the corporation. The transfer by succession shall not be recognized until the transfer is recorded in the books of the corporation. During the interim period from the time of the stockholders’ death, the heirs stand as the equitable owners of the stocks and the executor or administrator duly appointed by the court is vested with the legal title to the stocks. Until a settlement and division of the estate is effected, the administrator or executor holds the stocks of the decedent. Consequently, during such time, it is the administrator or executor who is entitled to exercise the rights of the deceased as stockholder."* a. Simply stated, the transfer of title by means of succession, though effective and valid between the parties involved (i.e., between the decedent's estate and her heirs), does not bind the corporation and third parties, The transfer must be registered in the books of the corporation to make the tranaferee-heir a stockholder entitled to ecognition as such both by the corporation and by third parties. “Ibid, "Puno v, Puno Enterprises, "Reyes v, Regional ‘Trial Court (RTC) of Mal ., G.R, No, 177066, September 11, 2009, ie kati, G.R. No, 165744, August 11, have been paid before any shares in a 1 Revenue that the estate taxes h Tecra domestic corporation is transferred in the nam Scanned with CamScannerURISPRUDENCE ON 1p8 AND JUD TION CODE IMENTARLET, CORPORA’ vn REVISS py PHILIPPINES noted in Reyes v. RTC" that ; NAb b, The Supreme Oa Corporation v. Court of Ayn Abe, i Peal, v, Dela Cruzi* and TOF i ogistration of the transfer ji the Court did not holder of the corporation (jp att onsidering the transfere® a stot -corporate relation betw, Sty upholding the existence ° within the jurisdiction of the SEC a parties and bringing the = ‘The Court noted a marked Aifferent intra-corporate contr TCL Sales Corporation cases and p, eae between the Abajo a I Sales, the transferees held definite iu RTC. In Payne a specific number of shares of the Corporati, cs afore had established prima facie ownership over yi a . of sox in question, registration became a mere formaliy ea their status as stockholders. In Reyes v. RTC," of ‘ho eutjon heirs holds only an undivided interest in the share, Such interest, at that point, was still inchoate and subject to the outcome of a settlement proceeding; the right of the heirs to speci distributive shares of inheritance will not be determined until af the debts of the estate of the decedent are paid. In short, the heirs are only entitled to what remains after payment of the decedent's debts. 632 c. Consequently, an heir of the deceased stockholder has no right to inspect the books of the corporation ‘until the transfer to the heirs is recorded in the books of the corporation.'! Without registration in the books, the heir is also not entitled to the rightto file a derivative action. a Note that under Secti ection 55 of the Corporation Co ly appointed by the court stockholders or randy ion 54 of the RCCP (previously de), executors and administrator 'y attend and vote in behalf of the members without need of any written proxy. 7. rt f soldinan afl mon Sale, A third party buyer of shares that we" i "renigtnder Rule 89 of the Rules of Civil Proce” "Bupra, “GR. No, 1.63 - 1463558, My, WAG.R. No, 129777, '5,1°Y 19, 1989, 1 regipn RTT dary ie SCRA 654, Puno v, Pung Puno Entor « "Reyes v. RTO, satan, Ine, supra, Scanned with CamScannerTITLE vit — vir STOCKS AND STOCKHOLDERS 88 nd judgment creditor is no: 7 . the sale is without prejudice oe sich regatration*® However, liability of the parties against each other, “” “termine the 8 Regulation of Transfer, being regarded as property, may be dis; se08 fit unless the corporation is diseol 80 is Proper reacted or the owner's actions." Section 62 (previously Sectio; ‘i “contemplates no restriction ata hon a) an Me mtnslersod ce sold, As owner of personal property, a sharcholder is at liberty to dispose of them in favor of whomsoever he pleases, without any other limitation in this respect, than the general provisions of law. a. _ The corporation may regulate the transfer of its stocks by providing certain formalities and procedure in the By-Laws. However, the authority granted to a corporation to regulate the transfer of its stock does not empower it to restrict the right of a stockholder to transfer his shares, but merely authorizes the adoption of regulations as to the formalities and procedure to be followed in effecting transfer.'*7 Shares of corporate stock, posed of by the owner as he ved, or unless the right to do privilege is hampered by hia b. Any restriction on right to transfer must be construed strictly. For instance, the Corporation may not put a stamp on the certificates that the same are non-transferable. ‘The stamp constitutes unreasonable limitation on the right of ownership and is in restraint of trade. c. The restriction may be embodied in a separate agreement between the parties. For instance, the transferor and the transferee of the share may stipulate a right of first refusal in favor of the transferor. However, the private agreement is not binding on a subsequent transferee who has no knowledge of the right of first refusal.129 31 ¢¢ y. Hon. Trocino, G.R. No. 164648, June 19, 2009. "Ibid. "Padgett v. Babcock & Templeton, Ine., LR. No, 38684, December 21, 1988, 59 Phil, 239, citing 14 C.J. 663. Commission, G.R, No, 184382, February Teng v, Securities and Exchange Comm! 17, 2016; Fleisher v. Botica Nolasco Co. 47 en " "Thomson y. Court of Appsall, Oo ae ied Jk & Templeton, Inc., supra. pan of Ameren NNT & SA v. Court of Appeals, G.R. No, 76017, June 8, 1990, 186 SCRA 417. 383 (1926). 1998, 298 SORA 295, Scanned with CamScanner{URISPRUDENCE ON pS AND J CONMENTAMTS ED CORPORATION CODE 634 THE ae THE PHILIPPIN: a transferee or assignee ight of : 5s. The ri is an inherent right flowin. %% 0. Rome to his mame . ill lie agai g stocks transferre fandamus Will lie against the og. Hecwmership ofthe stocks, Mant ar the transfer ar ty bar the regi offers ho ve not duly made upon request, he p,, Me transfer . fer it to be made." The Supreme Court explain remedy satrati er of shares of stock is a ministerja] -Therepiatration fe pete parties may then resort tothe ms the part Se pA ‘corporations that wrongfully or unjustifiable! ee oe transfer or to issue new Laken of Steet, This Teme available even upon the instance of a bona fide rane fetes who isabeg establish a clear legal right to the registration of the transfer. This right inherently flows from the transferee’s established ownership of the Stocks, Consequently, transferees of shares of stock are real parties interest having a cause of action for mandamus to compel the registratinn of the transfer and the corresponding issuance of stock certificates.” a. Mandamus will not lie against the corporation where the shares of stock in question are not indorsed by the registered owner who is resisting registration thereof in the Stock and Transfer Book. b. It is the corporate secretary's obligation to register a valid transfer of stocks and if the said corporate secretary refuses to comply, the transferor-shareholder may rightfully bring suit compel the performance. The transferee, even if he is a corporal officer, cannot take the law in his own hands by making the entries himself in the stock and transf i iling of the eee nsfer book instead of availing of ete "Rural Bank 1992, 210 SCRA TID Pe nas, Inc. v. Court of Appeals, GR. No. 96674, Jus# Minerals Corp., G.R. No, 07a a Srragiies Teo. Oriental Pelee “SW Price ond 472 August 81, 2007, , November 10, 1983, 68 Phi oe evelopment Co, v, H, Mastin, GR. No 3 ya v. Rural Bi citing Tenn tte Rural Bank of Cabadb, 3,086 2016; P, ache Beetle and Exchange (anu Ine, G.R. No, 188769, August ®. 7, : 6° Commissic 2, Brie rites Co, ion, G.R, No, 184892, Febeuttn SOMA B10 peels, Ine v. Court off OFietal Petroleum, 668 Phil. 428.6% 516; Price y, PPeals, G.R. No, 96674, June 26, ! Ce ne, 47 Pil B68 Long nae 88 Pal 707 ge et ot sameeit Y.Flrendo, GR. Np {qeeutt of Appeal, 966 Phil 381 199% sana rg. ¥. Court of ayer S788, October 906, 144 SCRA Gs GR No, 120138, September 5! Scanned with ase annerTITLE vin — I — STOCKS AND STOCKHOLDERS 685 d.Rescission may al; i circumstances if the transferee doce neu! sale. Thus, rescission may be available if the transferor failed to deliver the stock certificates within a reasonable time from the point the shares should have been delivered. It is not correct to say that a sale had already been consummated even if the transferee enjoyed certain rights as a shareholder. “The enjoyment of these rights cannot suffice where the law, by its express terms, requires a specific form to transfer ownership ”'5" : le depending on the it to continue with the e. If there is no indorsement in favor of the transferee, the transferee may file an action to compel the transferor to make such indorsement. However, the same cannot be considered as an intra-corporate controversy because the transferee is not yet a shareholder.'** 9.01. Prescription. Considering that the law does not prescribe a period within which the registration of the transfer of shares should be effected, the action to enforce the right does not accrue until there has been a demand and a refusal concerning the transfer. Hence, the action can be filed.even 24 years after the transfer.1° 10. Tax. The Documentary Stamp Tax (DST) and the applicable capital gains tax should be paid before the transfer of share is registered and before the issuance ofa new certificate. The corporate secretary must require the submission of the Certificate of Authority to Register (CAR) issued by the Bureau of Internal Revenue before transfer in the books of the corporation is made. 735Fontana Resort and Country Club, Ine. v- ‘Spouses Tan, G.R, No, 154670, January 30, 2012. erbe ip eetate Golf and Development, Ino. v. Vertex Sales and Trading, Inc., GR. No, 202079, June 10, 2013. sa . y d ber 8, 1996, 144 , . wet GR, No, L-67686, Octol ei % ae Peri Corporation, GR. No. asngoa, Decerber 10, 2002; Won v, Wack Wack Golf and Country Clubs Ine 104 Phil. Scanned with CamScannerSPRUDENCE ON AND JURI: conn se ‘CORPORATION CODE aa RF ‘THE PHILIPPINES the Tax Code, DST is impose, f ook The DST, as an excise tay, ae th ares of st nity and the facility of issuing gp ef ortu: itr of ral eee Co Inc," the 636 a. Under Section 17 original issue of shi upon the privilege, of stock." In Com: Resources of Asia, . Tue, Supreme Court explaineq that f the stockholder’s subscript on acceptance 0 tion DST ciate “4 capital stock regardless of actual or constry, ig the corporal ff atock. delivery of the certificates 0 sss idated Coconut, Inc. v, btn Pinna Core bald that. cringe, ate onic asues a certificate of etock (representing the ownenjs of stocks in the corporation to fully paid subscription) the cerifae of stock can be utilized for the exercise of the attributes of ownership over the stocks mentioned on its face. The stocks can be alien? the dividends or fruits derived therefrom can be enjoyed, and can be conveyed, pledged or encumbered. The certificate as ist by the corporation, irrespective of whether ot not it is in the acm or constructive possession of the stockholder, is considered isl because itis with value and hence the DST must be paid as impos by the National Internal Revenue Code, as amended, c. _ As regards those certificates of stocks temporarily subject to suspensive conditions they shall be liable for said tax only when released from said conditions, for then and only then shall they truly acquire any practical value for their owners,¥3 11. Right of First Refusal. The Arti joa : . 3 + The Articles of Incorporatio! peu ea onde ® right of first refusal to stockholders 3! may provide that any vig ot ample, the Articles of Incorporsti® Mt al mil also be based Purely on contract, 4s The right of first refu es *Commissio I ner of Inte 5 ao te 72046-46, dune 16, pine ¥. First Express Pawnshop >"? IG.R, No. 1.99: 3 2009, 162 Phil, go tiene Phil 76, November 25, 1986, 4 Inte lovember venue v, Co, ic of Asi® 50 Opin 25, 1986, nstruction Resources ¥. Cor ; ak ot ao See aloo SEc-Oge ret Nr eg, y cote March 31, 2008, a dated October 11 apAPPeale, G.R, No, 78017, JuM® Scanned with CamScanner