SUBSCRIPTION CONTRACT

First case:

ACS - 1M
500K - SUBS
500K - UNSUBS

Z wants to acquire 100K. Z paid 50% in January, 2016 as down payment while the remainder
will be on December 8, 2016 with an agreement that he will not be considered a stockholder
unless he has paid in full

August 8, 2016 - property is ravaged by fire and everything turned into ashes

Is Z liable to pay the balance of his acquisitions?

Yes, no matter how the party refer to it, it is considered subscription. Once you subscribe, you
become a stockholder which is entitled to all the rights and liabilities of a stockholder (sec. 72).

Z subscribed to 100K/S of X Co. Z did not pay on the date called and his share was declared
delinquent, the corporation then paid 100K/share. The corporation therefore reacquire the shares
again.

What do you call these shares?

Treasury shares (sec. 68, last par.)

Second case:

Y subscribed to 80K/S. Y paid 40% in January, 2016 as down payment while the remainder will
be paid on December 8, 2016. It was agreed that it was a purchase and Y will be a stockholder
only if paid in full.

August 8, 2016 - property is ravaged by fire and everything turned into ashes

Is Y still liable to pay the unpaid portion?

No, because that was a purchase.

DIFFERENCE OF THE TWO CASES:

First case - the subscribed shares of Z came from unissued stock
Second case - the subscribed shares of Y came from treasury shares, not from unissued stock

So long as the shares to be acquired from the corporation are "unissued stocks" of the latter, the
contract will be deemed a subscription contract. Thus, Z becomes entitled not only to the rights
of a stockholder but also to all liabilities attached thereunder.

Must the subscription contract be in writing?

No, it may be oral.
Subscription of 5M shares, should it be in writing in order to be valid and binding as a
subscription?
No, Statute of Frauds only applied to sales.

REMINDERS:
1. No matter how the parties call it, as long as it comes from the unissued stocks, it is a
subscription contract
2. There is no such thing as purchase (not subscription) of unissued stocks
3. A subscription contract can be conditional provided there is nothing in the charter or
statute prohibiting it and not against public order, law, etc.

TRUE OR FALSE:
1. There is no distinction between a purchase/sale and subscription of the unissued stocks of
a corporation.
2. Purchase of treasury shares is equivalent to subscription.

ANSWERS:
1. True
2. False. Treasury shares are issued but subsequently reacquired by the corporation and not
unissued shares.

Case problem:

1. Further assume that the corporation enters into a contract of sale/purchase of some of its
remaining unsubscribed share with X who pays a down payment of 50% with a condition
that he (X) will not be considered a stockholder until the full payment of the acquisition
cost and that then and only then shall he be issued a stock certificate. Pending payment
of the balance, the properties, inventories and all assets of the corporation was razed by
fire. The corporation now wants to collect the unpaid portion of the acquisition cost of
the shares. X seeks exception in that the contract is one of sale and the obligation of the
parties is reciprocal and dependent on one another. Rule and explain.

ANSWER:
X is still liable for the unpaid balance because no matter how the parties refer to it, it is
considered subscription (sec. 60). Once a person subscribe, he becomes a stockholder which is
entitled not only to all the rights but also to all the liabilities of a stockholder (sec. 72).
 PRE-INCORPORATION SUBSCRIPTIONS

What may be used as a consideration? (sec. 62)

a. Actual cash paid to the corporation
b. 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
c. Labor performed for or services actually rendered to the corporation
d. Amounts transferred from unrestricted retained earnings to stated capital
e. Outstanding shares exchanged for stocks in the event of reclassification or conversion

How much should be the consideration?

The consideration should not be less than the par or issued price of the stock (sec. 62)

Amounts transferred from unrestricted retained earnings to stated capital what does it
mean?
It refers to the declaration and distribution of stock dividend where corporate earnings are
capitalized rather than being distributed as cash dividend.

Stock dividends will in effect capitalize the unrestricted retained earnings.

May shares of stocks be issued without consideration? Why?

No, because of two reasons: (National Exchange Co. Inc. v. Dexter)
First. It is discriminatory against other stockholders
Second. It is unlawful as it prejudices the right of the creditors under the Trust Fund
Doctrine

What is the effect of issuance of shares of stocks without a consideration?

The shares will be considered as watered stocks (sec. 65) hence, subscribers may be compelled
to pay the full par or issued value thereof

REMINDER:
After 5 years, founders shares may be converted into common shares or other kinds of shares
 CERTIFICATE OF STOCK AND THEIR TRANSFER

What are the requisites for the issuance of a valid certificate of stock?
1. It must be signed by the president or vice-president and countersigned by the secretary or
assistant secretary; and
2. It must be sealed with the corporate seal; and the entire value thereof (together with
interest or expenses, if any) should have been paid

If X did not pay the full amount of his subscription, what will happen?
X will not be entitled of a certificate of stock but is nevertheless entitled to exercise all the rights
of a stockholder and the corresponding liability that attach thereunder (sec. 72)

Is the issuance of a certificate of stock necessary to consider X a stockholder?

No, X shall be considered a stockholder even without a certificate of stock

What are the instances when X may not be able to exercise his rights as such stockholder?
a. When declared delinquent (sec. 71)
b. When he exercises his appraisal right (sec. 83)

Are certificates of stocks transferrable?

Yes

Are certificates of stocks considered negotiable?

Only quasi-negotiable

Why quasi-negotiable?
Because it may be transferred by endorsement, coupled with delivery, but generally viewed as
non-negotiable because the holder thereof takes it without prejudice to such rights or defenses as
the registered owner/s or transferor's creditor may have under the law, except insofar as such
rights or defenses are subject to the limitations imposed by the principles governing estoppel.

B stole and forged the signature. C is purchaser in good faith and for value.

Will C acquire title?

No, C will not.

Certificates of stock are not negotiable instruments. Consequently, a transferee under a forged
assignment acquires no title which can be asserted against the true owner, unless his own
negligence has been such as to create an estoppel against him. If the owner of the certificate has
endorsed it in blank, and it is stolen from him, no title is acquired by an innocent purchaser for
value. (Delos Santos v. Republic)

In this case however, the legal owner of the certificate cannot be said to have lost such certificate
by his act or negligence because the certificate was stolen. As a result, estoppel will not apply.
Therefore, no matter how innocent C is (having acquired the certificate by virtue of a forged
instrument), he is still subject to all the rights and defenses of the true owner of the certificate.
[In forged or unauthorized transfer, it is settled that the purchaser/s thereof, no matter how
innocent they may have been, will acquire no title as against the lawful owner thereof by virtue
of the doctrine of non-negotiability of certificate of stock. The purchaser of shares of stock, in
such case, will have no right or remedy against the corporation because he took the shares not
by virtue of a misrepresentation made by the corporation but on the faith of a forged
endorsement or unauthorized transfer. Thus, the corporation incurs no liability to the person in
whose favor the certificate is endorsed or issued.]

What if A endorsed it?

He is estopped, unless there are other available defenses, i.e. it is still valid but only between the
parties. Transfer is required to be recorded in the books of the corporation. However, even if not
recorded, it will be valid between the parties. Non-registration will not however affect the
validity thereof at least insofar as the contracting parties are concerned (sec. 63)

Why is registration necessary?

a. To enable the corporation to know who its stockholders are
b. To enable the transferee to exercise his rights as stockholder
c. To afford the corporation an opportunity to object or refuse registration of the transfer in
case allows by law
d. To avoid fictitious and fraudulent transfers
e. To protect creditors who have the right to look upon stockholders, in case of non-
payment or watered shares, for the satisfaction

What are the modes of transferring shares of stock?

a. By endorsement of the stock certificate coupled with delivery thereof (only when a stock
certificate is already issued)
b. By a duly notarized deed (only when a stock certificate is not yet issued)

What are the restrictions on the right to transfer shares?

a. Restrictions must be made in the articles and should be subject to reasonable terms,
conditions or period (Go Soc & Sons v. IAC)
b. It is not valid, except between the parties, until recorded in the books of the corporation
(sec. 63)
c. Shares of stock against which the corporation holds any unpaid claim shall not be
transferrable in the books of the corporation (sec. 63). Unpaid claims refer to claims
arising from unpaid subscription and not to any indebtedness which a stockholder may
owe the corporation such as monthly dues (CBC v. CA)
d. Restrictions required to be indicated in the articles of incorporation, by-laws and stock
certificates of a close corporation (secs. 96 and 98)
e. Restrictions imposed by special law, such as the Public Service Act requiring the
approval of the government agency concerned if it will vest unto the transferee 40% of
the capital of the public service company
f. Sale to aliens in violation of maximum ownership of shares under the Nationalization
Laws
g. Those covered by reasonable agreement of the parties (Lambert v. Fox)
Is mortgage included in the required entry and noting on the books of the corporation to be
valid?
No, because it is not an absolute transfer. Only the transfer or absolute conveyance of the
ownership of the title to a share need be entered and noted upon the books of the corporation in
order that such transfer may be valid, therefore, inasmuch as a chattel mortgage of the aforesaid
title is not a complete and absolute alienation of the dominion and ownership thereof, its entry
and notation upon the books of the corporation is not necessary requisite to its validity.
(Monserrat v. Ceron)

What is the procedure of transferring of shares? (as to the first mode of transfer, i.e. By
endorsement of the stock certificate coupled with delivery thereof) (Nava v. Peers
Marketing)
For the transferor:
1. Sign the form on the back of the stock certificate; and
2. The certificate may thereafter be transferred from one person to another
For the transferee:
1. Fill-up the blanks in the form by inserting his own name as transferee
2. Deliver the certificate to the secretary of the corporation so that the transfer may be
entered in the corporation's books; and
3. Surrender the certificate so as to be issued with a new one

What are the rules for a valid transfer?

General rule:
By delivery of the certificate indorsed by the owner or his attorney-in-fact (sec. 63)

Exception:
Sec. 63 uses the word "may" showing that there may be other modes of transferring shares
By a duly notarized deed (Rural Bank of Salinas v. CA)

Exception to the exception:

The duly notarized deed must be endorsed and delivered by the owner thereof, their attorney-in-
fact or any other legally authorized person. In the absence of endorsement and delivery, it is still
valid between the parties but does not make the transfer effective. (Rural Bank of Lipa, Inc. v.
CA)
"Notwithstanding the execution of the Deed in favor of the petitioners, transfer of title to
such shares is ineffective until and unless the duly indorsed certificate of stock is
delivered to them." (ruling of respondent CA)

Exception to the exception to the exception:

Delivery is not essential where it appears that the persons sought to be held as stockholders are
officers of the corporation, and have the custody of the stock book. (Tan v. CA)

Exception to the exception to the exception to the exception:

In case of VTA, the trustee/s shall execute and deliver to the transferor/s voting trust certificates,
which shall be transferable in the same manner and with the same effect as certificates of stock
(sec. 59)

Exception to the exception to the exception to the exception to the exception:

in lieu of lost or destroyed certificate, once a new is reissued, it cannot be transferred thru a
notarized deed unless the owner files a bond (sec. 73)

Is there a time frame or fixed period as when transfer can be made?

No. While it is true that from the moment the certificate was assigned to the plaintiff, the latter's
right to have the assignment registered commenced to exist, it does not follow that said right
should be exercised immediately or within a definite period because the existence of a right is
one thing and the duration of said right is another. (Won v. Wack Wack Gold & Country Club,
Inc.)

Why is a stock certificate non-negotiable?

It is non-negotiable because the holder thereof takes it without prejudice to such rights or
defenses as the registered owner/s or transferor's creditor may have under the law, except insofar
as such rights or defenses are subject to the limitations imposed by the principles governing
estoppel. (Delos Santos v. Republic)

REMINDERS:
1. Right to transfer may be regulated but may not be unreasonably restricted
2. Certificate of stocks are transferrable by endorsement and delivery of the stock certificate
to the transferee. Endorsement may be made either by the owner or attorney-in-fact.
3. Duty of the secretary to record transfer is ministerial hence, mandamus will lie if the
secretary refuses to record the transfer (Rural Bank of Salinas v. CA). But the secretary
cannot be compelled when the transferees title to the said shares has no prima facie
validity or is uncertain. In order that a writ of mandamus may issue, it is essential that the
person petitioning for the same has a clear legal right to the thing demanded. 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.
(Tay v. CA)
4. A stock subscription is a subsisting liability from the time the subscription is made. The
subscriber is as much bound to pay his subscription as he would be to pay any other debt.
(Nava v. Peers marketing)

Which of the following statements are correct? Write down the letters in your test booklet.
a. A duly notarized deed of transfer without endorsement and delivery of the stock
certificate which had earlier been issued.
b. Endorsement of the stock certificate coupled with delivery to the transferee.
c. A mere notarized if no stock certificate has been issued.
d. A duly notarized deed coupled with the delivery of the already issued stock certificate.
e. Endorsement coupled with the delivery of the stock certificate even without a notarize
deed.
 f. Even without endorsement and /or delivery of the already issued stock certificate if the
person sought to be a stockholder is an officer of the corporation and ahs custody of the
books of the corporation.

Explain the following statements:

1. Subscriptions to shares of stock of a corporation are indivisible.
2. Certificates of stock are merely quasi-negotiable and are non-negotiable.

ANSWERS:
1. No certificate of stock shall be issued to a subscriber until the full amount of his
subscription together with interest an expenses (in case of delinquent shares), if any is
due, has been paid. (sec. 64)
2. While it may be transferred by endorsement coupled with delivery, and therefore merely
quasi-negotiable, it is non-negotiable in the sense that the transferee takes it without
prejudice to all the rights and defenses which the true and lawful owner may have except
in so far as the principles governing estoppels may apply. (Tan v. SEC)
Case problem:

1. Popeye subscribed to shares of stock and paid it. He did not however register it. On
February 14, 2000, he assigned said shares of stock to his girlfriend Olive through a duly
notarized deed. Olive asked the corporate secretary to register it but she refused to do so.
So olive filed mandamus. The corporate secretary filed a motion to dismiss contending
that there is no cause of action because there is no proper party.
a. Decide the case.
b. What if it was transferred to Olive through a pledge where it was provided that in
case of failure to pay, Popeye was authorized to foreclose said mortgage, will
mandamus lie?

ANSWERS:
a. Duty of the secretary to record transfer is ministerial hence, mandamus will lie if the
secretary refuses to record the transfer (Rural Bank of Salinas v. CA). But the secretary
cannot be compelled when the transferees title to the said shares has no prima facie
validity or is uncertain. In order that a writ of mandamus may issue, it is essential that the
person petitioning for the same has a clear legal right to the thing demanded. 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.
(Tay v. CA)

The duly notarized deed must be endorsed and delivered by the owner thereof, their
attorney-in-fact or any other legally authorized person. In the absence of endorsement
and delivery, it is still valid between the parties but does not make the transfer effective
(Rural Bank of Lipa City, Inc. v. CA).

As it appears, there is nothing in the facts of the case which proves that there was
delivery or endorsement hence, the transfer is not binding upon the corporation. Olive
then has no clear right to the title of Popeye's shares of stock as far as the corporation is
 concerned. In effect, the corporate secretary cannot be compelled to register the transfer
through mandamus.

b. No, Olive did not acquire ownership of the shares by virtue of the contract of pledge.
There is no showing that petitioner made any attempt to foreclose or sell the shares
through public or private auction, as stipulated in the contracts of pledge and as required
by Article 2112 of the Civil Code. Therefore, ownership of the shares could not have
passed to her. The pledgor (Popeye) remains the owner during the pendency of the pledge
and prior to foreclosure and sale as expressly stated in Art. 2103 of the same Code. (Tay
v. CA)
 FORGED AND UNAUTHORIZED TRANSFERS

100/S
The certificate was stolen by B and forged the signature of A
B sold the certificate to C

Will C acquire title?

No, in forged or unauthorized transfer, it is settled that the purchaser/s thereof, no matter how
innocent they may have been, will acquire no title as against the lawful owner thereof by virtue
of the doctrine of non-negotiability of certificate of stock.

C, armed with the endorsement form certificate, sold to D (innocent purchase for value)

Will D acquire title?

No, subject to such rights and defenses as the true and owner may have

What if C now goes to the corporation and presents the form?

The corporation shall cancel the old certificate and issues a new one in the name of C

A found out what happened and goes to the corporation

Who has a better title? C or A?

A, because he cannot be deprived of his right by virtue of an unauthorized transfer. The
corporation can compel C to deliver the new stock certificate because he made a representation
that the certificate was good.

Armed with the new certificate issued to C, the latter delivers the same to D (purchaser in good
faith and for value)

Will D acquire title?

Yes, because D took the shares not by virtue of a forged or unauthorized transfer but on the
reliance that the stock certificate is valid and owned by C

The stock certificate now in possession of D. A, knowing what happened, went to the
corporation and complains

Who will have a better title?

The corporation may be compelled to recognize both A, as stockholder (non-negotiable), and D,
on his reliance that the stock certificate is valid and existing and owned by C

Who will the corporation recognize as rightful owner? A or D?

A, the true and lawful owner, will never be deprived of his rights (doctrine of non-negotiability
of stock certificates)

What happens to D?
D will have a cause of action against the corporation for the value of his acquisition cost
inclusive of damages, attorney's fees and cost of suit

D sues the corporation for the value of his acquisition cost, inclusive of damages, attorney's fees
and cost of suit

What may the corporation do?

No valid defense because it represented to other parties that the certificate of stocks are valid,
subsisting, etc.

(2nd situation) What cause of action or remedy may the corporation have?
3rd party complaint against C

What if he is a purchaser for value?

4th party complaint against B

Case problem:

1. Assume that A is now the owner of Stock Certificate No. 008, B, his brother stole the
certificate, forged the signature of A and sold the same to C who is a purchaser in good
faith and for value. Who has a better right over the shares covered by Stock Cerificte No.
008? A or C? Explain.

ANSWER:
A has a better right. Stock certificates are non-negotiable in the sense that the transferee takes it
without prejudice to all the rights and defenses which the true and lawful owner may have except
in so far as the principles governing estoppels may apply.

2. Assume that before C transferred the shares, he surrendered Stock Cert. 008 to the
corporate secretary for registration/cancellation and for the issuance of a new stock
certificate in his (Cs) favor. The corporation cancelled Stock Cert 008 and issued Stock
Cert 010 in the name of C who thereafter transferred the latter certificate by endorsing
and delivering it to D.
a. Will D acquire title? Explain
b. Will A be deprived of his title? Explain

ANSWERS:
a. Yes, D will acquire title. This is so because if the new cert issued by the corp. either by
virtue of a forged or unauthorized transfer, however, passes into the hands of a
subsequent bona fide purchaser, the latter may rightfully acquire title thereto since the
corporation will be estopped to deny the validity. In this case, D, a subsequent purchaser
in good faith, took the shares not by virtue of a forged or unauthorized transfer but on
reliance of the genuineness of the certificate issued by the corporation or by virtue of the
representation made by the corporation that the same is valid and subsisting and that the
person named therein is a stockholder of the corp.
 b. No, A will not be deprived of his title. The corporation will be compelled to recognize
both the original certificate issued to A and the new one issued to C. If the corporation
will not recognized the new owner; the new owner may file a claim against the
corporation. The corporation may also file a third-party complaint against C, and C
against B.

Popeye subscribed to shares of stock and paid it. He did not however register it. On February
14, 2000, he assigned said shares of stock to his girlfriend Olive through a duly notarized deed.
Olive asked the corporate secretary to register it but she refused to do so. So olive filed
mandamus. The corporate secretary filed a motion to dismiss contending that there is no cause
of action because there is no proper party.
a. What if Olive stole it from Popeye and forged his signature and sold it to her other
boyfriend Brutus (in good faith and for value)? Who has better right/title to the shares of
stock?
b. What if olive after stealing and forging signature asked the corporation to register it in
her name? The corporation thinking that the signature was genuine cancelled the
certificate of Popeye (USD 500) and issued a new certificate to Olive (USD 600). Olive
then sold it to Brutus. Who is the owner? Who has better title?

ANSWERS:
a. Brutus will not be entitled thereto. In forged or unauthorized transfer, it is settled that the
purchaser/s thereof, no matter how innocent they may have been, will acquire no title as
against the lawful owner thereof by virtue of the doctrine of non-negotiability of
certificate of stock. Popeye, the true and lawful owner, will never be deprived of his
rights (doctrine of non-negotiability of stock certificates)
b. Both Brutus and Popeye. The corporation will be compelled to recognize both the
original certificate issued to Popeye and the new one issued to Olive. If the corporation
will not recognize the new owner, the new owner may file a claim against the
corporation.

Brutus because is the new certificate issued by the corporation, either by virtue of a
forged or unauthorized transfer, passes into the hands of a subsequent bona fide
purchaser, the latter may rightfully acquire title thereto since the corporation will be
estopped to deny the validity thereof.

Popeye because as the true and lawful owner, he will never be deprived of his rights
(doctrine of non-negotiability of stock certificates). Popeye will not be deprived of his
title.

(but if recognition of both stockholders would result in an over issue of shares, then only
the original and true owner can be recognized as a stockholder)
 ENFORCEMENT OF PAYMENT OF SUBSCRIPTIONS

Are subscribers of shares of stocks not fully paid, liable to pay interest?
The general rule is that they are not liable to pay interest because the code says unless requires in
the by-laws. Aside from the mandate of the law that subscribers to shares of stock must pay the
full value of their subscription, they may likewise be required to pay interest on all unpaid
subscriptions if so imposed in the contract or in the corporate by-laws at such rate as may be
indicated thereat or the legal rate if not so fixed. Unless so required or provided, however,
subscribers to shares of stock, not fully paid, are not liable to pay interest on their unpaid
subscriptions.

Who is the winning bidder in a delinquency sale?

Bidder who shall offer to pay the full amount of the balance on the subscription together with
accrued interest, cost of advertisement and expenses of sale, for the smallest number of shares or
fraction of a share. (Sec. 67)

X Co. has 1M ACS. 500K is already subscribed. A subscribed to 100K shares. 50K is already
paid leaving 50 thousand unpaid. The corporation is at a loss of 250 thousand, the board decides
to make a call for the payment of the unpaid subscriptions, however A could not paid, hence
declared delinquent and decides to sell his share at a public auction. 55K is to be paid, remaining
balance plus cost and expenses.

Bidders:
X-55K FOR 99,900 shares
Y-55K FOR 99,500 shares
Z-55K FOR 99,000 shares

Who is the winning bidder?

Z because he offered to pay the full amount of the balance on the subscription (i.e. 55K) together
with accrued interest, cost of advertisement and expenses of sale, for the smallest number of
shares or fraction of a share. (sec. 67)

Assume there is no bidder. May the corporation bid?

No, it cannot bid because Sec. 68 states "subject to the provisions of this Code." Section 68 and
41 should be reconciled. There was no unrestricted retained earnings in the example given
therefore the corporation cannot bid. Sec. 41 states, "Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to be purchased or acquired"

What if the shares of A were sold without compliance of the requirements? May A question
the sale?
The law prescribes two conditions before an action to recover delinquent stocks irregularly sold
may be allowed. These are: (Sec. 69)
1. The party seeking to maintain such action first pays or tenders to the party holding the
stock the sum for which the same was sold, with interest from the date of the sale at the
legal rate; and
 2. The action shall be commenced by the filing of a complaint within six (6) months from
the date of the sale.

Suppose in the example, since there are no unrestricted retained earnings, hence the
corporation cannot bid, is the corporation left without any recourse?
The corporation may resort to a collection case (Sec. 70)

May the stockholder be held liable for the debts of the corporation?
Yes, to the extent of their unpaid subscription (Edward Keller & Co. Ltd. v. COB Group
Marketing, Inc.)

Is there a prescriptive period wherein a demand for unpaid subscription should be made?
None, prescription will not run until and unless there is demand. It will never become due and
payable until there is a call made. Prescription should be determined from the time demand has
been made and not from the time of subscription. (Garcia v. Suarez)

If declared delinquent, what would be the effect as to the owner of said shares?
The delinquent stock shall not be voted for or be entitled to vote or to representation. The holder
shall not be entitled to any rights of a stockholder except the right to dividends (Sec. 71).
However if the shares are not delinquent, subscribers to the capital of a corporation, though not
fully paid, are entitled to all the rights of a stockholder (Sec. 72).

May the rules governing delinquency sale apply to a non-stock corporation? Are there
unpaid shares in a non-stock corporation?
Rules governing stock corporations, when applicable, also applies to a non-stock corporation.
There are delinquent shareholders also in a non-stock corporation. Example is membership dues.

A corporation paid 50% of subscription and was later on declared delinquent when he could not
pay upon call; A is also a director of the corporation.

Will A, upon declaration of delinquency, still be able to exercise his right as a director?
Yes, he loses all his right as a stockholder except his right to receive dividends (Sec. 71). He
remains to be a director, only qualification to be a director is he must own at least 1 share and
since it still stands in his name pending the sale, he remains to be and act as a director. Even if
there is sale, he may still be director because the winning bidder may not bid or pay for all the
shares for there might be remaining shares which would be credited in favor of the delinquent
stockholder (Sec. 43).

When will the replacement certificate be issued?

After the expiration of one (1) year from the date of the last publication (Sec. 73)

Could it be issued earlier than 1 year?

Yes it can be. When the registered owner files a bond or other security, a new certificate may be
issued even before the expiration of the 1 year period. (Sec. 73)

May corporate officers be held liable for the unauthorized issuance?

Yes, in case of fraud, bad faith, or negligence (Sec. 73, last par.)

Assuming the last paragraph is not there, would it be not the same, that they should be held
liable due to fraud, bad faith or negligence?
Yes, for violation of the three-fold duty of directors: (Sec. 31)
Duty of obedience - willfully and knowingly voting or assenting to patently unlawful acts
Duty of diligence - gross negligence or bad faith in directing the affairs of the corporation
Duty of loyalty - acquiring any personal or pecuniary interest in conflict with their duty as such
director
Certificate of stock was lost, the owner transfers his shares by way of a notarized deed. Will
it be valid?
He cannot do so. If there is an issued certificate of stock by the corporation, a mere notarized
deed will not suffice. Deed of assignment was not sufficient since there was no endorsement
(Rural Bank of Lipa, Inc. v. CA).

MCQ:
1. A stockholder whose shares are delinquent will
a. Have no voting and dividend rights
b. Have no voting rights at any meeting
c. Have voting and dividend rights
d. Have voting rights but no dividend rights
2. The winning bidder in a delinquency sale is
a. The bidder who bids for the highest price for the shares of the delinquent
stockholders
b. The bidder who pays or tenders to pay the amount of delinquency plus cost,
expenses and interest, if any, for the most number of shares
c. The bidder who pays or tenders to pay the amount of delinquency plus cost,
expenses and interest, if any, for the least number of shares
d. The bidder who pays or tenders to pay the full value of shares ______ amount
already paid for by the delinquent stockholder

ANSWERS:
1. b.
2. c.

TRUE OR FALSE:
A director whose shares are declared delinquent does not automatically cease to be a director.

ANSWER:
True

Objectives:
1. Explain the effects of declaration of delinquency vis--vis the right of the stockholder:
a. To vote and be voted upon.
b. To receive cash and stock dividends.
2. Subscriptions to shares of stock of a corporation are indivisible.
 3. A director/stockholder whose shares are declared delinquent is not automatically
disqualified to be and act as director.

ANSWERS:
1.a. The stockholder of delinquent stock shall not have the right to vote or be voted upon
(Sec. 71)
1.b. The stockholder of delinquent stock shall have the right to receive cash dividends which
shall first be applied to the unpaid balance on his subscription plus cost and expenses. With
regard to stock dividends, this shall be withheld from the delinquent stockholder until the
unpaid subscription is fully paid (Sec. 43)
2. No certificate of stock shall be issued to a subscriber until the full amount of his
subscription together with interest an expenses (in case of delinquent shares), if any is
due, has been paid. (Sec. 64)
3. In order for one to be and act as a director, Section 23 of the Corporation Code requires
that the director must own at least one (1) share which shall stand in his name in the
books of the corporation. Delinquency does not deprive the director of ownership of
shares. The effects of delinquency are provided in Section 71 of the Corporation Code.