Corporation Law: The Revised Corporation Code of the Philippines - Sec 63

THE REVISED CORPORATION CODE  OF THE PHILIPPINES 

Republic Act No. 11232 

TITLE VII - STOCKS AND STOCKHOLDERS

Section 63. Issuance of Stock Certificates.

No certificate of stock shall be issued to a subscriber until the full amount of subscription together with interest and expenses (in case of delinquent shares), if any is due, has been paid.

1. Stock Certificate. 

• Stock Certificate is defined as "a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named in the document is the owner of a designated number of shares of its stock."
• A certificate of stock is the paper representation or tangible evidence of the share but it is not the share itself.
• The certificate is not the stock in the corporation but is merely evidence of the holder's interest and status in the corporation. 
• It is the evidence of the shareholder's ownership of the share represented thereby but it is not in the law equivalent of that ownership. 
• It expresses the contract between the corporation and the stockholder, but it is not essential to the existence of a share or the creation of the relation of shareholder to the corporation.
• A certificate of stock is the evidence of a holder's interest and status in a corporation. 
• It is prima facie evidence that the holder is a shareholder of a corporation.
• However, evidence can be presented to determine the real owner of the shares.
• It should also be noted that possession of the stock certificate is not the sole determining factor of one's stock ownership.
• Other pieces of evidence may also be accepted to prove that a person is a shareholder like the Articles of Incorporation and the Stock and Transfer Book.
• There may also be submission of other competent means of establishing shareholdings such as:
• official receipts for the payment of subscription
• proof of issuance of part of the authorized and unissued capital stock in favor of the person who claims to be a shareholder, 
• secretary's certificate
• General Information Sheet
• Minutes of Meetings and 
• other documents.
• It is also an evidence that the shareholder named therein have fully paid the subscription price considering that the certificate will not be issued until the same price is fully paid.

1.01. Requirements for Issuance.

• "The manner of issuance of certificates of stock is generally regulated by the corporation's by-laws."
• The stock certificate is not validly issued if it does not comply with the prescribed form and other conditions imposed by Sections 62 and 63 of the RCCP. 
• Thus, a certificate of stock can be issued only upon compliance with these requisites:

1. The certificate must be signed by the president or vice-president, countersigned by the secretary or assistant secretary;
2. The certificate must be sealed with the seal of the corporation;
3. The certificate must be delivered;
4. The full amount of the subscription (together with interest and expenses for delinquent shares) must first be fully paid; and
5. The original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder.

• In connection with the first requirement, it has been observed that a mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal stock certificate. 
• There is no issuance of a stock certificate where it was never detached from the stock books although blanks therein were properly filled up if the person whose name is inserted therein has no control over the books of the company. 
• The element that there must be delivery is absent.
• A certificate of stock may be issued with the conjunctive "and/or" placed between the names of the parties who are co-owners of said shares and it is understood that the shares covered by the certificate may be transferred upon the endorsement of both or either of the stockholders and the right to vote the share may also be exercised by both or any of them.
• The stock certificate itself once issued is a continuing affirmation or representation that the stock described there is valid and genuine and is at least prima facie evidence that it was legally issued of evidence to the contrary.
• In connection with fifth requirement - surrender of the original certificate - it was explained that the same is necessary so that the old certificate may be cancelled.
• "A corporation is not bound and cannot be required to issue a new certificate unless the original certificate is produced and surrendered. 
• Surrender and cancellation of the old certificates serve to protect not only the corporation but the legitimate shareholder and the public as well, as it ensures that there is only one document covering a particular share of stock." 

2. Authority to Issue. 

• It is also an implicit requirement for the issuance of the certificate that the corporation must be authorized to issue the stocks. 
• For instance, the corporation cannot issue a stock certificate if there are no unissued shares in the company.
• It is basic principle that a stock issued without authority and in violation of law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities. 
• Where there is an inherent lack of power in the corporation to issue the shares, neither the corporation nor the person to whom the stock is issued can invoke estoppel when its validity is being questioned since an estoppel cannot operate to create a stock which under the law cannot have existence.

3. Stockholder's Right to Stock Certificate. 

• While the issuance of a stock certificate is not a condition precedent to render one a stockholder, every stockholder has a right to have a proper certificate issued to him by a corporation, upon demand, as soon as he has complied with the conditions which entitle him to said certificate. 
• Under Section 63, the corporation is duty bound to issue stock certificates to their stockholders as soon as their subscription prices are fully paid. 
• The stock certificates may be issued in the name of the owner or even directly to his nominee.
• The shares may also be placed in the name of a trustee in accordance with a trust agreement entered into by the parties. 
• The stock certificates may be issued in the name of the owner or even directly to his nominee. 166 The shares may also be placed in the name of a trustee in accordance with a trust agreement entered into by the parties.

4. Principle of Indivisibility of Subscription. 

• Section 63 implicitly sets forth the doctrine that a subscription is one, entire and indivisible whole 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 any interests and expenses, if any is due. 
• All partial payments on one subscription shall be deemed applied proportionately among the number of shares. 
• To permit the issuance of stock certificate for payment of a subscription that does not cover the entire number and value of the shares subscribed would be in violation of Section 64 of the Corporation Code (now Section 63 of the RCCP). 
• If the indivisibility of the subscription is not upheld and "the subscriber becomes delinquent in the payment of subscription, the corporation may not be able to sell as many as his subscribed shares as would be necessary to cover the total amount due from him, which is authorized under Section 68 [now Section 67, RCCP].
• It should be noted that the Supreme Court allowed the application of partial payment as full payment for the corresponding number of shares in a case decided under the old Corporation Law, Baltazar v. Lingayen Gulf Electric Power Co., Inc. 
• However, the SEC pointed out that a perusal of the legislative deliberation of Section 64 of the Corporation Code (now Section 63 of the RCCP) clearly shows the legislative intention of abandoning such ruling.
• The effect of partial payment on the right to transfer was discussed by the SEC in this wise: "If the stockholder has not paid the full amount of his subscription, he cannot transfer part of it in view of the indivisible nature of subscription contract. It is only upon full payment of the whole subscription that a stockholder can transfer the same to several transferees. However, the entire subscription, although not yet fully paid, may be transferred to a single transferee, who as a result must assume the unpaid balance. It is necessary, however, to secure the consent of the corporation since the transfer of subscription right contemplates a novation of contract which under Article 1293 of the Civil Code of the Philippines, cannot be made without the consent of the creditor."
• Likewise because of the principle of indivisibility of subscription, a stockholder may not assign the balance of the subscription to third persons in such a manner that the stock certificates will be issued to the stockholder for the paid portion and the balance to the third person who assumes the payment of the balance of the subscription. 
• The subscription cannot be divided into portions.
• Neither can the stockholder assign the paid portion to one transferee and the unpaid portion to another transferee.

5. Remedies for Non-Issuance.

• The remedies of the shareholder if the corporation unduly refuses to issue a certificate are as follows:

1. Action for specific performance;
2. Action for damages if specific performance is not available;
3. Petition for mandamus for the issuance of the certificate; and
4. Rescission of the subscription agreement with the consequent mutual restitution. 

6. Forged or Spurious Certificates.

• A forged certificate is a void certificate. 
• If the officers specified in Section 62 of the RCCP - President or Vice-President and Secretary or Assistant Secretary - do not sign the certificate or if the signatures of the same officers are forged, the certificate is not valid even if the present holder is a holder in good faith and for value. 

PROBLEM: 

Q: Mr. Balimbing signed a written subscription for 100 shares of stock of Laban and Co., paying 25% of the amount thereof. The corporation subsequently became insolvent due to a series of financial reverses. Mr. Balimbing demanded from the Corporate Secretary the stock certificates corresponding to 25 shares which he claimed was already paid. Since the corporation was insolvent, Mr. Balimbing refused to pay for his remaining unpaid subscription. 

Can the Corporate Secretary validly refuse to issue stock certificates in the name of Mr. Balimbing for 25 shares despite the payment of 25% of the subscription of 100 shares? Reasons. 

Yes. The Corporate Secretary validly refused to issue the stock certificate. No certificate of stock shall be issued unless the full amount of the subscription is paid. Since Mr. Balimbing paid only 25% of the subscription price, he cannot demand the issuance of the certificates. 

Is Mr. Balimbing correct in refusing to pay for the remaining shares, the Company being already insolvent? Reasons. 

No. Mr. Balimbing has no right to refuse to pay the balance of the subscription price. The subscribed capital is deemed to be held in trust for the creditors of the corporation. While as a rule, a call is necessary to make the obligation to pay due and demandable, the same is not necessary if the corporation becomes insolvent. The obligation to pay arises when the corporation becomes insolvent because the trust fund is now necessary to discharge corporate liabilities.