Transfer of Shares of Stocks (Unpaid Subscription)

            Corporate shares may be transferred through donation, sale, assignment, and such other contracts conveying properties to another.  No transfer shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.  However, no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation.[1]  In this case, 64,750.5 shares have been paid by the majority stockholder.  He could transfer the same through donation, sale or assignment. 

            Article 63 of the Corporation Code provides thus:

Certificate of stock and transfer of shares. - The capital stock of stock 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 by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates endorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

            The usual practice is for the stockholder to sign the form on the back of the stock certificate. The certificate may thereafter be transferred from one person to another. If the holder of the certificate desires to assume the legal rights of a shareholder to enable him to vote at corporate elections and to receive dividends, he fills up the blanks in the form by inserting his own name as transferee. Then he delivers the certificate to the secretary of the corporation so that the transfer may be entered in the corporation’s books. The certificate is then surrendered and a new one issued to the transferee.

            That procedure cannot be followed in the instant case because the stockholder has not paid the full value of his subscription.  Article 64 of the Corporation Code states that no certificate of stock shall be issued to a subscriber until the full amount of his subscription together with interest and expenses (in case of delinquent shares), if any is due, has been paid.  Hence, the stockholder has not been issued the certificate of stock corresponding to his shares. While it is true that holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder,[2] without a stock certificate, which is the evidence of ownership of corporate stock, the assignment of corporate shares is effective only between the parties to the transaction. The delivery of the stock certificate, which represents the shares to be alienated, is essential for the protection of both the corporation and its stockholders.

            Nevertheless, the stockholder is not left without recourse.  The majority stockholder may execute a trust agreement for the purpose of conferring upon the other stockholders the rights pertaining to the stocks even without the certificate of stocks.  Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definitive meaning may be gathered. The said provision partly reads:

One or more stockholders of a stock corporation may create a voting trust  for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any time: Provided, That in the case of a voting trust  specifically required as a condition in a loan agreement, said voting trust  may be for a period exceeding five (5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust  agreement shall be canceled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust  agreement.

            The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions specified in the agreement. The five year-period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of the loan.

            A voting trust agreement may confer upon a trustee not only the stockholder’s voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered “for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud.” (section 59, 5th paragraph of the Corporation Code) Thus, the traditional concept of a voting trust agreement primarily intended to single out a stockholder’s right to vote from his other rights as such and made irrevocable for a limited duration may in practice become a legal device whereby a transfer of the stockholder’s shares is effected subject to the specific provision of the voting trust agreement.  The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the corporate shares of a stockholder, on the one hand, and the legal title thereto on the other hand. [3]

-Atty. Ma. Rebecca G. Evangelista

[1] Section 63, Corporation Code of the Philippines.

[2] Section 72, Ibid.

[3] Lee vs. CA, G.R. No. 93695, 4 February 1992.