Fase V: Impresión del inyector

A person may become a stockholder in a corporation in either of three ways:

1. By a contract of subscription with the corporation;

2. By purchase of treasury shares from the corporation; and 3. By purchase or acquisition of shares from existing stockholders.

A. SUBSCRIPTION CONTRACT

A ―subscription‖, properly speaking, is the mutual agreement of the subscribers to take and pay for the stocks of the corporation. A ―subscription contract‖, on the other hand is specifically defined in Sec. 60:

Sec. 60. Subscription contract. - Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other contract.

SUBSCRIPTION VS. PURCHASE: In the latter, the buyer becomes a shareholder only upon full payment of the price. UNISSUE shares cannot be the subject of a ―purchase‖.

―We may add that the law in force in this jurisdiction makes no distinction, in respect to the liability of the subscriber, between shares subscribed before incorporation is effected and shares subscribed thereafter. All like are bound to pay full value in cash or its equivalent, and any attempt to discriminate in favor of one subscriber by relieving him of this liability wholly or in part is forbidden. In what is here said we have reference of course primarily to subscriptions to shares that have not been previously issued. It is conceivable that the power of the corporation to make terms with the purchaser would be greater where the shares which are the subject of the transaction have been acquired by the corporation in course of commerce, after they have already been once issued. But the shares with which are here concerned are not of this sort.‖ (National Exchange Co., Inc. vs. Dexter)

EXAMPLE: If X corporation had P1M authorized capital divided into 1M shares with a par value of P1. 500,000 has already been subscribed:

1. Z ―purchased‖ 100,000 of the UNISSUED shares paying 50% down payment and the balance payable after 6 months, with a condition that he will not be considered a shareholder until full payment. – He is still liable for the balance because this will be considered a subscription no matter how the parties refer to it and accordingly, Z is liable as a

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THE CORPORATION CODE OF THE PHILIPPINES (Batas Pambansa Bilang 68, as amended) based on the book of Atty Ruben C. Ladia shareholder therein.

2. Z was declared a delinquent shareholder and X Co. was declared as the winning bidder by paying P100,000 and acquired the delinquent shares.

Later on, 20,000 of the shares were sold to Y – here, the shares being from treasury and not from unissued shares, may be the proper subject of a ―purchase‖ and thus, a condition that Y would not became a shareholder until full payment may be valid.

ORAL: A subscription contract need not be in writing such that an oral contract of subscription is valid and enforceable under the Statute of Frauds.

Thus, it was ruled by the SC that such an agreement does not seem to fall within the definition of a sale under our substantive law, and is therefore believed that an oral subscription agreement as distinguished from sale of stock is valid and enforceable.

CONDITION: Subscriptions may be made upon a condition precedent or upon special terms (condition subsequent). A conditional subscription, or one made upon a condition precedent, does not make the subscriber a stockholder, or render him to pay the amount of his subscription, until performance of the condition. A subscription upon special terms, on the other hand, is an absolut subscription, making the subscriber a stockholder, and rendering him liable as such, as soon as the subscription is accepted, the special term being an independent stipulation.

In case of doubt in the intention of the parties, a subscription should be considered as an absolute subscription upon special terms, rather than conditional. The policy of giving protection to creditors and other subscribers has led to the adoption of this rule of construction favoring the immediate liability of the subscriber.

Conditional Subscriptions are valid provided: (1) there is nothing in the charter or enabling act prohibiting the same; and (2) providing the conditions are not such as to render their performance beyond the powers of the corporation or in violation of law or contrary to public policy.

NAZARIO TRILLANA, administrator-appellee, vs. QUEZON COLLEGE, INC., claimant-appellant (GR No. L-5003; June 27, 1953)

FACTS: Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College:

June 1, 1948

The BOARD OF TRUSTEES Quezon College

Manila Gentlemen:

Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of P100 each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial payment and the balance payable in accordance with law and the rules and regulations of the Quezon College. I hereby agree to shoulder the expenses connected with said shares of stock. I further submit myself to all lawful demands, decisions or directives of the Board of Trustees of the Quezon College and all its duly constituted officers or authorities (ang nasa itaas ay binasa at ipinaliwanag sa akin sa wikang tagalog na aking nalalaman).

Very respectfully,

(Sgd.) DAMASA CRISOSTOMO Signature of subscriber

Nilagdaan sa aming harapan:

JOSE CRISOSTOMO EDUARDO CRISOSTOMO

On Oct. 26, 1948, Crisostomo died. As no payment on the subscriptions appear to have been made, herein appellant filed a claim in her testate

proceedings for P20,000 which was opposed by the administrator, and dismissed by the CFI.

ISSUE: WON the subscription is valid and enfroceable?

HELD: No. It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a general form indicating that an applicant will enclose an amount as initial payment and will pay the balance in accordance with law and the regulations of the College. On the other hand, in the letter actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be entered) not only did not enclose any initial payment but stated that "babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda." There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested by Damasa Crisostomo, or that if there was any acceptance the same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there was absolute necessity on the part of the College to express its agreement to Damasa's offer in order to bind the latter.

Conversely, said acceptance was essential, because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had caused fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc. had only thus reached the preliminary stage whereby the latter offered its stock for subscription on the terms stated in the form letter, and Damasa applied for subscription fixing her own plan of payment, — a relation, in the absence as in the present case of acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract.

Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void, under article 1115 of the old Civil Code which provides as follows: "If the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional obligation shall be void. If it should depend upon chance, or upon the will of a third person, the obligation shall produce all its effects in accordance with the provisions of this code." It cannot be argued that the condition solely is void, because it would have served to create the obligation to pay, unlike a case, exemplified by Osmeña vs. Rama (14 Phil., 99), wherein only the potestative condition was held void because it referred merely to the fulfillment of an already existing indebtedness.

In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the whole obligation void."

B. PRE-INCORPORATION SUBSCRIPTION

Pre-incorporation subscriptions make reference to subscriptions for shares of stock of a corporation still to be formed while post-incorporation subscriptions are those made or executed after the formation or organization of the corporation.

Sec. 61. Pre-incorporation subscription. - A subscription for shares of stock of a corporation still to be formed shall be irrevocable for a period of at least six (6) months from the date of subscription, unless all of the other subscribers consent to the revocation, or unless the incorporation of said corporation fails to materialize within said period or within a longer period as may be stipulated in the contract of subscription: Provided, That no pre-incorporation subscription may be revoked after the submission of the articles of incorporation to the Securities and Exchange Commission.

IMMEDIATE BINDING EFFECT: This new provision gives an immediate binding effect on pre-incorporation subscriptions as against the subscribers of the capital stock of a corporation still to be formed. Pre-incorporation subscriptions are, in fact, mandatory as may be culled from the provisions of Sec. 13 and 14 of the Code which mandates that a corporation may be

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THE CORPORATION CODE OF THE PHILIPPINES (Batas Pambansa Bilang 68, as amended) based on the book of Atty Ruben C. Ladia registered as such only if at least 25% of its authorized capital stock has

been subscribed and that at least 25% of the subscribed capital has been paid.

IRREVOCABLE: Pre-incorporation subscriptions are irrevocable:

1. For a period of at least 6 months from the date of subscription unless (a) all the subscribers consent to the revocation; or (b) the incorporation fails to materialize within said period or within a longer period as may stipulated in the contract of subscription; and

2. After submission of the AOI to the SEC.

C. STOCK ISSUANCE

Stock issuance is generally the initial and primary source of corporate capital.

Other sources may include corporate borrowings, loans and advances from creditors or stockholders. Corporate earnings may also be a source of corporate funds if it is reinvested or ploughed back to the company.

Sec. 62. Consideration for stocks. - Stocks shall not be issued for a consideration less than the par or issued price thereof. Consideration for the issuance of stock may be any or a combination of any two or more of the following:

1. Actual cash paid to the corporation;

2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued;

3. Labor performed for or services actually rendered to the corporation;

4. Previously incurred indebtedness of the corporation;

5. Amounts transferred from unrestricted retained earnings to stated capital;

and

6. Outstanding shares exchanged for stocks in the event of reclassification or conversion.

Where the consideration is other than actual cash, or consists of intangible property such as patents of copyrights, the valuation thereof shall initially be determined by the incorporators or the board of directors, subject to approval by the Securities and Exchange Commission.

Shares of stock shall not be issued in exchange for promissory notes or future service.

The same considerations provided for in this section, insofar as they may be applicable, may be used for the issuance of bonds by the corporation.

The issued price of no-par value shares may be fixed in the articles of incorporation or by the board of directors pursuant to authority conferred upon it by the articles of incorporation or the by-laws, or in the absence thereof, by the stockholders representing at least a majority of the outstanding capital stock at a meeting duly called for the purpose.

―ISSUE‖: is generally employed to indicate the making of a share contract or contract of subscription, that is, transaction by which a person becomes the owner of shares and by which new share contracts are created. It is often associated with the execution and delivery of a share certificate but the issuance of the shares is not dependent on the delivery of a certificate of stock.

―PAR‖ or ―ISSUED PRICE‖: while it may not reflect the true value of the shares which constantly fluctuates, merely indicates the amount which the original subscribers are supposed to contribute to the corporate capital as the basis of the privilege of profit sharing with limited liability.

PROPERTY: If shares are issued in exchange for property, the value of such should at least be equal to the par or issued value of the stocks. Such value, may be determined with reference to

a. REAL PROPERTY - (1) independent appraiser’s appraisal report; (2) BIR Zonal Valuation; or (3) Market Value indicated in the Real Estate Tax Declaration.

b. INTANGIBLE PROPERTY – as determined by the incorporators or the BOD subject to the approval of the SEC.

TRUE VALUE RULE: the motives and intent of those making the valuation are disregarded and the sole and decisive factor or question is whether or not the property or services are in fact worth the value placed on them.

GOOD FAITH RULE: is based on the proposition that the value of the property or services is a matter about which there can be an honest difference of opinion. Therefore, if the parties have acted in good faith without fraud or intentional over-valuation, the transaction cannot be overturned even if it later becomes evident that the property or services were in fact worth much less than the value fixed on them initially.

Most jurisdiction follow the GOOD FAITH rule.

STOCK DIVIDENDS: Sec. 62(5) which states that ―amounts transferred from unrestricted retained earnings to stated capital‖ refer to stock dividends where corporate earnings are capitalized rather than being distributed as cash dividend. It merely converts income into capital, the consideration being the retained earnings itself which would have accrued to the stockholders in proportion to their respective stockholdings.

NO CONSIDERATION: stocks may not be issued without consideration for the following reasons: (1) it is discriminatory against other stockholders; and (2) it prejudices the rights of creditors under the Trust Fund Doctrine.

RECLASSIFICATION: Sec. 62(6) which provides that ―outstanding shares exchanged for stocks in the event of reclassification or conversion‖ speaks of shares of stock surrendered to the corporation in exchange for new or different type of shares. Example: Found Shares which, after 5 years, may be converted to common stocks.

PROHIBITED CONSIDERATIONS: Shares of stock may not be issued in exchange for (1) promissory notes; or (2) future services – as their realization are not certain.

THE NATIONAL EXCHANGE CO., INC., plaintiff-appellee, vs.

I. B. DEXTER, defendant-appellant (GR No. L-27872; Feb. 25, 1928)

FACTS: On August 10, 1919, the defendant, I. B. Dexter, signed a written subscription to the corporate stock of C. S. Salmon & Co. in the following form:

I hereby subscribe for three hundred (300) shares of the capital stock of C.

S. Salmon and Company, payable from the first dividends declared on any and all shares of said company owned by me at the time dividends are declared, until the full amount of this subscription has been paid

Upon subscription, defendant Dexter paid P15,000 from the dividends declared by the company and supplemented by money supplied personally be the subscriber. No other payment was made.

ISSUE: WON the subscription to be paid out of the dividends declared on the shares has the effect of relieving the subscriber from personal liability in an action to recover the value of the shares?

HELD: No. Under the American regime corporate franchises in the Philippine Islands are granted subject to the provisions of section 74 of the Organic Act of July 1, 1902, which, in the part here material, is substantially reproduced in section 28 of the Autonomy Act of August 29, 1916. In the Organic Act it is among other things, declared: "That all franchises, privileges, or concessions granted under this Act shall forbid the issue of stock or bonds except in exchange for actual cash or for property at a fair valuation equal to the par value of the stock or bonds so issued; . . . ." (Act of Congress of July 1, 1902, sec. 74.)

Pursuant to this provision we find that the Philippine Commission inserted in the Corporation Law, enacted March 1, 1906, the following provision: ". . . no corporation shall issue stock or bonds except in exchange for actual cash paid to the corporation or for property actually received by it at a fair valuation equal to the par value of the stock or bonds so issued." (Act No. 1459, sec. 16 as amended by Act No. 2792, sec. 2.)

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THE CORPORATION CODE OF THE PHILIPPINES (Batas Pambansa Bilang 68, as amended) based on the book of Atty Ruben C. Ladia The prohibition against the issuance of shares by corporations except for

actual cash to the par value of the stock to its full equivalent in property is thus enshrined in both the organic and statutory law of the Philippine Islands;

and it would seem that our lawmakers could scarcely have chosen language more directly suited to secure absolute equality stockholders with respect to their liability upon stock subscriptions. Now, if it is unlawful to issue stock otherwise than as stated it is self-evident that a stipulation such as that now under consideration, in a stock subscription, is illegal, for this stipulation obligates the subscriber to pay nothing for the shares except as dividends may accrue upon the stock. In the contingency that dividends are not paid, there is no liability at all. This is a discrimination in favor of the particular subscriber, and hence the stipulation is unlawful.

The general doctrine of corporation law is in conformity with this conclusion, as may be seen from the following proposition taken from the standard encyclopedia treatise, Corpus Juris:

Nor has a corporation the power to receive a subscription upon such terms as will operate as a fraud upon the other subscribers or stockholders by subjecting the particular subcriber to lighter burdens, or by giving him greater rights and privileges, or as a fraud upon creditors of the corporation by withdrawing or decreasing the capital. It is well settled therefore, as a general rule, that an agreement between a corporation and a particular subscriber, by which the subscription is not to be payable, or is to be payable in part only, whether it is for the purpose of pretending that the stock is really greater than it is, or for the purpose of preventing the predominance of

Nor has a corporation the power to receive a subscription upon such terms as will operate as a fraud upon the other subscribers or stockholders by subjecting the particular subcriber to lighter burdens, or by giving him greater rights and privileges, or as a fraud upon creditors of the corporation by withdrawing or decreasing the capital. It is well settled therefore, as a general rule, that an agreement between a corporation and a particular subscriber, by which the subscription is not to be payable, or is to be payable in part only, whether it is for the purpose of pretending that the stock is really greater than it is, or for the purpose of preventing the predominance of