CORPORATION LAW (JD 208)

COLLEGE OF LAW
SILLIMAN UNIVERSITY

Class Assignment

Submitted to:
ATTY. JOSE RIODIL D. MONTEBON

Submitted by:
I.
The current trend of customization and diversification of financial instruments
heed the need of investments and thus entailing ways and machinations to suit the
wants and demands of potential and existing investors, Philippine corporations
engaged in mass media sought the use of Philippine Depositary Receipts (PDRs) to
obtain foreign investment without being under the sanction of violating the
constitution. The Philippine Stock Exchange affirms that “a Philippine Depositary
Receipt (PDR) is a security which grants the holder the right to the delivery of sale of
the underlying share. A PDR consists of a deposit price and an option price, which is
considered as payment when the buyer opts to convert said PDRs to a corporation’s
share.

On the other hand, a stock certificate is an evidence of the holder’s ownership of

the stock and of his right as a shareholder and up to the extent specified therein. It is
concrete and tangible and may be issued only if the subscription is fully paid.

With regard to their distinction, first, the Philippine Depositary Receipts (PDRs)
are not evidences or statements nor certificates of ownership of a corporation while
the a stock certificate is an evidence of the holder’s ownership of the stock and of his
right as a shareholder and up to the extent specified therein. It is concrete and tangible
and may be issued only if the subscription is fully paid.

Second, the PDR are negotiable (transferable) certificates, traded on the local (US
Stock Exchanges) but with underlying other security, usually in the form of equity
that is issued by a foreign publicly listed company (Investopedia: Jan. 10). On the
other hand, the stock certificate is regarded as quasi-negotiable only in the sense that
it may be transferred by endorsement, coupled with delivery. This notwithstanding, it
is well known that the instrument is non-negotiable, because the holder thereof takes
it without prejudice to such rights or defences as the law, except insofar as such rights
or defences are subject to the limitations imposed by the principles governing
estoppel. 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 the latter’s negligence has been such as to create an estoppels
against him. If the owner of the certificate has endorsed it in blank, and it is stolen
from him, no title is acquired by on innocent purchaser for value. (De Los Santos v.
Republic, 1955)
Third,

II. Entitlements of Philippine Depositary Receipts (PDRs)

 A. Each PDR represents a share, even in a restricted company, and when bought by a
foreign entity, gives the buyer the right to all the dividends due the shares of stock
acquired.
B. “Holders of the PDRs will enjoy only the economic benefits of the shares
underlying the receipts without voting and other ownership rights. PDRs will
allow foreigners to invest in a media enterprise whose ownership is
constitutionally limited to Filipinos.”
C. Being an equity instrument and enabling the holder thereof to be the ultimate
recipient of the benefits accruing therein, i.e. dividends, PDRs indubitably has the
ability to enable foreigners to exercise control over a media corporation despite
absence of legal title to the same.
D.

III. Notes about Stock Certificate

The Corporation Code acknowledges that the delivery of a duly indorsed stock
certificate is sufficient to transfer ownership of shares of stock in stock corporations.
Such mode of transfer is valid between the parties. In order to bind parties. In order to
bind third persons, however, the transfer must be recorded in the books of the
corporation. Clearly then, the absence of a deed of assignment is not a fatal flaw
which renders the transfer invalid.

The execution of a deed of sale does not necessarily make the transfer effective. The
delivery of stock certificate duly indorsed by the owner is the operative act that
transfers the shares.

REFERENCES:

Philippine Stock Exchange, Glossary -

http://www.pse.com.ph/stockMarket/home.html#

Philippine Stock Exchange, Glossary -

http://www.pse.com.ph/stockMarket/home.html#

The Manila Times: An Indonesian tycoon’s media empire in the Philippines

exposed, April 12, 2016.
 SEC gives go-signal for GMA’s public offer, June 20, 2007
-http://www.gmanetwork.com/news/story/47489/money/secgives-go-signal-for-gma-
s-public-offer)

Mcgyver, D. Et al., 2016. UP Law Reviewer.