BUSINESS ORGANIZATION II – 3RD EXAM Nevertheless, a certificate of stock is the paper representative or
tangible evidence of the stock itself and of the various interests
Xandredg Sumpt L. Latog
I ownership of the share represented thereby, but is not in law the
STOCKS
A. CONSIDERATION FOR STOCKS
Section 61. 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:
(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) Previously incurred indebtedness of the corporation;
(e) Amounts transferred from unrestricted retained earnings
to stated capital;
(f) Outstanding shares exchanged for stocks in the event of
reclassification or conversion;
(g) Shares of stock in another corporation; and/or
(h) Other generally accepted form of consideration.
Where the consideration is other than actual cash, or
consists of intangible property such as patents or copyrights, the
valuation thereof shall initially be determined by the stockholders or
the board of directors, subject to the approval of the Commission.
Shares of stock shall not be issued in exchange for
promissory notes or future service. The same considerations provided
in this section, insofar as 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 by the articles of incorporation or the bylaws, or if
not so fixed, by the stockholders representing at least a majority of the
outstanding capital stock at a meeting duly called for the purpose.
B. CERTIFICATE OF STOCK AND TRANSFER OF
SHARES
Section 62. Certificate of Stock and Transfer of Shares. – The
capital stock of 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 bylaws. Shares of
stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner, his
attorneyin-fact, or any 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 Commission may require corporations
whose securities are traded in trading markets and which can
reasonably demonstrate their capability to do so to issue their
securities or shares of stocks in uncertificated or scripless form in
accordance with the rules of the Commission.
No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the corporation.
A certificate of stock is a written instrument signed and
sealed stating or acknowledging that the person named therein is
the owner of a designated number of shares of its stock. There is no
required format as long as the signatures and seal are present.
1. Nature and Function
A certificate of stock is not necessary to render one a
stockholder in corporation.
Page 1 of 13
therein. The certificate is not stock in the corporation but is merely
evidence of the holder's interest and status in the corporation, his
equivalent of such ownership. It expresses the contract between the
corporation and the stockholder, but is not essential to the existence
of a share in stock or the nation of the relation of shareholder to the
corporation [Tan v. SEC].
Besides, in Philippine jurisprudence, a certificate of stock
is not a negotiable instrument. "Although it is sometime regarded
as quasi-negotiable, in the sense that it may be transferred by
endorsement, coupled with delivery, it is well-settled that it is non-
negotiable, because the holder thereof takes it without prejudice to
such rights or defenses as the registered owner/s or transferror'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 [De Los Santos v. McGrath].
2. Probative Value of a Certificate of Stock
The certificate of stock itself once issued is a continuing
affirmation or representation that the stock described therein is
valid and genuine and is at least prima facie evidence that it was
legally issued in the absence of evidence to the contrary. However,
this presumption may be rebutted [Bitong v. Court of Appeals].
Similarly, books and records of a corporation which
include even the stock and transfer book are generally admissible
in evidence in favor of or against the corporation and its members
to prove the corporate acts, its financial status and other matters
including one's status as a stockholder. They are ordinarily the best
evidence of corporate acts and proceedings but are not conclusive
even against the corporation but are prima facie evidence only
[Ibid].
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 stock, neither the corporation
nor the person to whom the stock is issued is estopped question
validity since estoppel cannot operate to create stock which under
law cannot have existence [Ibid].
Possession of the certificate of stock is not sole
determining factor of one’s stock ownership, considered the
following evidence to be sufficient to establish a petitioners’ stock
ownership in the corporation [Insigne v. Abra Valley Colleges].
3. Requirement for Transfer of Stock
Section 62 states that the shares of stock are personal
property which mat be transferred by endorsement and delivery.
Such delivery shall be the operative act of transfer of title to the
shares from the lawful owner to the transferred. But no such
transfer shall be valid except as between parties, until the transfer
has been recorded in the books of the corporation. Note that no
shares of stock which there is unpaid balance as to the subscription
shall be transferable in the books.
Under the provision, certain minimum requisites must be
complied with for there to be a valid transfer of stocks, to wit: (a)
there must be delivery of the stock certificate; (b) the certificate
must be endorsed by the owner or his attorney-in-fact or other
persons legally authorized to make the transfer; and (c) to be valid
against third parties, the transfer must be recorded in the books of
the corporation [Teng v. SEC].
It is the delivery of the certificate, coupled with the
endorsement by the owner or his duly authorized representative
that is the operative act of transfer of shares from the original
owner to the transferee. The Court even emphatically declared
in Fil-Estate Golf and Development, Inc., et al. v. Vertex Sales and
Trading, Inc. that in "a sale of shares of stock, physical delivery of
a stock certificate is one of the essential requisites for the transfer
of ownership of the stocks purchased." The delivery contemplated
in Section 63, however, pertains to the delivery of the certificate
of shares by the transferor to the transferee, that is, from the
original stockholder named in the certificate to the person or entity
the stockholder was transferring the shares to, whether by sale or
some other valid form of absolute conveyance of ownership.
"[S]hares of stock may be transferred by delivery to the
transferee of the certificate properly indorsed. Title may be vested
in the transferee by the delivery of the duly indorsed certificate of
stock."
But 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 [Tuazon v. La
Provisora Filipina].
Tan v. SEC
Held: To follow the argument put up by petitioner which was
upheld by the Cebu SEC Extension Office Hearing Officer, Felix Chan, that
the cancellation of Stock Certificate Nos. 2 and 8 was null and void for lack
of delivery of the cancelled "mother" Certificate No. 2 whose endorsement
was deliberately withheld by petitioner, is to prescribe certain restrictions
on the transfer of stock in violation of the corporation law itself as the only
law governing transfer of stocks. While Section 47(s) grants a stock
corporations the authority to determine in the by-laws "the manner of
issuing certificates" of shares of stock, however, the power to regulate is
not the power to prohibit, or to impose unreasonable restrictions of the
right of stockholders to transfer their shares. (Emphasis supplied)
In Fleisher v. Botica Nolasco Co., Inc., it was held that a by-law
which prohibits a transfer of stock without the consent or approval of all the
stockholders or of the president or board of directors is illegal as
constituting undue limitation on the right of ownership and in restraint of
trade. (47 Phil. 583)
3. Attempt to mislead — Petitioner should be held guilty of
manipulating the provision of Section 63 of the Corporation Law for
contumaciously withholding the endorsement of Stock Certificate No. 2
which was returned to him for the purpose, wasting time and resources of
the Court, even after he had received the stocks-in-trade equivalent to
P2,000,000.00 in lieu of his 350 shares of stock with a par value of
P35,000.00 only, and thereafter withdrawing from the respondent
corporation.
Not content with the fantastic return of his investment in the
corporation and bent on sucking out the corporate resources by filing the
instant case for damages and seeking the nullity of the cancellation of his
Certificate of Stock Nos. 2 and 8, petitioner even attempted to mislead the
Court by erroneously quoting the ruling of the Court in C. N. Hodges v.
Lezama, which has some parallelism with the instant case was the parties
involved therein were also close relatives as in this case.
The quoted portion appearing on p. 11 of the petition, was cut
short in such a way that relevant portions thereof were purposely left out in
order to impress upon the Court that the unendorsed and uncancelled stock
certificate No. 17, was unconditionally declared null and void, flagrantly
omitting the justifying circumstances regarding its acquisition and the
reason given by the Court why it was declared so. The history of certificate
No. 17 is quoted below, showing the reason why the certificate in question
was considered null and void, as follows:
(P)etitioner Hodges did not cause to be entered in the books of
the corporation as he had his stock certificate No. 17 which, therefore had
not been endorsed by him to anybody or cancelled and which he considered
still subsisting. On September 18, 1958, petitioner Hodges again sold his
aforesaid 2,230 shares of stock covered by his stock certificate No. 17 on
installment basis to his co-petitioner Ricardo Gurrea, but continued
keeping the stock certificate in his possession without endorsing it to
Gurrea or causing the sale to be entered in the books of the corporation,
believing that said shares of stock were his until fully paid for. Up to the
present, petitioner Hodges has in his possession and under his control his
aforesaid stock certificate No. 17, unendorsed and uncancelled (Exhs. A &
A-1), a fact known to the respondents. (14 SCRA p. 1032)
The pertinent misquoted portion follows:
Before the stockholders' meeting of the La Paz ice Plant & Cold
Storage Co., Inc., — hereinafter referred to as the Corporation - which was
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scheduled to be held on August 6, 1959, petitioners C.N. Hodges and
Ricardo Gurrea filed with the CFI of Iloilo, a petition — docketed as Civil
Case No. 5261 of said court — for a writ of prohibition with preliminary
injunction, to restrain respondents Jose Manuel Lezama, as president and
secretary, respectively, of said Corporation from allowing their brother-in-
law and brother, respectively, respondent Benjamin L. Borja, to vote in said
meeting on the aforementioned 2,230 shares of stock. Upon the filing of
said petition and of a bond in the sum of P1,000, the writ of preliminary
injunction prayed for was issued. After due trial, or on March 28, 1960,
(start of petitioner's quotation) "The court of origin rendered a decision
holding that, in view of the provision in stock certificate no. 17, in the name
of Hodges, to the effect that he
. . . is the owner of Two Thousand Two Hundred Thirty shares
of the capital stock of La Paz Ice Plant & Cold Storage Co., Inc.,
transferrable only on the books of the corporation by the holder hereof in
person or by attorney upon surrender of this certificate properly endorsed.
stock certificate no. 18, issued in favor of Borja and the entry
thereof at his instance in the books of the corporation without stock
certificate no. 17 being first properly endorsed, surrendered and cancelled,
is null and void. . . . " (end of quotation by petitioner, but the ruling,
continues without the period after the word void.) "and that it would be
unconscionable and for Borja to vote on said shares of stock, knowing that
he had ceased to have actual interest therein since September 17, 1958,
when Hodges bought such interest at the public auction held in the
proceedings for the foreclosure of his chattel was rendered making said
preliminary injunction permanent and declaring Hodges as the one entitled
to vote on the shares of stock in question.
Petitioner ought to have even included the following which was
the reason for declaring the following which was the reason for declaring
the unedorsed, unsurrendered and uncancelled stock certificate, null and
void:
. . . It is, moreover, obvious that Hodges retained it (stock
certificate no. 17) with Borja's consent. It was evidently part of their
agreement, or implied therein, that Hodges would keep the stock certificate
and thus remain in the records of the Corporation as owner of the shares,
despite the aforementioned sale thereof and the chattel mortgage
thereon. In other words, the parties thereto intended Hodges to continue,
for all intents and purposes, as owner of said share, until Borja shall have
fully paid its stipulated price. (Ibid, pp. 1033-1034)
Other issues raised by the petitioner, subordinate to the principal
issues above, (except the ruling by the respondent Commission with respect
to the "pari delicto" doctrine which is not acceptable to this Court) are of no
moment.
Considering the circumstances of the case, it appearing that
petitioner is guilty of manipulation, and high-handedness, circumventing
the clear provisions of law in shielding himself from his wrongdoing
contrary to the protective mantle that the law intended for innocent parties,
the Court finds the excuses of the petitioner as unworthy of belief.
Corporation Cannot Create Restrictions on Stock
Transfers
In Rural Bank of Salinas, the Court ruled that the right of
a transferee/assignee to have stocks transferred to his name is an
inherent right flowing from his ownership of the stocks. 47 In said
case, the private respondent presented to the bank the deeds of
assignment for registration, transfer of the shares assigned in the
bank's books, cancellation of the stock certificates, and issuance of
new stock certificates, which the bank refused. In ruling favorably
for the private respondent, the Court stressed that a corporation,
either by its board, its by-laws, or the act of its officers, cannot
create restrictions in stock transfers. In transferring stock, the
secretary of a corporation acts in purely ministerial capacity, and
does not try to decide the question of ownership. If a corporation
refuses to make such transfer without good cause, it may, in fact,
even be compelled to do so by mandamus.
SEC OPINION January 8, 1987
Remedies Available When Corporation Refuses to
Issue Shares of Stock
The remedies available to a stockholder if a corporation
wrongfully refuses to issue a certificate of stock are as follows:
 a. To file a suit for specific performance of an express or
implied contract;
b. To file for an alternative relief by way of damages where
specific performance cannot be granted;
c. To file a petition for mandamus to compel issuance of the
certificate where the conditions, facts and circumstances of the particular
case bring it within the legal rules which govern the granting of the writ; or
d. To rescind the contract of subscription if the corporation
wrongfully refuses to deliver a certificate, and sue to recover back what has
been paid.
Recording or Registration of Transfer Required to
Valid Against Third Parties
To be valid against third parties and the corporation, the
transfer must be recorded or registered in the books of corporation.
There are several reasons why registration of the transfer is
necessary: one, to enable the transferee to exercise all the rights of
a stockholder; two, to inform the corporation of any change in
share ownership so that it can ascertain the persons entitled to the
rights and subject to the liabilities of a stockholder; and three, to
avoid fictitious or fraudulent transfers, among others. Thus,
in Chita Giian v. Samahang Magsasaka, Inc., the Court stated that
the only safe way to accomplish the hypothecation of share of
stock is for the transferee [a creditor, in this case] to insist on the
assignment and delivery of the certificate and to obtain the transfer
of the legal title to him on the books of the corporation by the
cancellation of the certificate and the issuance of a new one to him.
Upon registration of the transfer in the books of the
corporation, the transferee may now then exercise all the rights of a
stockholder, which include the right to have stocks transferred to
his name. In Ponce v. Alsons Cement Corporation, the Court stated
that "[f]rom the corporation's point of view, the transfer is not
effective until it is recorded. Unless and until such recording is
made[,] the demand for the issuance of stock certificates to the
alleged transferee has no legal basis, x x x [T]he stock and transfer
book is the basis for ascertaining the persons entitled to the rights
and subject to the liabilities of a stockholder. Where a transferee is
not yet recognized as a stockholder, the corporation is under no
specific legal duty to issue stock certificates in the transferee's
name.
Surrender
The manner of issuance of certificates of stock is
generally regulated by the corporation's by-laws. Section 47 of the
Corporation Code states: "a private corporation may provide in its
by-laws for x x x the manner of issuing stock certificates." Section
63, meanwhile, provides that "[t]he 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."
In Bitong v. CA, the Court outlined the procedure for the issuance
of new certificates of stock in the name of a transferee:
First, the certificates must be signed by the president
or vice-president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation, x x
x Second, delivery of the certificate is an essential element of its
issuance, x x x Third, the par value, as to par value shares, or the
full subscription as to no par value shares, must first be fully
paid. Fourth, the original certificate must be surrendered
where the person requesting the issuance of a certificate is a
transferee from a stockholder.
The surrender of the original certificate of stock is
necessary before the issuance of a new one 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
Page 3 of 13
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
[Teng v. SEC].
Teng v. SEC
Held: In the case at bench, Ting Ping manifested from the start
his intention to surrender the subject certificates of stock to facilitate the
registration of the transfer and for the issuance of new certificates in his
name. It would be sacrificing substantial justice if the Court were to grant
the petition simply because Ting Ping is yet to surrender the subject
certificates for cancellation instead of ordering in this case such surrender
and cancellation, and the issuance of new ones in his name.
C. ISSUANCE OF STOCK CERTIFICATES (PRINCIPLE
OF INDIVISIBILITY)
Section 63. Issuance of Stock Certificates. – No certificate of
stock shall be issued to a subscriber until the full amount of the
subscription together with interest and expenses (in case of delinquent
shares), if any is due, has been paid.
A subscriber must first fully pay his subscription before a
certificate of stock covering shares subscribed and paid for could
be issued to him. But an unpaid subscription can be voted upon in
corporate meetings. Subscription is one entire and indivisible
contract. 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 the corporation upon
demand, as soon as he has complied with the full payment of the
subscription.
The purpose of the prohibition is to prevent the partial
disposition of a subscribed share which is not fully paid, because if
it is permitted, and the subscriber subsequently becomes delinquent
in the payment of his subscription, the corporation may not be able
to sell as many of the subscribed share as would be necessary to
cover the total amount due from him.
D. WATERED STOCKS
Section 64. Liability of Directors for Watered Stocks. – A
director or officer of a corporation who: (a) consents to the issuance of
stocks for a consideration less than its par or issued value; (b) consents
to the issuance of stocks for a consideration other than cash, valued in
excess of its fair value; or (c) having knowledge of the insufficient
consideration, does not file a written objection with the corporate
secretary, shall be liable to the corporation or its creditors, solidarily
with the stockholder concerned for the difference between the value
received at the time of issuance of the stock and the par or issued value
of the same.
Shares issued as fully paid when in truth the
consideration received is known to be less than the par value or
issued value of the shares are called ‘watered stock’. The term
sometimes is used to include bonus shares under an agreement that
nothing shall be paid to the corporation for them and includes also
‘discount shares’ issued at a discount under an agreement to pay
less than the par value in money.
E. INTEREST ON UNPAID SUBSCRIPTION
Section 65. Interest on Unpaid Subscriptions. – Subscribers to
stocks shall be liable to the corporation for interest on all unpaid
subscriptions from the date of subscription, if so required by and at the
rate of interest fixed in the subscription contract. If no rate of interest
is fixed in the subscription contract, the prevailing legal rate shall
apply.

F. PAYMENT OF BALANCE OF SUBSCRIPTION
Section 66. Payment of Balance of Subscription. – Subject to
the provisions of the subscription contract, the board of directors may,
at any time, declare due and payable to the corporation unpaid
subscriptions and may collect the same or such percentage thereof, in
either case, with accrued interest, if any, as it may deem necessary.
Payment of unpaid subscription or any percentage thereof,
together with any interest accrued shall be made on the date specified
in the subscription contract or on the date stated in the call made by
the board. Failure to pay on such date shall render the entire balance
due and payable and shall make the stockholder liable for interest at
the legal rate on such balance, unless a different interest rate is
provided in the subscription contract. The interest shall be computed
from the date specified, until full payment of the subscription. If no
payment is made within thirty (30) days from the said date, all stocks
covered by the subscription shall thereupon become delinquent and
shall be subject to sale as hereinafter provided, unless the board of
directors orders otherwise.
There are two (2) instances when call is not necessary to
make the subscriber liable for payment on the unpaid subscription:
a. When, under the terms of the subscription contract,
subscription is payable, not upon call, but
immediately or on a specified day, or when it is
payable in installments at specified times; and
b. If the corporation becomes insolvent, which makes
the liability on the unpaid subscription due and
demandable regardless any stipulation to the
contrary in the subscription agreement.
G. DELINQUENCY SALE
Section 67. Delinquency Sale. – The board of directors may,
by resolution, order the sale of delinquent stock and shall specifically
state the amount due on each subscription plus all accrued interest,
and the date, time and place of the sale which shall not be less than
thirty (30) days nor more than sixty (60) days from the date the stocks
become delinquent.
Notice of the sale, with a copy of the resolution, shall be sent
to every delinquent stockholder either personally, by registered mail,
or through other means provided in the bylaws. The same shall be
published once a week for two (2) consecutive weeks in a newspaper of
general circulation in the province or city where the principal office of
the corporation is located.
Unless the delinquent stockholder pays to the corporation,
on or before the date specified for the sale of the delinquent stock, the
balance due on the former’s subscription, plus accrued interest, costs
of advertisement and expenses of sale, or unless the board of directors
otherwise orders, said delinquent stock shall be sold at a public auction
to such bidder who shall offer to pay the full amount of the balance on
the subscription together with accrued interest, costs of advertisement
and expenses of sale, for the smallest number of shares or fraction of a
share. The stock so purchased shall be transferred to such purchaser in
the books of the corporation and a certificate for such stock shall be
issued in the purchaser’s favor. The remaining shares, if any, shall be
credited in favor of the delinquent stockholder who shall likewise be
entitled to the issuance of a certificate of stock covering such shares.
Should there be no bidder at the public auction who offers to
pay the full amount of the balance on the subscription together with
accrued interest, costs of advertisement, and expenses of sale, for the
smallest number of shares or fraction of a share, the corporation may,
subject to the provisions of this Code, bid for the same, and the total
amount due shall be credited as fully paid in the books of the
corporation. Title to all the shares of stock covered by the subscription
shall be vested in the corporation as treasury shares and may be
disposed of by said corporation in accordance with the provisions of
this Code.
Page 4 of 13
Section 68. When Sale May be Questioned. – No action to
recover delinquent stock sold can be sustained upon the ground of
irregularity or defect in the notice of sale, or in the sale itself of the
delinquent stock, unless 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 sale at the legal rate. No
such action shall be maintained unless a complaint is filed within six (6)
months from the date of sale.
H. COURT ACTION TO RECOVER UNPAID
SUBSCRIPTIONS
Section 69. Court Action to Recover Unpaid Subscription. –
Nothing in this Code shall prevent the corporation from collecting
through court action, the amount due on any unpaid subscription, with
accrued interest, costs and expenses.
I. EFFECT OF DELINQUENCY
Section 70. Effect of Delinquency. – No delinquent stock shall
be voted for, be entitled to vote, or be represented at any stockholder’s
meeting, nor shall the holder thereof be entitled to any of the rights of a
stockholder except the right to dividends in accordance with the
provisions of this Code, until and unless payment is made by the holder
of such delinquent stock for the amount due on the subscription with
accrued interest, and the costs and expenses of advertisement, if any.
J. RIGHTS OF UNPAID SHARES, NONDELINQUENT
Section 71. Rights of Unpaid Shares, Nondelinquent. –
Holders of subscribed shares not fully paid which are not delinquent
shall have all the rights of a stockholder.
K. LOST OR DESTROYED CERTIFICATES
Section 72. Lost or Destroyed Certificates. – The following
procedure shall be followed by a corporation in issuing new certificates
of stock in lieu of those which have been lost, stolen or destroyed:
(a) The registered owner of a certificate of stock in a
corporation or such person’s legal representative shall file with the
corporation an affidavit in triplicate setting forth, if possible, the
circumstances as to how the certificate was lost, stolen or destroyed, the
number of shares represented by such certificate, the serial number of
the certificate and the name of the corporation which issued the same.
The owner of such certificate of stock shall also submit such other
information and evidence as may be deemed necessary; and
(b) After verifying the affidavit and other information and
evidence with the books of the corporation, the corporation shall
publish a notice in a newspaper of general circulation in the place
where the corporation has its principal office, once a week for three (3)
consecutive weeks at the expense of the registered owner of the
certificate of stock which has been lost, stolen or destroyed. The notice
shall state the name of the corporation, the name of the registered
owner, the serial number of the certificate, the number of shares
represented by such certificate, and shall state that after the expiration
of one (1) year from the date of the last publication, if no contest has
been presented to the corporation regarding the certificate of stock, the
right to make such contest shall be barred and the corporation shall
cancel the lost, destroyed or stolen certificate of stock in its books. In
lieu thereof, the corporation shall issue a new certificate of stock, unless
the registered owner files a bond or other security as may be required,
effective for a period of one (1) year, for such amount and in such form
and with such sureties as may be satisfactory to the board of directors,
in which case a new certificate may be issued even before the
expiration of the one (1) year period provided herein. If a contest has
been presented to the corporation or if an action is pending in court
regarding the ownership of the certificate of stock which has been lost,
stolen or destroyed, the issuance of the new certificate of stock in lieu
thereof shall be suspended until the court renders a final decision
regarding the ownership of the certificate of stock which has been lost,
stolen or destroyed.
 Except in case of fraud, bad faith, or negligence on the part
of the corporation and its officers, no action may be brought against
any corporation which shall have issued certificate of stock in lieu of
those lost, stolen or destroyed pursuant to the procedure above-
described.
Section 72 seeks to avoid duplication of certificates to
the detriment of the rightful owner. It is without prejudice to any
court action over the lost certificate of stock.
A corporation may actually not heed the procedure under
Section 72 of the corporation Code in accordance to SEC Opinion
dated January 28, 1999, but by doing so, it cannot avail of the “free
and harmless rule” clause provided under the last paragraph.
Meaning, by not following procedure under Section 72, the
corporation opens itself to claims for damages.
Under Section 43.1 of Securities Regulation Code, a
corporation whose shares of stock are registered pursuant to the
Code or listed on a stock exchange may:
(a) If so resolved by its Board of Directors and agreed
by a shareholder, issue shares to, or record the
transfer of some or all of its shares into the name of
said shareholders, investors or, securities
intermediary in the form of uncertificated shares;
(b) The use of uncertificated securities shall be without
prejudice to the rights of the securities intermediary
subsequently to require the corporation to issue a
certificate in respect of any shares recorded in its
name; and
(c) If so provided in its articles of incorporation and by-
laws, issue all of the shares of a particular class in
the form of uncertificated securities and subject to a
condition that investors may not require the
corporation to issue a certificate in respect of any
shares recorded in their name.
L. UNCERTIFICATED SHARES
Uncertificated shares are stocks without a certificate,
they are also known as book entry shares. This involves stocks that
are listed on a stock exchange where transfers of uncertificated
shares may be consummated by mere book-entries in the stock and
transfer book involving the names of the parties and the number of
the shares that are transferred (Section 43.3, SRC).
M. CORPORATE BOOKS AND RECORDS
1. Books to be Kept; Stock Transfer Agent
Section 73. Books to be Kept; Stock Transfer Agent. – Every
corporation shall keep and carefully preserve at its principal office all
information relating to the corporation including, but not limited to:
(a) The articles of incorporation and bylaws of the
corporation and all their amendments;
(b) The current ownership structure and voting rights of the
corporation, including lists of stockholders or members, group
structures, intra-group relations, ownership data, and beneficial
ownership;
(c) The names and addresses of all the members of the board
of directors or trustees and the executive officers;
(d) A record of all business transactions;
(e) A record of the resolutions of the board of directors or
trustees and of the stockholders or members;
(f) Copies of the latest reportorial requirements submitted to
the Commission; and
(g) The minutes of all meetings of stockholders or members,
or of the board of directors or trustees. Such minutes shall set forth in
detail, among others: the time and place of the meeting held, how it was
authorized, the notice given, the agenda therefor, whether the meeting
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was regular or special, its object if special, those present and absent,
and every act done or ordered done at the meeting. Upon the demand
of a director, trustee, stockholder or member, the time when any
director, trustee, stockholder or member entered or left the meeting
must be noted in the minutes; and on a similar demand, the yeas and
nays must be taken on any motion or proposition, and a record thereof
carefully made. The protest of a director, trustee, stockholder or
member on any action or proposed action must be recorded in full
upon their demand.
Corporate records, regardless of the form in which they are
stored, shall be open to inspection by any director, trustee, stockholder
or member of the corporation in person or by a representative at
reasonable hours on business days, and a demand in writing may be
made by such director, trustee or stockholder at their expense, for
copies of such records or excerpts from said records. The inspecting or
reproducing party shall remain bound by confidentiality rules under
prevailing laws, such as the rules on trade secrets or processes under
Republic Act No. 8293, otherwise known as the “Intellectual Property
Code of the Philippines”, as amended, Republic Act No. 10173,
otherwise known as the “Data Privacy Act of 2012”, Republic Act No.
8799, otherwise known as “The Securities Regulation Code”, and the
Rules of Court.
A requesting party who is not a stockholder or member of
record, or is a competitor, director, officer, controlling stockholder or
otherwise represents the interests of a competitor shall have no right to
inspect or demand reproduction of corporate records.
Any stockholder who shall abuse the rights granted under
this section shall be penalized under Section 158 of this Code, without
prejudice to the provisions of Republic Act No. 8293, otherwise known
as the “Intellectual Property Code of the Philippines”, as amended, and
Republic Act No. 10173, otherwise known as the “Data Privacy Act of
2012”.
Any officer or agent of the corporation who shall refuse to
allow the inspection and/or reproduction of records in accordance with
the provisions of this Code shall be liable to such director, trustee,
stockholder or member for damages, and in addition, shall be guilty of
an offense which shall be punishable under Section 161 of this Code:
Provided, That if such refusal is made pursuant to a resolution or
order of the board of directors or trustees, the liability under this
section for such action shall be imposed upon the directors or trustees
who voted for such refusal: Provided, further, That it shall be a defense
to any action under this section that the person demanding to examine
and copy excerpts from the corporation’s records and minutes has
improperly used any information secured through any prior
examination of the records or minutes of such corporation or of any
other corporation, or was not acting in good faith or for a legitimate
purpose in making the demand to examine or reproduce corporate
records, or is a competitor, director, officer, controlling stockholder or
otherwise represents the interests of a competitor.
If the corporation denies or does not act on a demand for
inspection and/or reproduction, the aggrieved party may report such to
the Commission. Within five (5) days from receipt of such report, the
Commission shall conduct a summary investigation and issue an order
directing the inspection or reproduction of the requested records.
Stock corporations must also keep a stock and transfer
book, which shall contain a record of all stocks in the names of the
stockholders alphabetically arranged; the installments paid and unpaid
on all stocks for which subscription has been made, and the date of
payment of any installment; a statement of every alienation, sale or
transfer of stock made, the date thereof, by and to whom made; and
such other entries as the bylaws may prescribe. The stock and transfer
book shall be kept in the principal office of the corporation or in the
office of its stock transfer agent and shall be open for inspection by any
director or stockholder of the corporation at reasonable hours on
business days.
A stock transfer agent or one engaged principally in the
business of registering transfers of stocks in behalf of a stock
corporation shall be allowed to operate in the Philippines upon
securing a license from the Commission and the payment of a fee to be
fixed by the Commission, which shall be renewable annually: Provided,
That a stock corporation is not precluded from performing or making
transfers of its own stocks, in which case all the rules and regulations
imposed on stock transfer agents, except the payment of a license fee
herein provided, shall be applicable: Provided, further, That the
Commission may require stock corporations which transfer and/or
trade stocks in secondary markets to have an independent transfer
agent.
A stock and transfer book is necessary as a measure of
precaution, expediency and convenience since it provides the only
certain and accurate method of establishing the various corporate
acts and transactions and of showing the ownership of stock and
like matters [Lanuza v. Court of Appeals].
It was held in the case of Torres, Jr. v. Court of Appeals
(1997), that entries made on the STB by any person other than the
Corporate Secretary such as those made by the President and
Chairman cannot be given any valid effect. It is the Corporate
Secretary’s duty and the obligation to register valid transfers of
stocks if said corporate officer refuses to comply, a suit may be
made to compel the performance, but the transferor himself cannot
effect such transfers in the corporate books by himself, otherwise
the entries shall be void.
2. Right to Financial Statements
Section 74. Right to Financial Statements. – A corporation
shall furnish a stockholder or member, within ten (10) days from
receipt of their written request, its most recent financial statement, in
the form and substance of the financial reporting required by the
Commission.
At the regular meeting of stockholders or members, the
board of directors or trustees shall present to such stockholders or
members a financial report of the operations of the corporation for the
preceding year, which shall include financial statements, duly signed
and certified in accordance with this Code, and the rules the
Commission may prescribe.
However, if the total assets or total liabilities of the
corporation is less than Six hundred thousand pesos (P600,000.00), or
such other amount as may be determined appropriate by the
Department of Finance, the financial statements may be certified under
oath by the treasurer and the president.
II
STOCKHOLDERS AND MEMBERS
A. PRE-EMPTIVE RIGHT
Section 38. Power to Deny Preemptive Right. – All
stockholders of a stock corporation shall enjoy preemptive right to
subscribe to all issues or disposition of shares of any class, in
proportion to their respective shareholdings, unless such right is denied
by the articles of incorporation or an amendment thereto: Provided,
That such preemptive right shall not extend to shares issued in
compliance with laws requiring stock offerings or minimum stock
ownership by the public; or to shares issued in good faith with the
approval of the stockholders representing two-thirds (2/3) of the
outstanding capital stock, in exchange for property needed for
corporate purposes or in payment of a previously contracted debt.
The recognition of the pre-emptive right is intended to
protect both the proprietary and voting rights of a stockholder in a
corporation since such proportionate interest determines his
proportionate power to vote in corporate affairs when the law gives
the stockholders a right to affirm or deny board actions. It also
determines his proportionate share in the dividends declared by the
corporation, as well as his proportionate right to the remaining
assets of the corporation upon dissolution of the corporation [SEC
OPINION August 11, 1997].
The stockholder’s pre-emptive right is exercised when
the corporation issues new shares (unissued from authorized
capital). Thus, in order to prevent the dilution of proportionate
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interest of the existing stockholders, they are given the pre-emptive
right to maintain their same interest.
Denial of Pre-Emptive Right Shall Not Prevent
Objection When Issue of Shares are in Breach of Trust or to
Freeze out the Minority Interest
In Majority Stockholder of Ruby Industrial Corp vs Lim,
it was held:
The validity of issuance of additional shares may be
questioned if done in breach of trust by the controlling
stockholders. Thus, even if the pre-emptive right does not exist,
either because the issue comes within the exceptions in Section
[38] or because it is denied or limited in the articles of
incorporation, an issue of shares may still be objectionable if the
directors acted in breach of trust and their primary purpose is to
perpetuate or shift control of the corporation, or to "freeze out"
the minority interest.
There can be no gainsaying the well-established rule
in corporate practice and procedure that the will of the majority
shall govern in all matters within the limits of the act of
incorporation and lawfully enacted by-laws not proscribed by
law. It is, however, equally true that other stockholders are
afforded the right to intervene especially during critical periods
in the life of a corporation like reorganization, or in this case,
suspension of payments, more so, when the majority seek to
impose their will and through fraudulent means, attempt to
siphon off Ruby’s valuable assets to the great prejudice of Ruby
itself, as well as the minority stockholders and the unsecured
creditors.
Certainly, the minority stockholders and the
unsecured creditors are given some measure of protection by the
law from the abuses and impositions of the majority, more so in
this case, considering the giveaway signs of private respondents’
perfidy strewn all over the factual landscape. Indeed, equity
cannot deprive the minority of a remedy against the abuses of
the majority, and the present action has been instituted precisely
for the purpose of protecting the true and legitimate interests of
Ruby against the Majority Stockholders.
B. RIGHT OF FIRST REFUSAL
The most common restriction placed upon the ability to
sell or dispose of shares is the right of first refusal which would
provide that a stockholder who may wish to sell or assign his
shares must first offer the shares to the corporation or to the other
existing stockholders of the corporation, under terms and
conditions which are reasonable and that only when the corporation
or the other stockholders do not or fail to exercise their option, is
the offering stockholder at liberty to dispose of his shares to third
parties.
Right of first refusal arises only by virtue of contractual
stipulations in which case the right is construed strictly against the
right of persons to dispose of or deal with their property.
C. RIGHT TO VOTE
The right to vote is inherent in and incidental to the
ownership of corporate stocks. It is settled that unissued stocks
may not be voted or considered in determining whether a quorum
is present in a stockholders’ meeting, or whether a requisite
proportion of the stock of the corporation is voted to adopt a certain
measure or act. Only stock actually issued and outstanding may be
voted [Tan v. Sycip]. 
Neither the stockholders nor the corporation can vote or
represent shares that have never passed to the ownership of
stockholders; or, having so passed, have again been purchased by
the corporation. These shares are not to be taken into consideration
in determining majorities. When the law speaks of a
given proportion of the stock, it must be construed to mean the
shares that have passed from the corporation, and that may be
voted [Ibid].
In nonstock corporations, the voting rights attach to
membership. Members vote as persons, in accordance with the law
and the bylaws of the corporation. Each member shall be entitled to
one vote unless so limited, broadened, or denied in the articles of
incorporation or bylaws.  We hold that when the principle for
determining the quorum for stock corporations is applied by
analogy to nonstock corporations, only those who are actual
members with voting rights should be counted [Ibid].
1. Effect of Death
In stock corporations, shareholders may generally
transfer their shares. Thus, on the death of a shareholder, the
executor or administrator duly appointed by the Court is vested
with the legal title to the stock and entitled to vote it. Until a
settlement and division of the estate is effected, the stocks of the
decedent are held by the administrator or executor [Ibid].
On the other hand, membership in and all rights arising
from a nonstock corporation are personal and non-transferable,
unless the articles of incorporation or the bylaws of the corporation
provide otherwise. In other words, the determination of whether or
not "dead members" are entitled to exercise their voting rights
(through their executor or administrator), depends on those articles
of incorporation or bylaws [Ibid].
2. Sequestered Shares
There should be no exercise of the right to vote simply
because the right exists, or because the stocks sequestered
constitute the controlling or a substantial part of the corporate
voting power. The stock is not to be voted to replace directors, or
revise the articles or by-laws, or otherwise bring about substantial
changes in policy, program of practice of the corporation except for
demonstrably weighty and defensible grounds, and always in the
context of the stated purposes of sequestration or provisional
takeover, i.e., to prevent the dispersion or undue disposal of the
corporate assets [Conjuangco, Jr. v. Roxas].
3. Right to Vote of Secured Creditors and
Administrators
Section 54. Right to Vote of Secured Creditors and
Administrators. – In case a stockholder grants security interest in his or
her shares in stock corporations, the stockholder-grantor shall have the
right to attend and vote at meetings of stockholders, unless the secured
creditor is expressly given by the stockholder-grantor such right in
writing which is recorded in the appropriate corporate books.
Executors, administrators, receivers, and other legal
representatives duly appointed by the court may attend and vote in
behalf of the stockholders or members without need of any written
proxy.
4. Voting in Case of Joint Ownership of Stock
Section 55. Voting in Case of Joint Ownership of Stock. – The
consent of all the co-owners shall be necessary in voting shares of stock
owned jointly by two (2) or more persons, unless there is a written
proxy, signed by all the co-owners, authorizing one (1) or some of them
or any other person to vote such share or shares: Provided, That when
the shares are owned in an “and/or” capacity by the holders thereof,
any one of the joint owners can vote said shares or appoint a proxy
therefor.
5. Voting Right for Treasury Shares
Section 56. Voting Right for Treasury Shares. – Treasury
shares shall have no voting right as long as such shares remain in the
Treasury.
Page 7 of 13
6. Manner of Voting; Proxies
Section 57. Manner of Voting; Proxies. – Stockholders and
members may vote in person or by proxy in all meetings of
stockholders or members.
When so authorized in the bylaws or by a majority of the
board of directors, the stockholders or members of corporations may
also vote through remote communication or in absentia: Provided,
That the votes are received before the corporation finishes the tally of
votes.
A stockholder or member who participates through remote
communication or in absentia, shall be deemed present for purposes of
quorum.
The corporation shall establish the appropriate
requirements and procedures for voting through remote
communication and in absentia, taking into account the company’s
scale, number of shareholders or members, structure and other factors
consistent with the basic right of corporate suffrage.
Proxies shall be in writing, signed and filed, by the
stockholder or member, in any form authorized in the bylaws and
received by the corporate secretary within a reasonable time before the
scheduled meeting. Unless otherwise provided in the proxy form, it
shall be valid only for the meeting for which it is intended. No proxy
shall be valid and effective for a period longer than five (5) years at any
one time.
Procedural Matters
a. “Proxy Solicitation” involves the securing and
submission of proxies, while “Proxy Validation”
concerns the validation of such secured and
submitted proxies;
b. The SEC’s power to pass upon the validity of
proxies in relation to election controversies has
effectively been withdrawn, tied as it is to its
abrogated jurisdictional powers and has been
transferred to the RTC Special Commercial Courts
pursuant to the terms of Sec. 5.2 of the Securities
Regulation Code;
c. However, although an intra-corporate controversy
may animate a disgruntled shareholder to complain
to the SEC a corporations violations of SEC rules
and regulations, but that motive alone should not be
sufficient to deprive the SEC of its investigatory and
regulatory powers, especially so since such powers
are exercisable on a motu proprio basis.
The fact that the jurisdiction of the regular courts under
Section 5(c) is confined to the voting on election of officers, and
not on all matters which may be voted upon by stockholders,
elucidates that the power of the SEC to regulate proxies remains
extant and could very well be exercised when stockholders vote on
matters other than the election of directors [GSIS v. Court of
Appeals].
7. Voting Trusts
Section 58. Voting Trusts. – 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 Commission; otherwise, the agreement is ineffective and
unenforceable. The certificate or certificates of stock covered by the
voting trust agreement shall be cancelled and new ones shall be issued time.
in the name of the trustee or trustees, stating that they are issued Trustee acquires legal title to the Proxy has no legal title to the
pursuant to said agreement. The books of the corporation shall state shares of the transferring shares of the principal
that the transfer in the name of the trustee or trustees is made stockholder
pursuant to the voting trust agreement. Right to vote as well as other Only right to vote is given. The
The trustee or trustees shall execute and deliver to the rights may be given except the proxy must vote in person.
right to receive dividends. The
transferors, voting trust certificates, which shall be transferable in the
trustee may vote in person or by
same manner and with the same effect as certificates of stock.
proxy unless the agreement
The voting trust agreement filed with the corporation shall provides otherwise
be subject to examination by any stockholder of the corporation in the The agreement must be notarized Proxy need not be notarized
same manner as any other corporate book or record: Provided, That Trustee is not limited to act at any Proxy can only act at a specified
both the trustor and the trustee or trustees may exercise the right of particular meeting stockholder’s meeting (if not
inspection of all corporate books and records in accordance with the continuing)
provisions of this Code. The stock certificate shall be No cancellation of the certificate
Any other stockholder may transfer the shares to the same cancelled and a new one in the shall be made
trustee or trustees upon the terms and conditions stated in the voting name of the trustee shall be issued
trust agreement, and thereupon shall be bound by all the provisions of stating that they are issued
said agreement. pursuant to a VTA.
No voting trust agreement shall be entered into for purposes A trustee can vote and exercise all A proxy can only vote in the
of circumventing the laws against anti-competitive agreements, abuse the rights of the stockholder even absence of the owner of the stocks
of dominant position, anti-competitive mergers and acquisitions, when the latter is present.
violation of nationality and capital requirements, or for the An agreement must not exceed 5 A proxy is usually of shorter
perpetuation of fraud. years at any one time except when duration although under Sec. 58 it
the same is made a condition of a cannot exceed 5 years at any one
Unless expressly renewed, all rights granted in a voting trust
loan time
agreement shall automatically expire at the end of the agreed period.
Governed by the law on trust Governed by the law on agency
The voting trust certificates as well as the certificates of stock in the
A trustee has the right to inspect A proxy does not have a right of
name of the trustee or trustees shall thereby be deemed cancelled and corporate books. inspection of corporate books.
new certificates of stock shall be reissued in the name of the trustors.
The voting trustee or trustees may vote by proxy or in any
manner authorized under the bylaws unless the agreement provides
D. RIGHT TO INSPECT/EXAMINE CORPORATE
otherwise BOOKS
The stockholder’s right of inspection of the corporation’s
Under a voting trust agreement, a stockholder of a stock book and records is based upon his ownership of shares in the
corporation parts with the naked or legal title, including the power corporation and the necessity for self-protection [Puno v. Puno].
to vote, of the shares and retains only the beneficial ownership of The mere fact that the shareholdings of a stockholder is
the stock. A voting trustee is a shareowner vested with colorable merely .001 per cent of the issued shares of stock does not justify
and naked title of the shares covered for the primary purpose of the denial of the request of inspection of the corporate records
voting upon stock that he does not own. By its very nature, a voting [Terelay v. Yulo].
trust agreement results in the separation of voting rights of a The following are the requirements for books and records
stockholder from his other rights such as the right to declare to be inspected:
dividends, the right to inspect the books of the corporation, the
right to sell certain interests in the assets of the corporation and a. The right must be exercised during reasonable hours
other rights to which a stockholder may be entitled until the on business days;
liquidation of the corporation. In a trust agreement, the trustee is b. The person demanding the right has not improperly
the legal titleholder or owner of the shares so transferred under the used any information obtained through any previous
agreement; he is therefore, qualified to be a director [Lee v. Court examination of the books and records of the
of Appeals]. corporation;
For there to be a valid Voting Trust Agreement: c. The demand is made in good faith or for legitimate
purpose germane to his interest as a stockholder.
a. Agreement must be in writing and notarized and Good purposes may be: (a) To investigate acts of
must specify the terms and conditions management; (b) To investigate financial
b. Certified copy must be filed with the SEC and the conditions; fix value of shares; (c) Mailing list for
corporation proxies; or (d) Information for litigation
c. The certificates of stock shall be cancelled and a (Villanueva)
new certificate in the name of trustee shall be issued d. It should follow the formalities that may be required
with notation that such is under a VTA and shall be in the by-laws;
noted in the books of the corporation e. The right does not extend to trade secrets; and
d. Trustee shall execute and deliver to the transferor f. It is subject to limitations under special laws, e.g.
voting trust certificates Secrecy of Bank Deposits and FCDA or the Foreign
e. The agreement should not exceed 5 years except if a Currency Deposits Act.
condition in a loan agreement, which may exceed 5 The stockholder’s right of inspection of the corporation’s
years but shall automatically expire upon payment books and records is based upon his ownership of shares in the
of the loan. corporation and the necessity for self-protection. After all, a
shareholder has the right to be intelligently informed about
Voting Trust vs. Proxy corporate affairs. Such right rests upon the stockholder’s
underlying ownership of the corporation’s assets and property.
Similarly, only stockholders of record are entitled to receive
Voting Trust Proxy
If validly executed, VTA is A proxy, unless coupled with dividends declared by the corporation, a right inherent in the
intended to be irrevocable for a interest, is revocable at anytime ownership of the shares. Upon the death of a shareholder, the heirs
definite and limited period of do not automatically become stockholders of the corporation and
Page 8 of 13
acquire the rights and privileges of the deceased as shareholder of
the corporation. The stocks must be distributed first to the heirs in
estate proceedings, and the transfer of the stocks must be recorded
in the books of the corporation. During such interim period, the
heirs stand as the equitable owners of the stocks, the executor or
administrator duly appointed by the court being vested with the
legal title to the stock [Puno v. Puno Enterprises].
E. APPRAISAL RIGHT
Section 80. When the Right of Appraisal May Be Exercised. –
Any stockholder of a corporation shall have the right to dissent and
demand payment of the fair value of the shares in the following
instances:
(a) In case an amendment to the articles of incorporation has
the effect of changing or restricting the rights of any stockholder or
class of shares, or of authorizing preferences in any respect superior to
those of outstanding shares of any class, or of extending or shortening
the term of corporate existence;
(b) In case of sale, lease, exchange, transfer, mortgage,
pledge or other disposition of all or substantially all of the corporate
property and assets as provided in this Code;
(c) In case of merger or consolidation; and
(d) In case of investment of corporate funds for any purpose
other than the primary purpose of the corporation.
Section 81. How Right is Exercised. - The dissenting
stockholder who votes against a proposed corporate action may
exercise the right of appraisal by making a written demand on the
corporation for the payment of the fair value of shares held within
thirty (30) days from the date on which the vote was
taken: Provided, That failure to make the demand within such perios
shall be deemed a waiver of the appraisal right. If the proposed
corporate action is implemented, the corporation shall pay the
stockholder, upon surrender of the certificate or certificates of stock
representing the stockholder's shares, the fair value thereof as of the
day before the vote was taken excluding any appreciation or
depreciation in anticipation of such corporate action.
If, within sixty (60) days form the approval of the corporate
action by the stockholders, the withdrawing stockholder and the
corporation cannot agree on the fair value of the shares, it shall be
determined and appraised by three (3) disinterested persons, one of
whom shall be named by the stockholder, another by the corporation
and the third by the two (2) thus chosen. The findings of the majority
of the appraisers shall be final, and their award shall be paid by the
corporation within thirty (30) days after such award is
made: Provided, That no payment shall be made to any dissenting
stockholder or unless the corporation has unrestricted retained
earnings in its books to cover such payment: Provided, further, That
upon payment by the corporation of the agreed or awarded price, the
stockholder shall forthwith transfer the shares to the corporation.
Section 82. Effect of Demand and Termination of Right. -
From the time of demand for payment of the fair value of a
stockholder's shares until either the abandonment of the corporate
action involved or the purchase of the said shares by the corporation,
all rights accruing to such shares, including voting and dividend rights
shall immediately be restored.
Section 83. When Right to Payment Ceases. - No demand for
payment under this Title may be withdrawn unless the corporation
consents thereto. If, however, such demand for payment is withdrawn
with the consent of the corporation, or if the proposed corporate action
is abandoned or rescinded by the corporation or disapproved by the
Commission where such approval is necessary, or if the Commission
where such stockholder is not entitled to the appraisal right, then the
right of the stockholder to be paid the fair value of the shares shall
cease, the status as the stockholder shall be restored, and all dividend
distributions which would have accrued on the shares shall be paid to
the stockholder.
Page 9 of 13
Section 84. Who Bears Costs of Appraisal. - The costs and
expenses of appraisal shall be borne by the corporation, unless the fair
value ascertained by appraisers is approximately the same as the price
which the corporation may have offered to pay the stockholder, in
which the corporation may have offered to pay the stockholder, in
which case they shall be borne by the latter. In the case of an action to
recover such fair value, all costs and expenses shall be assessed against
the corporation, unless the refusal of the stockholder or receive
payment was unjustified.
Section 85. Notation on Certificates; Rights of Transferee. -
Within ten (10) days after demanding payment for shares held, a
dissenting stockholder shall submit the certificates of stock
representing the shares to the corporation for notation that such
representing the shares to the corporation for notation that such shares
are dissenting shares. Failure to do so shall, at the option of the
corporation, terminate the rights under this Title. If shares represented
by the certificates bearing such notation are transferred, and the
certificates consequently cancelled, the rights of the transferor as a
dissenting stockholder under this Title shall cease and the transferee
shall have all the rights of a regular stockholder; and all dividend
distributions which would have accrued on such shares shall be paid to
the transferee.
The appraisal right refers to a stockholder’s right to
demand payment of the fair value of his shares, after dissenting
from a proposed corporate action involving a fundamental change
in the corporate setting, in the specific cases provided for in the
Revised Corporation Code. The appraisal right is given to a
stockholder in a particular situation where there has been a radical
change in contractual relationship presumably agreed upon
between the stockholder and the corporation, a change which the
dissenting stockholder could not have reasonably anticipated
creation of contractual relationship.
F. RIGHT TO DEMAND DISSOLUTION
Section 104. Withdrawal of Stockholder or Dissolution of
Corporation. – In addition and without prejudice to other rights and
remedies available under this Title, any stockholder of a close
corporation may, for any reason, compel the corporation to purchase
shares held at fair value, which shall not be less than the par or issued
value, when the corporation has sufficient assets in its books to cover
its debts and liabilities exclusive of capital stock: Provided, That any
stockholder of a close corporation may, by written petition to the
Commission, compel the dissolution of such corporation whenever any
of acts of the directors, officers, or those in control of the corporation is
illegal, fraudulent, dishonest, oppressive or unfairly prejudicial to the
corporation or any stockholder, or whenever corporate assets are being
misapplied or wasted.
III
ACQUISITIONS, MERGERS AND
CONSOLIDATIONS
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