Kenram (Philippines), Inc.

December 1, 1988 Kenram (Philippines),Inc. 5th Flr.,Strata 100 Bldg. Emerald Avenue, Pasig Metro Manila Attention : Mr . Jose Borromeo, Jr . Sir : This refers to your letter, dated October 17, 1988, requesting for opinion of this Commission on the query posed therein. LibLex It appears therein that in 1974, KENRAM (PHILIPPINES),INC. gave bonus, in the form of shares of stock, to some of its employees and laborers working at the company's plantation in Isulan, Sultan Kudarat in consideration of their several years of faithful and dedicated service to the company. When the certificates of stock were ready for distribution, it was found out that thirty employees-beneficiaries had left the company and cannot be located notwithstanding diligent efforts on the part of the company to locate their whereabouts. These thirty former employees have a combined holdings of 149 shares (inclusive of stock dividends) as of September 30, 1988. The stock certificates representing 149 shares are still in the possession of the company. Your query is: since these 149 shares were issued to former employees as bonus shares, can the company recall these shares and treat them as treasury stock? The rule is: "For a corporation to issue its stock as a gratuity violates the rights of existing stockholders who do not consent, and is a fraud upon subsequent subscribers, and upon subsequent creditors who deal with it on the faith of its capital stock." (11 Fletcher, Cyc. Corp.,1986 rev. vol.,sec. 5202, p. 450)."Bonus stock is not necessarily gratuitous, and rest on a consideration if given to induce the doing of benefit to the corporation." (Ibid.,p. 451, citing Lamprecht v. Swiss Oil Corp.,32 F2d 646, Ky). It must be noted that in this instance, the bonus shares of stock granted by the corporation to the employees were not given gratuitously, or without any consideration since these were given in recompense of post services. In this relation, Section 62 of the Corporation Code prescribes in part thus: ". . . Consideration for the issuance of stock may be any or a combination of any two or more of the following: . . . . 3. Labor performed for or services actually rendered to the corporation. . . .". The legal and beneficial ownership or bonus shares resides with the respective employees. In connection with the 149 shares of stock whose owners cannot be located, it will appear that a trust relation is impliedly created between the corporation and the unknown stockholders. As previously ruled by the Commission, these shares may be entered in the corporate book and shall stand in the name of the corporation as "trustee" or said holder may be described as "trustee" in the certificate. The fact that one stock stands on the corporate book in the name of a person as trustee, or that the holder thereof is described as a trustee in the certificate, is notice to both the corporation and to the persons who may purchase such shares from the trustee that he does not hold the shares in his own right. ( Letter addressed to Mr. Candido Dizon, Planters Foundation, Inc .,dated August 17, 1982 ).The fact that the cestui que trust is not named is immaterial. Mere lapse of time after failure of the cestuis que trustent to appear and claim the stock and dividends thereof will not raise a presumption of ownership in the person named in the certificate as trustee. (Ibid, citing 12 Fletcher, Cyc. Corp.,sec. 5547).Nor will the fact that the person seeking the transfer had been unable to discover the cestuis que trustent. (Ibid.) The entry in the books of the corporation is a continuous assertion that the stock is not the private property of the trustee, and thus, prevents the running of the statute of limitations. Hence, you cannot recall the 149 shares of stock previously issued to employees as bonus stock and thereafter treat the same as treasury shares. It is an elementary rule that a trustee should not profit out of the handling of the trust estates. This springs from the fiduciary duty of the trustee of protecting the interest of the beneficiary and not to permit his personal interest to conflict with his duty in this respect. ( Letter to Trident Development Corporation, dated August 28, 1984 ,citing Tolentino, Civil Code of the Philippines, p. 615). You should, therefore, exhaust all available means in locating the whereabouts of the owners of the 149 shares, and if the search proves to be futile, it is nevertheless your fiduciary duty to continuously hold said shares as trustee for the owner thereof unless otherwise, escheated in accordance with law. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman