Atty. Virgilio E. Acierto

July 1, 1993 Atty. Virgilio E. Acierto Third Floor, Martha Reyes Bldg. 2242 Rizal Avenue, E.B.B., Olongapo City 2200 S i r : This refers to your letter of March 16, 1993 requesting opinion on the following queries: 1. Whether or not a rural bank could compel a stockholder who became a naturalized American citizen to direct his shares of stock to qualified persons/entities; LexLib 2. Whether or not the aforesaid stockholder could exercise his voting right; 3. Whether or not the bank has the right to withhold declared dividends in their favor. Section 4 of R.A. No. 7353 (An Act Providing For the Creation, Organization and Operation of Rural Banks, And For Other Purposes). provides in part: "....With the exception of shareholdings of corporations organized primarily to hold equities in rural banks as provided for under Section 12-C of Republic Act No. 337, as amended, and of Filipino controlled domestic banks, the capital stock of any rural bank shall be fully owned and held directly or indirectly by citizens of the Philippines or corporations, associations or cooperatives qualified under Philippine Laws to own and hold such capital stock: ..." (Emphasis supplied) The above provision does not qualify or make a distinction. It is well-settled in statutory construction that where the law does not qualify, we should not distinguish or qualify. Likewise, the use of the word "shall" in the above provision makes the requirement mandatory. Therefore, a non-Filipino citizen, regardless of whether he is a natural born or naturalized citizen, is disqualified from holding shares of stock in a rural bank. Your first query is therefore answered in the affirmative. If the disqualified stockholder fails to dispose his shares, the corporation may purchase/re-acquire the same. The re-acquired shares shall be treated as "treasury shares" and may be disposed of by the corporation at reasonable price obtainable. Under Section 57 of the Corporation Code, treasury shares shall have no voting rights so long as such stocks remain in treasury. Relative to your second and third queries, the pertinent provision of the Civil Code provides: "ARTICLE 1409. The following contracts are inexistent and void from the beginning: xxx xxx xxx (7) Those expressly prohibited or declared void by law." xxx xxx xxx (Emphasis supplied) Applying the above provision, we believe that the naturalization of the stockholder as an American Citizen rendered his subscription contract with the corporation void by operation of law. Accordingly, he ceases to be a stockholder from the moment he was naturalized as an American Citizen, and consequently, he loses all the rights of a stockholder, including the right to vote and the right to receive dividends. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman