Tanjuatco, Oreta, Tanjuatco & Factoran

April 18, 1985 Tanjuatco, Oreta, Tanjuatco & Factoran 4th Floor, Equitable Bank Bldg. Paseo de Roxas & Sen. Gil J. Puyat Ave. Makati, Metro Manila Gentlemen: This refers to your letter dated March 11, 1985 requesting for clarification of the implications of the last statement of SEC Opinion dated March 28, 1984 addressed to the Philippine Hotel Owners Association relative to the imposition of interest on converted loans and interests covered by subscription agreement. The last sentence of our letter states: "....In the absence therefore of an agreement to the contrary, the imposition of interest on converted loans and interests covered by the subscription agreement would be inappropriate." The agreement referred to in the aforecited statement refers to the subscription agreement entered into by and between the creditor and the corporation, which agreement must be in accordance with the articles of incorporation of the corporation. It is worth mentioning that "the charter of a corporation ,whether it is created by special act or formed under a general corporation law, is a contract (1) between the state and the corporation, (2) between the corporation and the stockholders , and (3) between the stockholders and the State. (Commentaries and Jurisprudence on the Philippine Commercial Laws, Martin, T.C., 1981 Revised Edition p. 78, citing Government v. Manila Railroad Co., G.R. No. 30646, January 30, 1929, 52 Phil. 699). The articles of incorporation or charter of a corporation being considered as a contract, the corporation is under obligation to observe the provisions thereof and it cannot, without the consent of all the stockholders, change the terms and preferences of class/es of shares of stocks provided therein. Likewise, it is the rule of law that unless otherwise provided in the articles of incorporation, all the stockholders shall possess equal rights in all respect to every other stockholders. The Corporation Code provides: "SECTION 6. Classification of shares . ... Except otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respect to every other share." xxx xxx xxx If the articles of incorporation, therefore, do not provide for any distinction of the shares of stocks of the corporation, all shares shall enjoy the same rights and privileges. Thus, "any special agreement between a particular subscriber and the corporation or its promoters, by which he is allowed to subscribe for shares upon different terms from other subscribers and is guaranteed against loss at their expense, is fraudulent and invalid".(Ballantine on Corporations, Revised Edition, p. 459, emphasis supplied). cdlex Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman