Mr. Fernando C. Santico

September 30, 1991 Mr. Fernando C. Santico Cesofin Loans, Inc. Suite 210 Surise Condominium I 226 Ortigas Avenue, Greenhills San Juan, Metro Manila S i r : This refers to your letter of September 23, 1991 requesting opinion on the following queries: 1. Can the Board order the sale of delinquent shares after the expiration of the sixty (60) days prescribed under Section 68 of the Corporation Code? cdlex 2. May the SEC authorize auction sale after the expiration of the sixty (60) days period as an exception? 3. If not, does this not give the delinquent subscribers an undue advantage in the right to dividends over the non-delinquents who complied with the call for payment and have thus made more payments on their subscriptions, since delinquent subscribers are anyway entitled to cash dividends computed on the basis of the amount of subscription and not on amount paid on their subscriptions per Section 43 of the Corporation Code? 4. Is it correct to say that delinquent subscribers are no longer subject to subsequent calls for partial payments, since their delinquent status stays as long as they have not paid in full their unpaid subscriptions, plus interest and other charges? 5. Is it also correct to say that since delinquent subscribers are entitled to cash dividends subsequently declared by the board, they will be entitled to the issuance of the corresponding certificates of stock when their accounts have been fully settled by the cash dividends credited in their favor? Does this not encourage delinquency? What then can be the alternative sanction that the corporation can resort to? Relative to your first, second and third queries, when a statute giving a corporation the power to sell shares for non-payment prescribes the conditions under which, and the mode in which the power shall be exercised, the prescribed conditions must exist, and the provisions of the statute as to the mode must be strictly complied with . (4 Fletcher Sec. 1860, citing several cases). The pertinent provision of the Corporation Code provides, thus: "SECTION 68. 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 said sale, with a copy of the resolution, shall be sent to every delinquent stockholder either personally or by registered mail. The same shall furthermore 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 his 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 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. ...(Emphasis supplied) From the phrase "unless the board of directors otherwise orders",it can be construed that the board of directors may order the extension of the time and date of sale. However, if the prescribed sixty (60) days shall be extended by the Board, the notice of such extension must be again served and published in the same manner required by law for the notice of delinquency sale. Regarding your fourth query, the moment the unpaid subscription is declared delinquent, its delinquent status remains for as long as the stockholder does not pay in full his subscription. Hence, subsequent call is not necessary. But if it will again be subjected to delinquency sale, the manner required by law for the notice of delinquency sale must be observed. Regarding your fifth query, the Corporation Code provides: "SECTION 71. Effects of delinquency . No delinquent stock shall be voted for or be entitled to vote or to representation at any stockholders' 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 the Code, until and unless he pays the amount due on his subscription with accrued interest, and the costs and expenses of advertisement, if any ." (Emphasis supplied) Thus, upon full payment of his unpaid subscription together with interest and other expenses, the rights of a stockholder, including the right to be issued the stock certificates evidencing his subscription, shall be restored to the delinquent stockholder. As to what sanctions the corporation can resort to, the Corporation Code gives recognition to two remedies for the enforcement of liability of unpaid stock subscriptions. The first consists in permitting the corporation to put up delinquent unpaid subscription for sale under Section 68 and the other remedy is by action in Court under Section 70 thereof. Accordingly, when the corporation does not resort to a delinquency sale or when sale of delinquent shares fails, the corporation may institute a suit for the enforcement of the subscriber's liability, for as stated by the Supreme Court "it is generally accepted doctrine that the statutory right to sell the subscriber's stock is merely a remedy in addition to that which proceeds by action in Court". (Velazco vs. Poizat, G.R No. L-11528, March 15, 1918, 37 Phil. 802) cdll Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman