Atty. Rene J. Katigbak

June 20, 1996 Atty. Rene J. Katigbak Mount Malarayat Golf and Country Club, Inc. 15/F ACT Tower, 135 Sen. Gil Puyat Avenue, Makati City S i r : This refers to your letter dated June 19, 1996 requesting opinion on the query posed therein. prcd As stated, Article 7 of the Articles of Incorporation of Mount Malarayat Gold and Country Club, Inc. which was registered on April 7, 1995, provides for different classes of shares , quoted in part, hereunder: "GOLD SHARES shall be divided into ONE THOUSAND ONE HUNDRED EIGHTY NINE (1,189) Class A -Gold, which may be sold to Filipino citizens (individuals) only : FIVE HUNDRED (500) Class B -Silver which may be sold to both Filipinos and aliens (individuals); and THREE HUNDRED (300) Class C-Gold, which may be sold to foreign and domestic corporations and other juridical entities. SILVER shares shall likewise be divided into ONE THOUSAND TWO HUNDRED (1,200) Class A -Silver shares, and which may be sold to Filipino citizens (individuals) only ; FIVE HUNDRED (500) Class B -Silver, which may be sold to both Filipinos and aliens (individuals) ; and THREE HUNDRED (300) Class C-Silver, which may be sold to foreign and domestic corporations and other juridical entities." (Emphasis supplied) On June 26, 1995, after registration of the Articles of Incorporation with the Commission, a Development Agreement and a Deed of Assignment was executed by and between the CLUB and Active Realty & Development Corporation in connection with the registration of the CLUB's shares and application for permit to sell under the Revised Securities Act to the effect that the former shall assign all its unsubscribed shares to the latter in exchange for parcels of land and all the improvements which shall comprise the golf and country club. Under the set up, the developer initially holds all the unsubscribed shares , then sells them to third parties. Your query is, whether or not it is proper and legal for the developer, which is a corporation , to hold Class A and Class B shares pursuant to the provisions of the Development Agreement and the Deed of Assignment, taking into consideration that under the Articles of Incorporation , said classes of shares can be sold to individuals only . cdlex It is your contention that the same can be done since the restriction regarding sale to individuals only refers to the transfer and sale of shares to third parties on secondary offering and not to the initial issuance of such shares to the developer. Please be advised that the restriction in the above provision does not qualify to refer only to sale by the existing stockholders to third parties. Hence, it should be construed to refer either to sale by the corporation of its authorized capital stock thru primary issuance of shares or sale of treasury shares; or sale by the existing stockholders of their shares to third parties. It is well-settled that the "charter of a corporation is a contract between three parties: (a) Between the state and the corporation, (b) between the stockholders and the state, and (c) between the corporation and the stockholders. The state cannot require the performance of a duty on the part of the corporation or entity, contrary to the provisions of the charter of said corporation or entity . (Government of P.I. v. Manila Railroad Co. and Paez, G.R. No. 30646, January 30, 1929, 52 Phil. 699) The articles of incorporation is a contract between the stockholders/subscribers and the corporation, by and among themselves and between the corporation and State. Unless and until amended accordingly, all the provisions thereof bind all the persons composing it ". ( Rubio et al. vs. Escosa et al. SEC AC No. 170, September 4, 1987 ). In the light of the foregoing, your query is answered in the negative. Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner