Atty. Fe Becina-Macalino

July 8, 1988 Atty. Fe Becina-Macalino 12th Floor, Ramon Magsaysay Center 1630 Roxas Blvd.,Manila Madam : This has reference to your letter dated May 26, 1988 and your supplemental letter dated June 10, 1988, requesting for the opinion of this Commission on the queries posed therein. LexLib It appears therein that Mr. Charles Parsons, a majority stockholder of Far East Molasses Corporation granted one (1) share of stock to a trustee so that the latter may qualify as a Director of said corporation. The trustee in turn may executed a Declaration of Trust which states that he holds said share of stock in Parsons' name and all rights, benefits, dividends automatically accrue to Mr. Parsons. Said Declaration of Trust is on file with the Corporate Secretary's records. Notwithstanding said Declaration of Trust, the Stock Certificate is issued to the trustee without any qualification as to whether he is a nominee or trustee of Mr. Parsons. Said Mr. Parsons subsequently dies. On the basis of the foregoing, you request the opinion of this Commission on the following queries: 1. Is the Corporate Secretary authorized to automatically cancel the share of stock in the trustee's name and revert the shareholding back to the decedent's estate? 2. What are the steps to be done prior to the reversion of the shareholding to the decedents' name, i.e.,is it required that a Deed of Transfer/Assignment be made by the trustee concerning his shareholding? Or is the indorsement of the stock certificate sufficient to validate the cancellation of his share? 3. Pending reversion of said share to the Estate of the deceased, who votes upon the share in the annual stockholders meeting? Is it the nominee/trustee or the decedent's administrator? Ordinarily, the stock should be register in the name of the principal, not in the name of the agent. However, if the parties agree, the stock may be registered in the name of the agent even without indicating the agency relationship. (Corporate Secretary's Encyclopedia, Vol. III, p. 921) In this instance, it appeared that both Mr. Parsons and trustee agreed that the stock certificate be issued to the trustee without any qualification that said trustee is an agent of Mr. Parsons. The fact that the corporation has been furnished with a copy of the Declaration of Trust is already an admission against the trustee's interest. In this regard, Fletcher is emphatic: "Admission of a party against his interest inscribed upon the record books of a corporation are competent and persuasive evidence against him." (Fletcher's vol. 4, p. 785 citing Harrison v. Remington Paper Co.,140 F 385, cert. dem 199 US 607, 50 L Ed 331, 26 S Ct. 747) The manner of issuing stock certificates is commonly regulated, generally at least, by the charter or statutes. (Fletchers',vol. 11, p. 316) Relative to your first query, Sec. 63 of the Corporation Code of the Philippines provides and we quote: "SECTION 63. Certificate of stock and transfer of shares : ...Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates endorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer .No transfer, however, shall be valid, except as between the parties until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of certificate or certificates and the number of shares transferred." "Moreover, where a corporation does not have possession of a certificate of stock nor right to its possession, it cannot cancel such certificate." (Fletcher, vol. 11, p. 336) "A corporation will not be protected from liability to a bona fide holder of the certificate, if, without demanding the surrender of the old certificate the corporation cancelled the old certificate on its books and issued a new one," (Corp. Secretary's Encyclopedia, p. 926) prcd Considering the above and until and when the certificate is endorsed by the trustee, the corporate secretary is not authorized to automatically cancel the share of stock in the trustee's name and revert the shareholding back to the decedent & estate. "When certificates of stock contain apparently all the essentials of genuineness, so that a bona fide taker will acquire a claim to recognition as a stockholder, if such stock can legally be issued or to indemnity if this cannot be done, and they are in the hands of one who has legally acquired them but retains them without right or title and who may transfer them to a bona fide holder, the corporation may sue to compel surrender of the certificates to protect itself and its rightful shareholders" (Nowy Swiat Pub. Co. Inc. v. Misievicz, 246 NY 58, 158 NE 19 cited in Fletchers',vol. 11, p. 370) From the above and applying Sec. 63, the trustee should indorse the stock certificate to validate the cancellation of his share, and to have the transfer recorded in the books of the corporation. Anent your third query, Sec. 55 of the Corporation Code provides, thus: SECTION 55. Right to vote of ... administrators . xxx xxx xxx "Executors, administrators, receivers and other legal representatives duly appointed by the court may attend and vote in behalf of the stockholders ...without need of written proxy." The right to vote as between the trustee and the beneficiary may be determined by the instrument creating the trust, and trustees are bound by restrictions on their voting power contained in such an instrument. (Fletcher, vol. 5, p. 160) It was held that on the death of a divorced husband who had pledged stock to a trustee to secure the performance of a property settlement with his wife, the right to vote such right vested in the husband's personal representative rather than in the trustee .(Emphasis supplied, In re Schiamer's will, 231 app Dir. 628 NYS 497 cited in Fletcher's, vol. 5, p. 160) However, to establish the right to vote, letters appointing the executor or administrator should be produced or proved .An administrator, may vote stock acquired by him in his representative capacity after the death of his intestate and which stands in his name as administrator." (Emphasis supplied Gow v. Casuale Silver Inries & Brillo Co. 66 Mont 488, 213 P1092, supra p. 164) "In the absence of any appointment of an administrator by the Court or any designation of an executor in the will of the deceased stockholder, no one can represent or vote the shares." (Campos & Campos, Comments, Notes and Selected Cases, p. 282 citing vol. 1. SEC Bulletin no. 2, May, 1967, pp. 21-22) To recapitulate, and applying the above quoted precedents, the right to vote is vested in the personal representative of the deceased, not in the trustee. However, the personal representative of the deceased must be duly appointed by the court. Without the said appointment by the court or designation of an executor in the will of the deceased stockholder, no one can vote the shares. llcd Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman