Ms. Consolacion V. Odra

May 13, 1981 Ms. Consolacion V. Odra Director, Dept. of Rural Banks and Savings and Loans Association Central Bank of the Philippines Apolinario Mabini St., Manila Dear Ms. Odra: This is with reference to your letter dated February 11, 1981 relative to the provision of Section 12(b) and (d) of the General Banking Act (RA No. 337, as amended), which prescribes limits on the extent of stockholdings in banking institutions of individuals, family groups and corporation. You mentioned in your letter that pursuant to said law, your office has been treating the sale and purchase of banks shares in excess of the ceiling as valid with respect to the portion allowed by law, but void with respect to the shares in excess of the ceiling; that you have been requiring the buyer of such excess shares to dispose of the same; and that you have instructed the banks not to record the transfer with respect to the excess shares if the buyer refuses to dispose of the same. You, therefore, request opinion on the following queries: 1. If the bank declares dividends, who shall be entitled to the dividends corresponding to the excess portions? 2. If the sale with respect to the excess shares is void and such transfer is not recorded in the books of the bank, what will be the status of said excess shares if the original seller does not agree or is unable to return the money and there are no other buyers who are willing to purchase the shares from the holder of the excess shares? In answer to your first query, this Commission is of the opinion that the dividends corresponding to the excess portion must be given to the transferor or former owner of the stocks, considering that the sale of the excess portion is null and void for being contrary to law. As such, the buyer does not acquire any right to the excess portion . At any rate, as you have mentioned in your letter, your office has always instructed the bank concerned not to record the transfer of the excess shares of stock in favor of the purchaser. Besides, it is in consonance with jurisprudence that the person in whose name the shares of stock is registered at the time of declaration of the dividends is entitled to the same, regardless of when the distributed profit was earned. (Cf SEC Opinion dated January 17, 1974 ). It would appear in the books of the corporation that the excess shares of stock is still in the name of the transferor. Anent your second query, in the event that the seller does not agree or is unable to return the money or there are no buyers who are willing to purchase the shares from the holder of the excess shares, this commission believes that the most that can be done is to treat the amount or the money in excess of the legal ceiling as a loan between the original seller and the purchasing stockholder. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Director Corporate and Legal Department