Atty. Vicente G. Villamil

February 15, 1993 Atty. Vicente G. Villamil Rm. 210 Galvan-Cabrera Building 827-847 Ilaya St.,San Nicolas Metro Manila S i r : This refers to your letter of February 5, 1993 requesting opinion on the effects of the following transfers of shares on the basis of the first refusal transfer clause in the articles of incorporation of NTRA. SRA. DEL CARMEN REALTY CO.,INC. cdlex 1. Sale to a third party at a price lesser than what was previously offered to the existing stockholders without giving notice to the latter. 2. Sale to a third party with notice to all stockholders and is now recorded in the corporate books. 3. Sale to another stockholder without giving notice to the other existing stockholders and is now recorded in the corporate books. 4. Sale to a third party even if there is an existing stockholder who is willing to buy the shares at a price offered to the third party which is lower than what was previously offered to the other existing stockholders. 5. Transfer to legal heirs upon death of a stockholder. Please be advised that the Commission does not, as a matter of settled policy, render opinions on queries or transactions involving justiciable issues which may eventually be litigated in the future or which could only be clarified and determined in a proper proceeding, such as those presented in your letter. The opinion which may be rendered thereon would not be binding upon private parties who would in all probability, if the opinion happens to be adverse to their interest, take issue therewith and contest it before the Court. For this reason, the Commission refrains from giving opinions on the above transactions so that it will not be estopped to resolve controversies pertaining thereto if brought before it in a proper proceeding. However, for purposes of information only, the following may be imparted. Shares of stock in a corporation are personal property, and it is well settled that the owner, as in the case of other personal property, has an absolute and inherent right, as incident of his ownership, to sell and transfer the same at will except insofar as the right may be restricted by the charter of the corporation or the general law, provided the transfer is in good faith, and to a person capable of assuming the obligations of a stockholder. (12 Fletcher Cyc. Corp. Section 5452) Reasonable restrictions on the power to transfer shares of stock as imposed in the charter of a corporation are binding upon all persons who become stockholders thereof, since they are chargeable with notice. Such provision is essentially contractual in nature between the stockholders and the corporation. (12 Fletcher 5461.3) Hence, provisions in articles of incorporation requiring stockholders desiring to sell their stocks to offer it to the corporation or to the existing stockholders at a given reasonable period before disposing of it to third parties may be considered valid and enforceable. Accordingly, the Corporate Secretary may refuse to record any transfer in the corporate books if there is a clear breach of transfer qualifying conditions. A valid agreement of this character in the articles of incorporation to which the corporation is a party will be specifically enforced at its instance, and if the stock has already been sold, an action will lie in equity to cancel the sale, and enforce the preference right to purchase, and the defaulting stockholder may also be enjoined from transferring any of the capital stock of the corporation except in accordance with the agreement. Regarding the shares of a deceased stockholder, it is well settled that on the death of a shareholder, his executor or administrator duly appointed by the Court becomes vested with the legal title to the stock and entitled to vote the same at all meetings and that until a settlement and division of the estate is effected, the stocks of the deceased belong to said administrator or executor as his personal representative. This rule is true even if the shares stand in the book of the corporation in the name of the deceased, or without a formal transfer of the stock in the books of the corporation. (SEC Opinion dated October 3, 1988 addressed to Mr. Gilberto P. Romulo). Section 55 of the Corporation Code provides in part, thus: "Executors, administrators, receivers, and other legal representatives duly appointed by the Court may attend and vote in behalf of the stockholders or members without need of any written proxy." Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman