Atty. Roderick R. C. Salazar III

February 19, 1999 Atty. Roderick R. C. Salazar, III Fortun Narvasa & Salazar 4th Floor, Cityland 10 Tower I 6815 Ayala Avenue Makati City S i r : This refers to your letter dated January 11, 1999 requesting opinion on the queries posed therein relative to cancellation of unsurrendered stock certificates under the circumstances described therein. LexLib As stated Asia Amalgamated Holdings Corporation (AAHC) is a, publicly listed company formed for the purpose of holding investments in various businesses exception retail trade in view of the ownership of some non-Filipino stockholders. AAHC is planning to amend its primary purpose to allow it to invest in companies engaged in retail business. AAHC likewise plans to acquire the shares held by the foreigners after the amendment is approved by the stockholders in order to comply with the nationality requirement under the Retail Trade Nationalization Act. It will send appropriate notices to all foreign stockholders and advise them to surrender their shares on or before a certain definite date for redemption by the Corporation. After the date for the surrender of shares, AAHC shall consider the shares held by foreigners as cancelled even if the foreigners did not actually surrender and endorse their shares to the corporation..However, AAHC will set up an escrow account with a bank where the equivalent value of the shares held by the foreign stockholders will be deposited and from which the foreign stockholders may be paid the value of their shares. Your queries are: 1. Whether or not under the circumstances described above AAHC can consider its shares held by foreigners as legally redeemed should the foreign shareholders fail to respond to a call by the Corporation sent to their last known addresses to surrender their shares for redemption by AAHC in order that AAHC can comply with the nationality requirements for retail trade; and 2. Whether or not an application for amendment of AAHC's purpose to include retail trade business will be approved by the SEC once AAHC certifies that it is wholly owned by Filipinos. Please be advised that it has been the policy of the Commission not to render opinions on litigious issues which may eventually be litigated in the future or which can only be clarified, ascertained or resolved after due hearing or presentation of evidences, 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 proper forum. It appearing that the issue raised in your letter appears to be a potential case for litigation, the Commission has to refrain from rendering categorical answers/opinions thereon so that it will not be estopped to decide any controversy pertaining thereto if brought before it in a proper proceeding. However, for purposes of information only, the following are imparted: "SECTION 36. Corporate power and capacity . Every corporation incorporated under this Code has the power and capacity: xxx xxx xxx To amend its articles of incorporation in accordance with the provisions of this Code has the power and capacity: "SECTION 16. Amendment of Articles of Incorporation . Unless prescribed by this Code or by special law , and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this code, . . ." (Emphasis supplied) cdlex "SECTION 17. Grounds when articles of incorporation or amendments may be rejected or disapproved . The Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is not in compliance with the requirements of this Code. . . . The following are grounds for such rejection or disapproval: xxx xxx xxx 2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral or contrary to government rules and regulations," (Emphasis supplied) It is evident from the foregoing provisions that the power to amend the articles of incorporation is one of the powers granted by law to a corporation. However, it cannot be left entirely to the judgment of the Board even where it bears the ratification of the stockholders. The Commission must be satisfied that the amendment is for a " legitimate purpose ". Thus, the Commission previously ruled: "To the extent that the Commission is, by duty, required to pass upon the legitimacy of purpose, or that the amendment does not fall under any of the grounds for disallowance enumerated in Section 17, other provisions of this Code or any special law, the matter of amendment requires the exercise of discretionary power (Lamb v. Phipps, G.R. No. 7806, July 12, 1912, 22 Phil 480) which the Commission must exercise (Pineda v. Hon. Lantin, G.R. No. L-15350, November 30, 1962, 116 Phil 1084)" ( SEC Resolution dated September 1, 1989 re: In the Matter of Ayala Corporation ) The Commission further ruled that "even when an amendment has been regularly approved by the board of directors and by a majority shareholder or holders, the relatively unlimited "contractual" right to amend the articles becomes subject to overriding equitable considerations if the majority has used its positions without due regard to the interest of the minority stockholders." (Ibid, citing Ballantine & Sterling, California Corporation Laws, P. 11-9) "This is in consonance with the fundamental principle in corporate law that the reserved power of a corporation to amend its charter must be so exercised that the result will tend to benefit the corporation as a whole, and to distribute equitably the benefit or the sacrifice, as the case may be, between all groups in the corporation as their interest may appear".(Ibid) " It is sometimes provided that the power of amendment or repeal must not be exercised in such manner as to work injustice." (Ibid citing 7A Fletcher Cyc. Corps 3683) Thus, we regret to inform you that we are constrained to decline rendition of the opinion requested for the reason that any one of the stockholders of the corporation may register an objection or opposition to the Corporation's move. Affected stockholders may not feel bound in nature, and who may prefer to have the legality propriety or wisdom of the proposal settled in the proper court. Very truly yours, (SGD.) ROSALINDA U. CASIGURAN Associate Commissioner