Ms. Lorelei T. Gancayco

January 16, 1996 Ms. Lorelei T. Gancayco 1512 Galvani St., Makati City Madam : This refers to your letter dated December 29, 1995 inquiring, among others, on how you can protect your interest in Toralba & Sons Realty Corp.,Inc. so as not to allow yourself to be deprived of the inheritance of your parents taking into consideration the circumstances stated therein. Please be advised that the Commission does not, as a matter of settled policy, render opinions or categorical answers on queries based on allegations involving justiciable issues which could only be clarified, determined and resolved after due hearing, such as those presented in your letter. The opinion which may be rendered therein 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. The Commission, therefore, has to refrain from giving categorical answers to your queries so that it will not be estopped to decide on the issues raised therein if brought before it in a proper proceeding. However, for purposes of information only, the following may be imparted to solve your problem. Under the Corporation Code, the directors and officers of a corporation are required to be elected. The Code provides: "SECTION 24. Election of Directors or Trustees . At all elections of directors or trustees, there must be present, either in person or by representative authorized to act by written proxy, the owners of the majority the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. The election must be by ballot if requested by any voting stockholder or member. In stock corporations, every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares standing at the time fixed in the by-laws, in his own name on the stock books of the corporation, or where the by-laws are silent, at the time of the election; and said stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit: Provided, that the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected; Provided, however, That no delinquent stock shall be voted. Unless otherwise provided in the articles of incorporation or in the by-laws, members of corporation which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidates. Candidates receiving the highest number of votes shall be declared elected .Any meeting of the stockholders or member called for an election may adjourn from day to day from time to time but not sine die or indefinitely if, for any reason, no election is held, or if there are not present or represented by proxy, at the meeting, the owners of a majority of the members entitled to vote." "SECTION 25. Corporate officers, quorum . Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or more persons may be held concurrently by the same person, except that no one shall acts as president and secretary or as president and treasurer at the same time. ..." (Emphasis supplied) Thus, whether or not a director or officer should be allowed to hold a corporate office for another term depends on the stockholders/directors themselves whether or not to elect him during the annual election of the corporation. Take note further that the elected Directors may be removed from office, with or without cause , pursuant to the following provision of the Corporation Code. "SECTION 28. Removal of directors of trustees . Any director or trustees of a corporation may be removed from office by a vote of the stockholders holding or representing two-thirds (2/3) of the outstanding capital stock or if the corporation be non-stock corporation, by a vote of two-third (2/3) of the members entitled to vote: Provided, That such removal shall take place either at a regular meeting of the corporation or at a special meeting called for the purpose, and either case, after previous notice to stockholders or members of the corporation of the intention to propose such removal at the meeting. A special meeting of the stockholders or members of a corporation for the purpose of removal of directors or trustees, or any of them, must be called by the secretary on order of the president or on the written demands of a majority of the members entitled to vote. Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice, or if there is no secretary, the call for the meeting may be addressed directly to the stockholders or member by any stockholder or member of the corporation signing the demands. Notice of the time and place such meeting, as well as the intention to propose such removal, must be given by publication or by written notice as prescribed in this Code. The vacancy resulting from removal pursuant to this section may be filled by election at the same meeting without further notice, or at any regular or at any special meeting called for the purpose, after giving notice as prescribed in this Code. Removal may be with or without cause : Provided, that removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled under Section 24 of this Code." (Emphasis supplied) LibLex Insofar the corporate officers, other than the members of the Board, the power to remove them is vested in the body authorized to elect or appoint them. Since under Section 25 of the Corporation Code the corporate officers are elected by the Board, consequently, the right to remove them is vested in said body. In the event an existing shareholders is no longer interested to be a stockholder of the corporation, he may avail of Section 63 of the Corporation Code which allow transfer of shares of stock, quoted hereunder: "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 indorsed by the owner of 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 so as to show the names of the parties to the transaction the date of the transfer, the number of the certificate or certificates and the number of shares transferred. No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation." (Emphasis supplied) In the absence of a transfer restriction clause in the articles of incorporation, a bonafide transfer of shares to a third party does not require the consent of the corporation and cannot be prevented by it or by its officers. Should you find that the elected directors or officers of the corporation mismanage the corporation or violate the Corporation Code or SEC Rules and Regulations, you may file a formal complaint with the Prosecution and Enforcement Department of the Commission so that the violation will be properly investigated. An action against, the corporation, its directors or officers may be commenced by filing a verified complaint or petition seeking relief from violation of the law, rules and regulations implemented by the SEC. A minority stockholder also has the right to petition the Commission to appoint a receiver in case of mismanagement by the majority stockholders pursuant to P.D. 902-A, as amended. Regarding the proposal to divide the corporate assets between two groups of stockholders prior to the dissolution of the corporation, the same may be violative of Section 122 of the Corporation Code which provides that " Except by decrease of capital stock as otherwise allowed by the Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities ." Should you feel it would be impossible to voluntarily dissolve the corporation under the present circumstances, you may file a verified complaint/petition for its dissolution on grounds provided by law with the Prosecution and Enforcement Department of this Commission pursuant to P.D. 902-A amended, quoted hereunder: "SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers; xxx xxx xxx 1. To suspend, or revoke ,after proper notice and hearing ,the franchise or certificate of registration of corporations, partnership or associations, upon any of the grounds provided by law, including the following: 1. Fraud in procuring its certificate of registration; 2. Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public; 3. Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts which would amount to a grave violation of its franchise; 4. Continuous in operation for a period of at least five (5) years; 5. Failure to file by-laws within the required period; 6. Failure to file required reports in appropriate forms as determined by the Commission within the prescribed period. "(Emphasis supplied) llcd Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner