PEFTOK Investment & Development Corporation

January 25, 1985 PEFTOK Investment & Development Corporation Room 406, Sunrise Condominium I Ortigas Ave.,Greenhills San Juan, Metro Manila Gentlemen: This relates to your letter dated January 18, 1985, requesting the opinion of this Commission on the query posed therein. It appears that PEFTOK Investment & Development Corporation was created by P.D. 257. On the other hand, PEFTOK Integrated Services, Inc. was incorporated under the Corporation Law (now: Corporation Code). It was alleged that PEFTOK Investment & Development Corporation owns sixty-six (66%) percent of the stock of PEFTOK Integrated Services, Inc. On December 12, 1984, the board of directors of PEFTOK Investment & Development Corporation approved a resolution granting one (1) share each of its stock in PEFTOK Integrated Services, Inc. in favor of Messrs. Benjamin Vallejo, Tomas Batilo, Emigdio Jose, Antidio Obaldo and Teodolfo Santos in order to qualify them as directors therein. A stockholders' meeting of the PEFTOK Integrated Services, Inc. is scheduled on January 26, 1985 for the purpose, among others, of electing the members of the board of directors. The pertinent provisions of the Corporation Code of the Philippines are quoted as follows: "SECTION 23. The board of directors or trustees . ...Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his name on the books of the corporation ...." (emphasis supplied) "SECTION 63. Certificate of stock and transfer of shares . ...Shares of stock are personal property and may be transferred by delivery of the certificate or certificates indorsed 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 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. xxx xxx xxx." Accordingly, when by statute a director is required to be a stockholder and stock is transferable only on the books of the corporation, he must appear as stockholder on the books of the corporation and a transferee whose transfer is not registered is not eligible. (12 Fletcher, Cyc. Corp.,1971 Rev. Vol.,sec. 302 at 94)."The purpose of such a requirement is to be taken into consideration in construing it, and in determining the failure to comply therewith. All the courts agree that the requirement is intended for the protection of the corporation so that it may have the means of knowing at any time who are the stockholders and as such entitled ....to vote at corporate meetings, and otherwise participate in the management of the corporation ...." (Fletcher, Supra.,sec. 5489, at 308). LibLex "It is sufficient that the title to the stock, as it appears on the books of the corporation, is in the director, since the legal title is what counts and it is the person whose name appears as owner on the book of the company who is stockholder and eligible as directors." (2 Fletcher, Cyc. Corp.,sec. 300 at 92).Thus, "a person to whom one share of stock has been transferred for the express purpose of qualifying him as a director is eligible".(Fletcher, Supra, sec. 300 at 92, citing People v. Lihme, 269 Ill. 351, 109 NE 1051, Ann Cas 1916 E 959, Affg. 193 Ill App 341). Furthermore, "where a particular mode of transferring shares of stock is prescribed by the charter of the corporation or statute, or by its by-laws, compliance therewith may be necessary to render a transfer valid as against the corporation. (Fletcher, Supra.,sec. 5488 at 304).Anent thereto, Section 3, Article IV of the by-laws of PEFTOK Integrated Services, Inc. provides thus: "Transfer by Delivery. Shares of stock shall be transferred by delivery of the stock indorsed by the owner or his attorney-in-fact, or other person legally authorized to make the transfer, but no transfer shall be valid except as between parties until the transfer is annotated in the books of the corporation." In view of the foregoing, it is opined that mere resolution of the board of directors of PEFTOK Investment & Development Corporation granting one (1) share each of its stock in PEFTOK Integrated Services, Inc. to the persons named therein is not sufficient to qualify them as directors. Additional acts are needed to be done, such as the delivery of the stock certificate of PEFTOK Integrated Services, Inc. indorsed by the corporate officer of PEFTOK Investment & Development Corporation, who is legally authorized to make the transfer, in favor of each of said named nominees; the delivery of the corresponding indorsed certificates of stock to PEFTOK Integrated Services, Inc. and proper recording of the transfer in the stock and transfer book of subject corporation, showing the data required in the aforequoted provision of Section 63 of the Corporation Code. Please be guided accordingly. LexLib Very truly yours, (SGD.) MANUEL G. ABELLO Chairman