Guevara/Mino Law Office

August 26, 1983 Guevara/Mino Law Office 3rd Floor, Concorde Condominium Benavidez St., Legaspi Village Makati, Metro Manila Attention : Atty . Ma . Imelda Argel-Guevara Madame: This has reference to your letter dated August 2, 1983, requesting for the opinion of this Commission on the query posed therein. It appears therein that the Development Bank of the Philippines (DBP) extended a loan in favor of the Maranaw Hotels & Resort Corporation (MARANAW), and had accumulated unpaid interest. Thereafter, it was agreed upon by the DBP and MARANAW that said unpaid interest charges shall be converted into equity. Thereafter, a Subscription Agreement was executed whereby the DBP subscribed to 8,259,547 common shares of stock in MARANAW, at a par value of P100.00 per share, fully paid by off-setting the amounts due as payment against the unpaid interest due to DBP as of March 31, 1982. It is your view that although interest charges may be imposed on a loan, or on the interest on a loan, the same may not be so imposed after such loan or interest has been converted into equity even where there was a delay in the issuance of stock certificates representing said shares. You now wish to secure the opinion of this Commission on the imposition of interest charges on the consideration for the shares of stock covered by Subscription Agreement from the time of its signing until the issuance of the certificates of stock representing the shares. This Commission, in a previous opinion, has ruled that "One may own shares of corporate stock without possession a certificate thereof, which, after all is but evidence of owning the stock". (11 Fletcher, Sec. 5164 citing Exchange National Bank of Colorado Springs v. Receivers of City Savings, Bldg. and Loan Assn., 75 Colorado 498, 37 P (2d) 394). However, while a certificate of stock is not a condition precedent to the right of a corporation to sue on a stock subscription, "a certificate of stock is the paper representative or tangible evidence of the stock itself and of the owner's interest therein, and every stockholder has a right to have a proper certificate issued to him by the corporation as soon as he has complied with the conditions which entitle him to one, as by payment for his shares or the like, in the absence of some legal obstacle to issuance created by the stockholders himself" (11 Fletcher, sec. 5164). prcd As a general rule, a corporation is duty bound to issue certificate of stock to its stockholders, provided all conditions which entitle the stockholder to become one, have been complied with. As regards demand, it has been held that "a demand is necessary before the corporation is required to issue a certificate, at least, to charge the corporation with liability for refusal or failure to issue one". ( Ltr. to Atty. Leopoldo Divinagracia citing 11 Fletcher, sec. 5164 citing Sevobe v. Brictson Mfg. Co. 297 Fed. 560). Specific performance and mandamus are the common remedies to compel the issuance of certificates, the stockholder may, however, sue instead for damages, or, in some instances may rescind and recover the consideration paid ( Ltr. to Teodorico Aparicio dtd. Jan. 7, 1976 , citing 11 Fletcher Cyclopedia Corp. 333). Thus, in the absence of an agreement between the parties to the contrary, the foregoing enumeration of remedies precludes the imposition of interest on the consideration for shares of stock covered by subscription agreement as a remedy of the stockholder in the event of non-issuance by the corporation of his stock certificates representing shares converted into equity. Please be guided accordingly. llcd Very truly yours, (SGD.) GONZALO T. SANTOS, JR. Associate Commissioner