Ms. Leoncita B. Concepcion

October 1, 2001 SEC OPINION Ms. Leoncita B. Concepcion 74 Washington St. Merville Subdivision Paraaque, Metro Manila M a d a m : This has reference to your letter dated September 07, 2001 requesting opinion on whether, as a minority stockholder and in the exercise of appraisal right as dissenting stockholder, you are entitled to the payment of the fair value of your shares. If the answer is in the affirmative, what steps should be taken to protect your interest if the company refuses to pay? It is alleged in your letter that you are a minority stockholder of a corporation primarily organized to operate and maintain hospitals and clinics in any town or province in the Philippines. The corporation has been consistently declaring cash dividends from 1996 to June 2001 and has sufficient retained earnings in its books. In April 2001, the company increased its capital stock for the purpose of raising capital to construct buildings for expansion and for the use of an educational institution. Dissatisfied with the decision or action taken by the board and the majority stockholders, you objected to the increase of capital stock and requested for the fair value of your shares. Relative thereto, please be informed that the appraisal right contemplated under Section 81 of the Corporation Code relates to the "stockholders" right to demand payment of the fair value of his shares after dissenting from certain corporate acts involving substantial and fundamental changes in the corporate structure or organization, not contemplated by him during the time he made his investment in the corporation. The appraisal right is equivalent to the right to withdraw under the old corporation law." (Lopez, The Corporation C od e of the Philippines ,Annotated, Vol. 2, p. 945) Prescinding from the aforequoted discussion and equating the same to the case at hand, it may be safely said that indeed there is a substantial change in the corporate purpose or line of activity of subject corporation that is from operation and maintenance of hospitals and/or clinics to establishment and operation of educational institution. It should be recalled to mind that the conditions for the availment of appraisal right under Section 81 of the Corporation Code has been said to be non-exclusive. To borrow the language of former SEC Chairman Rosario N. Lopez, "It would appear that the above enumeration is not exclusive. There are other situations where the appraisal right is recognized in other provisions of the Code but does not appear in Section 81." ( Ibid. p. 947).Convincingly, the answer to your first query is in the affirmative. The conditions for the valid exercise of stockholders' appraisal right may be summed-up as follows: 1. Any of the instances set forth by the law for the exercise of the appraisal right by a dissenting stockholder must be present (Sec. 81). 2. The dissenting stockholder must have voted against the proposed corporate action. 3. The demand for payment must be made by the dissenting stockholder within thirty (30) days from the date a vote is taken thereon. Failure to make such demand within such period shall be deemed a waiver of the appraisal right (Sec. 82). 4. The price of the shares must be based on the fair value as of the day prior to the date on which the vote was taken; and the fair value must be determined in accordance with the procedure set forth in Section 82. 5. Submission by the withdrawing stockholder of his shares to the corporation for notation of being a dissenting stockholder within ten (10) days from written demand. (Sec. 86) 6. Payment of shares must be made only when the corporation has unrestricted retained earnings in its books to cover such payment (Sec. 82). 7. Upon such payment by the corporation, the stockholder must transfer his shares to the corporation. ( ibid .p. 951). If all the foregoing conditions have been complied with, particularly the demand stated in number 3 of the aforequoted summary of conditions has been made, "all rights accruing to such shares, including voting and dividend rights, shall be suspended in accordance with the provisions of this Code, except the right of such stockholder to receive payment of the fair value thereof: Provided, that if the dissenting stockholder is not paid the value of his shares within thirty (30) days after the award, his voting and dividend rights shall immediately be restored" (Section 83, Corporation Code of the Philippines). If the corporation unjustifiably refuses to pay the dissenting stockholder despite the full compliance with all the requirements for the valid exercise of appraisal right and the fact that the corporation has sufficient unrestricted retained earnings then the aggrieved minority stockholder may file the appropriate action before the proper Regional Trial Court of general jurisdiction. In such event, you are advised to secure the services of a lawyer. Very truly yours, (SGD.) FE ELOISA C. GLORIA Commissioner