Ms. Lorelei Torralba Gangayco

January 21, 1991 Ms. Lorelei Torralba Gangayco No. 1512 Galvani St. Makati, Metro Manila S i r : This refers to your letter of January 7, 1991 requesting opinion on the following queries: (1) May a stockholder who is absent be nominated and elected in the Board of Directors? Section 23 of the Corporation Code provides: "Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stock ,or where there is no stock from among the members of the Corporation, who shall hold office for one (1) year and until their successors are elected and qualified. 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) It appears from the aforecited provision that the only qualification prescribed for a director under the Corporation Code is that he should appear as a stockholder in the books of the corporation. The Code does not require that he must be physically present at the time of his election. Thus, if the by-laws of the corporation carry no special qualification or requirement for the election of directors, to be eligible, the candidate shall only meet the above qualification prescribed by the Corporation Code. However, it has to be emphasized that under Section 25 of the Code, "Directors cannot attend or vote by proxy at board meetings." Accordingly, it is a requirement for the elected directors to attend and vote in person. (2) Is it legally possible to sell or dispose of the shares of the stockholders even in the absence of certificate of stocks evidencing proof of ownership in the corporation? Shares of stock in a corporation may be transferred by means of a deed of assignment where no certificate has been issued or where it is not in the possession of the transferor. The Commission, in a letter dated May 2, 1983 addressed to Oriental Photographix & Equipment Corporation previously opined that "endorsement of the certificate is not necessary to pass title where a deed has been executed assigning and authorizing the transfer on the books". (12 Fletcher Cyc. Corps., Sec. 5480 citing Curtis V. Crossly, 59 N. J. Eq. 358, 45 Atl. 905) "A formal contract of purchase and sale set in a notarial document is equivalent to the actual delivery of the certificates themselves". (Uy Piaoco v. McMicking, G.R. No. L-4237, March 5, 1908, 10 Phil. 286) Accordingly, your query may be answered in the affirmative, provided that a deed of sale or assignment shall be executed in lieu of the endorsement of the certificate of stock. However, it has to be emphasized that if the stockholder has not paid the full amount of his subscription, he cannot transfer part of it in view of the indivisible nature of subscription contract. It is only upon full payment of the whole subscription that a stockholder can transfer the same to several transferees. However, the entire subscription although not yet fully paid, may be transferred to a single transferee. It is necessary, however, to secure the consent of the corporation since the transfer of subscription right contemplates a novation of contract which under Article 1293 of the Civil Code of the Philippines, cannot be made without the consent of the creditor. Likewise, under Section 63 of the Corporation Code, no transfer shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation. ( SEC letter dated September 12, 1989, addressed to Mr. Jose P. LLopis ) (3) What is the best possible remedy of the stockholder(s) who wanted to get out of the corporation? If the corporation doesn't want to buy their shares, what is the effect and what is the legal option of the stockholder(s)? The Corporation Code of the Philippines does not confer upon any stockholder the right to demand refund of his investment conformably to the general rule that the subscription to the capital stock of a corporation constitutes a trust fund for the benefit of the creditors and no valid agreement can be made by which a subscriber can be released therefrom. ( SEC letter to Europhil Shipping Agency, Inc., citing 4 Fletcher, Cyc. Corps. 1947) Moreover, "A contract of subscriptions is, at least in the sense which creates an estoppel, a contract among the several subscribers. For this reason, no one of the subscribers can withdraw from the contract without the consent of all the others and thereby diminish without the universal consent, the common fund in which all have acquired an interest". (Agbayani, Commercial Laws of the Philippines, Vol. 3, 1984 ed. p. 455-456 citing Lingayen Gulf Electric Power Co. v. Baltazar, G.R. No. L-4824, June 30, 1953, 49 O.G. 809) Therefore, the stockholders cannot compel the corporation to return their investments without the consent of stockholders and directors. Neither do they have the right to withdraw even when the corporation assents thereto if there is prejudice to creditors. However, please be advised that shares in a corporation are personal property and as in the case of other personal property, the owner has an absolute and inherent right as an incident of ownership, to sell and transfer the same at will, except insofar as the right may be restricted by law or the articles of incorporation. In the absence of such restrictions, a bonafide transfer does not require the consent of the corporation and cannot be prevented by it or by its officers. 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. cdll Very truly yours, (SGD.) RODOLFO L. SAMARISTA Associate Commissioner