Maranaw Hotel & Resort Corporation

September 25, 1986 Maranaw Hotel & Resort Corporation Vito Cruz corner M. Adriatico Malate, Metro Manila Gentlemen: This relates to your letter dated August 25, 1986, requesting for a ruling of this Commission on the query posed therein. It appears therein that the authorized capital stock of Maranaw Hotel & Resort Corporation (MHRC) amounts to P500,000,000.00 divided into 300,000,000 class "A" common shares and 200,000,000 class "B" common shares, both of the par value of P1.00 per share. Class "A" common shares may be issued or transferred only to citizens of the Philippines within the purview of the applicable provisions of the Constitution, statute or regulation of the Republic of the Philippines. In 1985, Apex Motors, one of the stockholders of MHRC, sold its 4,200,000 class "A" common shares in favor of Nissho Iwai Corporation, after securing the waiver of pre-emptive rights from other stockholders. However, since Nissho Iwai is a foreign corporation, the Board of Directors of MHRC has to swap the 4,200,000 class "A" shares held by Apex with the same number of class "B" shares held by Sipalay Trading. The Apex shares which were swapped with class "B" shares were then sold to Nissho-Iwai. Hence, this present request for a formal ruling that the swapping and sale of Apex shares is in accordance with law and may be registered in the books of the corporation. In relation thereto, quoted hereunder are the pertinent provisions of the articles of incorporation of Maranaw Hotel & Resort Corporation. (1) Shares of class "A" common stock shall be issued subject to the following limitations, which shall be printed on the stock certificates for such shares: Only individuals or partnerships, corporations, associations or other firms, who are deemed to be Filipino citizens or nationals within the purview of the applicable provisions of the Constitution or of any statute or regulation of the Republic of the Philippines, shall be qualified to acquire, own or hold shares of class "A" common stock of the corporation, and no such shares may be issued, sold or transferred except to such qualified persons or firms . Any issuance, sale or transfer of shares of class "A" common stock, made in violation of the foregoing conditions shall be null and void and shall not be registered on the books of the corporation ." (Emphases supplied). The charter may be regarded as a formal contract made by the organizers with the state under authorization of statute for the benefit of those who shall become shareholders or members. (Ballantine on Corporations, sec. 18, p. 61).It is also said that a corporate charter is a three-fold contract (1) between the state and the corporation; (2) between the corporation and the shareholders or members, and (3) between the shareholders among themselves. (Ballantine Supra.,sec. 274, p. 645).Certain restrictions on the transfer of shares, if within proper limits, may be imposed by charter provision. (Ballantine, sec. 336, pp. 775-776),and such charter restrictions on the transfer of shares are binding on all who become shareholders, as they become parties to the contract charter and take their shares subject to it. (Ibid). prcd Considering that your articles of incorporation so states that issuance, sale or transfer of class "A" common shares made to non-Filipino nations shall be null and void, any purported sale of "A" common shares in favor of Nissho Iwai Corporation should be canceled . However, the Board of Directors of MHRC, through a resolution thereof, may swap 4,200,000 class "A" shares held by Apex with the corresponding number of class "B" shares held by Sipalay Trading, and subsequently, the resulting 4,200,000 class "B" shares held by Apex Motors may be offered to Nissho Iwai Corporation. However, any re-offer of class "B" shares is subject to the proportionate pre-emptive right of all existing shareholders as duly prescribed in article VII (5) of your amended articles of incorporation. Should the above corporate procedure be pursued by the corporation, the Commission interposes no objection to the stock swap provided that waiver of pre-emptive right is executed by the other stockholders. Hence, sale of class "B" common shares by Apex in favor of Nissho Iwai Corporation is in accordance with law and may be recorded in the stock and transfer book. Please be guided accordingly. prcd Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman