Mr. Romeo G. Badilla

February 8, 1982 Mr. Romeo G. Badilla Monterey Farms Corporation 2/F Cash and Carry Building Cosmopolitan Commercial Center Filmore St.,Makati Metro Manila 3116 Dear Mr. Badilla: This refers to your letter-query dated October 2, 1981 and follow-up letter of November 10, 1981 requesting opinion as to the legality of the proposed amendment to the by-laws of the Philippine Association of Hog Raisers, Inc. (a stock corporation) which leads as follows: prcd Unpaid dues/assessments, service fees and any other unliquidated charge or account buy any stockholder in favor of the corporation shall constitute a lien upon his share of stock and the same, after proper notice and final demand, may be disposed of by the Board of Directors in liquidation thereof. The Board is hereby empowered to take such other action or sanction against any erring stockholder that it may deem proper in the premises. You advance the view that the abovequoted proposed amendment is invalid per se as the same is confiscatory considering that "unpaid dues, assessments, service fees and any other unliquidated charge could not and should not constitute a lien upon our shares of stock, as the latter is separate and distinct from any other dues that may be owing to the association." The pertinent provision of the Corporation Code of the Philippines (Batas Pambansa Blg. 68) applicable to your query state as follows: "SECTION 64. Issuance of Stock Certificates . No certificate of stock shall be issued to a subscriber until the full amount of his subscription together with interest and expenses ( in case of delinquent shares ),if any is due, has been paid. "Sec. 63. Certificate of Stock and Transfer of Shares . xxx xxx xxx No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation." The latter provision specifically makes stock against which a corporation holds any unpaid claim answerable for such claim. The question is whether unpaid dues/assessments, service fees and other unliquidated charges or account or liability by a stockholder in favor of a corporation are covered by such unpaid claim. Please note that the above-quoted provisions do not speak of debt or liability of a stockholder. They are therefore a clear proof of the legislative intent that such unpaid claims for which the stock is answerable are no other than unpaid subscription due and payable .Thus, it is well settled that; "Being in derogation of the common law, the terms of a statute creating the lien must be clear and unequivocal. A lien upon stock in favor of corporation for debt or liability of stockholders other than unpaid subscriptions due and payable would be an obstacle to the trading of shares upon which people depend for their credit. Before accepting a transfer of corporate shares, a prospective transferee would have to inquire into unregistered claims, equities or liens upon said shares in favor of the corporation. Such a situation should not be created ..." (Bank of the P.I. vs. Caridad Estate of Cavite, Inc. 40 OG 4th Supp 277). It is for this reason that the law recognizes that shares of stock, when fully paid, are represented by certificates of stock issued by the corporation to its shareholders; and these certificates may be sold, conveyed or transferred by mere delivery thereof indorsed by the owner of his attorney-in-fact or other person legally authorized to make the transfer (Sec. 63). In view of the foregoing discussion, we confirm of your view that such proposed amendment to the by-laws of your corporation is contrary to law and jurisprudence. Please be guided accordingly. llcd Very truly yours, (SGD.) ROSARIO N. LOPEZ Associate Commissioner