Ms. Pura D. Almario

March 21, 1991 Ms. Pura D. Almario No. 14 Dagot St. Manresa, Quezon City M a d a m : This refers to your letter of March 9, 1991 requesting opinion on the issue raised therein. As stated, on January 1, 1990, you donated 235 of your shares in FMT Industrial Consultants, Inc. to four department heads, two key employees (all Filipinos and very active in company operations) and to the Cooperative of the employees of said company. You also donated 1,200 shares to your three sons and a daughter. All these donations reduced your shareholdings to 1,218 shares from the original 2,653 shares. You gave the above-mentioned department heads and key people shares of stock in appreciation of their very long and loyal services to the company and in the strong belief that they deserve equity in the company they continue to serve. All the above donations were unsolicited and are absolutely gratuitous and no financial consideration were given. However, the two remaining stockholders of the company were not in the favor of said donations. Nevertheless, as Secretary and Vice-President of the corporation, you signed the certificates. They also recognized the donee stockholders in the company's stockholders meeting held on May 30, 1990. It is your contention that such donations do not violate the provision in the articles of incorporation of the corporation providing for the stockholders' right of first refusal in case of sale of stock. Article VII of the articles of incorporation and by-laws of FMT Industrial Consultants, Inc. provides in part. "If at any time during the period of the existence of this Corporation a stockholder desires to sell any of his shares of stock, he must offer them for sale to the remaining stockholders, it being the intention hereof to give them preference in the purchase of the same. For that purpose, a stockholder desiring to sell his stock shall file a notice in writing of his intention to the Secretary of the Corporation, stating the price and terms of sale . If at the expiration of thirty (30) days from service of notice no stockholder has purchased the shares which he is offering to sell, the said stockholder shall then have the right to sell his shares to whoever will purchase the same for the same sum and the same price for which they were offered to his fellow stockholders. If the price offered by a third party proves to be less than the price originally stated by the stockholder, the said stockholder must file with the Secretary of the Corporation another statement under oath announcing the price offered to him by the third party, and during the next thirty days after service of said notice the remaining stockholders shall have the option to purchase the shares for the same price and terms. Any sale or transfer in violation of this provision shall be null and void. This condition shall appear in the stock certificates." (Emphasis supplied) The above-underlined words obviously contemplate only transfer by "sale". "By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent." (Article 1458 Civil Code, emphasis supplied) It has to be emphasized that stock transfer restrictions impair property rights of stockholders so that any restriction, to be valid and binding, should be clearly and explicitly stated in the articles of incorporation, and in case of doubt, the same should be construed in the favor of the transferor. Therefore, a restriction expressed only as one on sale should be construed as applicable only to transfer by sale and not to other forms of transfer not expressly included therein. Thus, it was held that a gift of corporate stock does not constitute sale within the meaning of a corporation's right of first refusal in case of sale of stock. (12 Fletcher, Cyc. Corps, Sec. 5461.5 citing McLeod v. Sandy Island., Corp., 265 SC 1, 216 SE 2d. 746) Accordingly, a provision in the articles of incorporation giving the stockholders the right of first refusal in case of sale of stock does not apply to transfer by donation. Please be advised accordingly. Very truly yours, (SGD.) ARMANDO Z. GONZALES Associate Commissioner