Atty. Mario E. Ongkiko

September 23, 2002 SEC OPINION Atty. Mario E. Ongkiko 4th Flr., Cacho-Gonzalez Bldg. 101 Aguirre St., Legaspi Village Makati City Dear Atty. Ongkiko, This is in reply to your letter dated August 8, 2002 requesting opinion on the queries posed therein. Firstly, considering that the amount of the proposed borrowings and the number of possible lenders will exceed the aggregate P15M (P5M for short term CPs and P10M for long term CPs) and the 15-lender limit for exempt issuance, the registration requirements under the Rules on Commercial Papers should be complied with. (CFD Memo dated August 29, 2002) Secondly, a corporation may pledge its unissued stock to secure the repayment of a loan, unless prohibitory provisions are found in the charter or statute. (Doris and Friedman, Corporate Secretary's Encyclopedia, Vol. IV, p. 1230) Under the Civil Code, particularly Arts. 2085 and 2093 thereof, the essential requisites of a pledge are specified as follows: 1) That they be constituted to secure the fulfillment of a principal obligation ; 2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged; 3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose; 4) That the thing pledged be placed in the possession of the creditor , or of a third person by common agreement. IcDHaT Unissued shares are inexistent until after they are issued. In fact, there is even a possibility that such shares may not be issued at all by the corporation if the board does not approve of its issuance or due to other supervening circumstances. Such shares can not therefore secure the fulfillment of the principal obligation, since the necessary requisites to constitute a valid pledge under the aforequoted provision of the Civil Code are not present in the case of unissued shares. In view thereof, we opine that the use of the unissued shares of stock is not legally feasible in the instant case. Very truly yours, (SGD.) BENITO A. CATARAN Director