Atty. Ofelia Francisco

February 10, 1981 Atty. Ofelia Francisco 21-A Driod Street Cubao, Quezon City Metro Manila Dear Atty. Francisco: This refers to your letter dated February 13, 1981 requesting opinion on the queries posed therein. cdll It appears that Atok Big Wedge Mining Company, Inc.,(Atok),increased its authorized capital stock of P6.0M divided into 600,000,000 shares with a par value of P0.01 to P60.0M divided into 6,000,000,000 shares with the same par value on July 5, 1978, that the purpose for said increase was to offset a portion of Atok's liability to the Financing Corporation of the Philippines (FCP);that although Atok's total liability to FCP amounts to P6,492,792.11, FCP agreed to subscribe to only P3,256,917.86 lest it violates the rule on corporate investment which limits the investments of mining firms to 30% of its total outstanding and subscribed capital stock; that of the total 5.4B shares worth P54,000,000,000.00 representing the increase in capital stock, subscription and payment were made by six (6) stockholders; that the portion subscribed by FCP has been fully paid by way of offset of liabilities; that the Securities and Exchange Commission (SEC) approved the increase of Atok's authorized capital stock on February 6, 1979; that notwithstanding the facts of full payment of FCP's subscription and the SEC's approval, Atok did not issue or release the corresponding stock certificates to FCP immediately as Atok apparently wanted to first seek the registration of the new shares with the SEC considering that its original authorized capital stock is registered with the SEC; that due to a change in its corporate program, Atok failed to secure the approval of the Bureau of Mines of its work program which was supposed to be the basis for the registration of securities with the SEC; that since February 6, 1979 to date, Atok failed to release the corresponding stock certificates to FCP on the alleged ground that Atok's application for registration of securities is still pending with the SEC and that unquestionably, the FCP is the owner of its fully-paid shares in Atok. You therefore posed the following queries relative to the aforementioned facts and transactions, to wit: 1. Is the portion subscribed by FCP from Atok's increase in capital stock and fully paid by way of offset of liabilities still considered as unissued capital stock? 2. For the purpose of issuing the corresponding stock certificate, must the shares already issued to FCP to offset Atok' s liability be registered first or "replaced on equal footing with the original shares"? 3. May FCP demand from Atok the issuance of a stock certificate covering its fully paid shares or may Atok lawfully withhold from FCP such certificate pending the registration of Atok's securities with the Commission? 4. Is it not true that the issuance of such stock certificate for fully paid subscriptions ministerial upon the concerned issuing corporation even in the particular case of Atok whose application for registration of securities is still pending with the Commission? In this connection, attention is invited to the pertinent provision of Section 64 of Batas Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines, which reads 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. prcd Likewise, the weight of authority is to the effect that: While a certificate of stock is not necessary to the complete ownership of the stock or to the creation of the relationship of stockholder, there can be no doubt that a corporation is bound, even in the absence of a statutory provision, through its proper officers, to issue to each stockholder who has fully paid for his subscription a stock certificate representing his interest in the corporation ,and upon refusal of the corporation, upon demand, to issue a certificate of stock to the person entitled thereto, the latter may at his election bring an action at law against the corporation for damage. ...(13 Am Jur 399; emphasis ours) In the light of the foregoing authorities and considering further that the portion subscribed by FCP from Atok's increase of capital stock which has been fully paid by way of offset of liabilities no longer forms part of Atok's unissued capital stock, FCP is therefore entitled to a stock certificate covering such fully paid shares. In the same vein, it becomes the ministerial duty of Atok, upon demand by FCP, to issue the latter's certificate of stock representing the latter's interest in the former. The pendency therefore, of Atok's application for registration of securities in order to place the new shares representing the increase of capital stock on equal footing with its original shares is immaterial insofar as FCP's demand for the issuance of a stock certificate covering its fully paid shares is concerned. A certificate of shares merely certifies that one is a holder or owner of a certain number of shares in the corporation but is not usually regarded as expressing the share contract itself. (Ballantine, Law of Corporations p. 466) However, please be advised that the shares of stock cannot be traded in the stock exchange nor sold in the course of repeated and successive transaction of a like character without the approval of the registration of securities by this Commission. Very truly yours, (SGD.) ROSARIO N. LOPEZ Director Corporate and Legal Department