Philippine Hotel Owners Association

March 28, 1984 Philippine Hotel Owners Association c/o Mr. Francisco H. Villaruz, Jr. 12th Flr., BA Lepanto Building Paseo de Roxas, Makati Metro Manila Sir : This refers to your letter dated February 24, 1984, requesting for opinion on whether DBP has the right to charge interest on unpaid loans or accrued interests thereon notwithstanding their conversion into equity of the said debtor corporation. Facts on record show that under DBP's financial restructuring program, unpaid interests and principal loans of hotel corporations are convertible into equity. If the DBP and hotel owners agree to such conversion, a subscription agreement is executed by the mentioned parties over the number of shares covering the principal loans and quarterly interests due. The stock certificate is then issued later. However, the problem arises when the DBP still collects interests on the unpaid principal or interests computed from the date of the execution of the subscription agreement up to the time the certificate of stock issued. Hence, the instant query. In reply thereto, please be advised that ordinarily, a certificate of stock is not necessary to constitute one a stockholder. "The right of a stock may exist entirely separately and independently of the certificates, and possession of a certificate is not essential to ownership of a stock." Thus, "it follows that the issue of certificates is not necessary either to the existence of a corporation or to make one a stockholder therein." (Fletcher Cyclopedia Corporations, Vol. 11 p 50). And it is well settled, as a general rule of corporation law that, in the absence of statutory or charter provision or agreement to the contrary, a subscriber for stock in a corporation or a purchaser of stock becomes a stockholder as soon as his subscription is accepted by the corporation, and statutory or charter conditions are performed or fulfilled, or as soon as the purchase is completed, as the cases may be, whether a certificate of stock is issued to him or not, and although he may have no certificate, he is thereupon entitled to all the rights, and is subject to all the liabilities of a stockholder. (SEC Opinion dated December 16, 1983 citing 11 Fletcher 5094). In view of the foregoing considerations, this Commission is of the opinion that the signing of the subscription agreement and compliance with the conditions set therein makes the DBP a stockholder of the hotel corporation and extinguishes the creditor-debtor relationship between the parties. In the absence therefore of an agreement to the contrary, the imposition of interest on converted loans and interests covered by the subscription agreement would be inappropriate. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman