Mr. Vincent A. Flores

February 10, 1993 Mr. Vincent A. Flores Auxilia, Inc. Suite 511 Penthouse Sunrise Condominium 226 Ortigas Avenue, Greenhills San Juan, Metro Manila S i r : This refers to your letter of February 4, 1993 requesting opinion on the queries posed therein. cdll As stated, on December 11, 1991, stockholder JL sent his representative to the Corporate Secretary with a deed of sale purportedly covering the transfer and sale of his 119 shares of common stock in Auxilia, Inc. He was advised by registered letter that the transfer could not be effected unless proof of payment of capital gains tax, if any, or exemption therefrom issued by the Bureau of Internal Revenue (BIR), is submitted together with the deed of sale and the stock certificate(s) to be cancelled. On the same date, JL also presented through his representative a separate deed of sale over 191 additional shares of common stock in Auxilia, Inc. along with an affidavit of loss of the covering stock certificate. JL's representative was told and this was likewise confirmed by registered letter addressed to JL that the lost stock certificate should first be reconstituted in accordance with the procedure prescribed in Section 73 of the Corporation Code before the transfer and sale could be implemented. Moreover, JL was advised in the same letter that the requirement to show proof of payment of capital gains tax or a clearance or exemption therefrom issued by the BIR should also be complied with. A follow-up letter was sent by the Corporate Secretary to JL reminding him of the legal requirements as above narrated. To this date there has been no compliance by JL. Your queries are: 1. Is your Corporate Secretary legally correct in refusing to effect an immediate transfer of the shares under the circumstances above mentioned? 2. Who is entitled to the notice of stockholders meeting in said situations? 3. Who can vote the shares in said situations? 4. Under the circumstances obtaining in the above situations, can JL be elected to the board of directors of Auxilia, Inc.? What about his purported transferee? Please be advised that the Commission does not as a matter of settled policy, render opinions on queries based on allegations involving justiciable issues which may eventually be litigated in the future or which could only be clarified and determined in a proper proceeding, such as those presented in your letter. The opinion which may be rendered thereon would not be binding upon private parties who would in all probability, if the opinion happens to be adverse to their interest, take issue therewith and contest it before the Court. For this reason, the Commission refrains from giving categorical answers to your queries so that it will not be estopped from deciding the issues raised therein if brought before it in a proper proceeding. However, for purposes of information only, the following may be imparted. Section 63 of the Corporation Code, partly quoted hereunder, prescribe the manner by which shares of stock may be transferred: cdlex "SECTION 63. Certificate of stock and transfer of shares . ...Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred." (Emphasis supplied) Under the aforecited provision, indorsement of the certificate of stock is necessary to legally effect the transfer of title to a share of stock. However, the Commission on several occasions, had opined that indorsement of the certificate is not necessary to pass title where a deed has been executed, assigning and authorizing the transfer on the books. (12 Fletcher Cy. Corp. Sec. 5480, citing Curtis v. Crossly, 59 N.J. Eq. 358, 44 Atl. 905) "A formal contract of purchase and sale set in a notarial document is equivalent to the actual delivery of certificates themselves." (Uy Piaoco v. Mc. Micking, GR No. L-4237, March 5, 1908, 10 Phil 286). Accordingly, fully paid subscriptions may be transferred by means of a deed of assignment where no certificate has been issued or where it is not in the possession of the transferor. (SEC Opinion dated June 6, 1991 addressed to Atty. Damaso P. Uy). But to make the transfer valid against third parties and the corporation, the same must be recorded in the corporate books. An unrecorded transfer, though valid as between the parties, cannot be effective as against the corporation. The rights of a stockholder accrues only upon entry of his name in the books of the corporation. An unrecorded transferee cannot enjoy the status and right of a stockholder. Accordingly, he is not entitled to notices of stockholders meeting and cannot vote or be voted for as director. A person, who has purchased a stock, and who desires to be recognized as a stockholder for purpose of voting must secure a standing by having the transfer recorded on the corporate books. As a general rule, only those whose ownership of shares are duly registered in the corporate books are considered stockholders of record and are entitled to all rights of a stockholder. In case of refusal of the corporate secretary to record the transfer, specific performance and mandamus are the common remedies to compel the recording of the transfer. Hence, if a corporation wrongfully refuses to record a transfer of shares when it has the power and is under an obligation to record the same, it may be compelled to do so by a suit in equity for specific performance or mandamus. Mandamus is an appropriate remedy to compel the recording where the conditions, facts and circumstances of a given case bring it within the legal rules which govern the granting of the writ. Mandamus will lie to compel the corporation to register the transfer of stock if the transferee seeking relief has performed and complied with all the statutory requirements for valid transfer of shares. Please be advised accordingly. LibLex Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman