Atty. Edgardo M. Marasigan

January 12, 1994 Atty. Edgardo M. Marasigan Marasigan-Tibayan Law Office c/o Fortune Savings and Loan Association, Inc. No. 3 EDSA, Makati, Metro Manila S i r : This refers to your letter of January 4, 1994 requesting opinion on whether or not stock certificates already issued by your corporation may all be cancelled and new ones issued and recorded in a new stock and transfer book in the light of the following circumstances: 1. Stubs cannot be accounted for by the former corporate secretaries. 2. There are variances in the issues of shares of stock. 3. Unissued certificates have been cancelled but no corresponding stock transfers have been recorded in the stock and transfer book. 4. The purpose here is to set up a new record of stockholdings and to eliminate previous certificates which can no longer be made as basis for putting straight the stock and transfer book. The stock certificates to be cancelled will be replaced by new ones and have them properly recorded in the new stock and transfer book. 5. The steps to be followed would include asking the consent of stockholders to this scheme and to turn over their respective stock certificates to the new Corporate Secretary which will all be marked "cancelled".Also, a Board Resolution will be secured approving this scheme. If this is implemented, the end-result would be to put the corporate stock records clean and chronological; stubs would be book bounded; and any reader would easily pin-point how much each individual stockholder would hold in the equity of the corporation. Corporate books and records are merely private books and records, and as such, they are subject to the general rules of evidence which are commonly applicable to documentary evidences. (5 Fletcher Cyc. Corp.,1976 rev. vol. sec. 2196 at 643).As held in the number of cases, the general rule is that such original books and records, if they are in existence and can be produced, are prima facie evidence of the matters recorded therein. (Fletcher, p. 643).However, it is not to be implied from the foregoing that original books and records are the exclusive evidence of the matters and things which ordinarily are or should be written therein since parol or other extraneous evidences are admissible in many situations. (Fletcher sec. 2196 at 644).Thus, while stock and transfer books are commonly said to be evidences of stock ownership, extrinsic evidence of matters which are or should be recorded in the corporate books and records may be admitted where the original corporate records are lost, mislaid or destroyed, or are otherwise inaccessible. Proper foundation proof explaining the failure to produce the original books and records must first be laid for the introduction of other evidences. Such secondary evidence ordinarily consists of copies of the records, either certified or sworn to, or parol testimony. (Fletcher, sec. 2197, at 648). Apropos thereto, Rule 130 of our Rules of Court reads: "SECTION 4. Secondary evidence when original is lost or destroyed . When the original writing has been lost, destroyed, or cannot be produced in court, upon proof of its execution and loss or destruction, or unavailability, its contents may be proved by a copy, or by recital of its contents in some authentic documents or by the recollection of witnesses." Accordingly, when the original stock and transfer book of a corporation has been lost, destroyed or unavailable, secondary or extrinsic evidence may be introduced to reconstitute its contents. In line, however, with the SEC rules requiring the maintenance of a stock and transfer book, said new book should be presented to this Commission for proper registration, accompanied by a sworn statement executed by any responsible corporate officer setting forth the circumstances attending the replacement. On the matter of identifying the stockholders of the Corporation, the Commission suggests that they be properly notified thru publication in a newspaper of general circulation, whereby the stockholders of said corporation be directed to step forward and procure the proper recording or transfer of the shares in their respective names, requiring them to produce evidence of identity as well as their rights to the shares. You should exhaust all available means in identifying the owners of the subscribed/issued shares of the corporation. It has to be emphasized that for subscribed shares of the corporation whose owners cannot be identified or located, a trust relation is impliedly created between the corporation and the unknown stockholders. As previously ruled by the Commission, these shares may be entered in the name of the corporation as "trustee" in the certificate. The fact that one stock stands on the corporate book in the name of a person as trustee, or that the holder thereof is described as trustee in the certificate, is notice to both the corporation and to the persons who may purchase such shares from the trustee that he does not hold the shares in his own right. ( Letter addressed to Mr. Candido Dizon, Planters Foundation, Inc. dated September 10, 1982 ) The fact that the cestui que trust is not named is immaterial. Mere lapse of time after failure to appear and claim the stock and dividends thereof will not raise a presumption of ownership in the person named in the certificate as trustee nor will the fact that the person seeking the transfer had been unable to discover the cestuis que trustent. (Ibid citing 12 Fletcher, Cyc.,Corp. sec. 5547) The entry in the books of the corporation is a continuous assertion that the stock is not a private property of the trustee, and thus, prevents the running of the statute of limitations. Hence, the shares of unidentified stockholders cannot be cancelled, forfeited or treated as treasury shares and the corporation cannot sell them again to the public. If the notice by publication proves to be futile in identifying the owners of the shares, it is nevertheless the fiduciary duty of the corporation to continuously hold said shares as trustee for the owners thereof, unless otherwise escheated in accordance with law. It is an elementary rule that a trustee should not profit out of the handling of the trust estates. This springs from the fiduciary duty of the trustee of protecting the interest of the beneficiary and not to permit his personal interest to conflict with his duty in this respect. prcd As to whether or not the Corporation can issue new certificates of stock in lieu of the old certificates presently held by existing stockholders, the same is a matter that only the corporation itself can resolve. If the corporation decides for the replacement of old certificates, the procedure or formalities prescribed under Section 73 of the Corporation Code is not applicable, as such replacement is not within the meaning of said Section. Under the circumstances of the case, the stockholders should not be made to suffer the consequences arising on account of the negligence of the corporation and/or its Directors or Officers. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman