Atty. Jose A. Feria, Jr.

March 13, 1998 Atty. Jose A. Feria, Jr. Feria Feria Lugtu Lao Noche Law Offices Vinnel Belvior bldg. 2322 Don Chino Roces Ave. Makati City S i r : In connection with your letter dated January 12, 1998 requesting opinions on the queries posed therein relative to delinquent shares, please be advised that the Commission, in its Meeting of February 26, 1998, resolved to issue the following opinions: prcd (1) Does failure to fully pay for subscribed shares thirty (30) days from the date specified in a subscription agreement automatically make the said shares delinquent or does the Board of Directors of the company still has to make a declaration of delinquency? Section 67 of the Corporation Code provides in part: "Payment of any unpaid subscription or any percentage thereof together with the interest accrued, if any, shall be made on the date specified in the contract of subscription or on the date stated in the call made by the board. Failure to pay on such date shall render the entire balance due and payable and shall make the stockholder liable for interest at the legal rate on such balance, unless a different rate of interest is provided in the by-laws, computed from such date until full payment. If within thirty (30) days from the said date no payment is made, all stocks covered by said subscription shall thereupon become delinquent and shall be subject to sale as hereinafter provided, unless the board of directors orders otherwise." (Emphasis supplied) The use of the word " shall " in the above provision shows that a prior call or Board action demanding payment is not necessary if a specific date of payment is specified in the subscription contract. Neither is there a need of a formal declaration of the Board for an unpaid subscription to become delinquent in the event of failure to pay the unpaid subscription within the prescribed 30-day period from the date specified in the subscription contract. Furthermore, the Civil Code provides: "ARTICLE 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extra judicially demands from them the fulfillment of their obligation. However , the demand by the creditor shall not be necessary in order that delay may exist: 1. When the obligation or the law expressly so declares; . . . ." (Emphasis supplied) Therefore, in as much as the pertinent law itself, the Corporation Code, expressly provides that payment of unpaid subscription shall be made on the date specified in that subscription contract and that the stocks covered by the subscription shall thereupon become delinquent if no payment is made on the unpaid subscription within 30 days from the date specified in the subscription contract, formal demand of payment and declaration of delinquency status by the Board are not necessary. cdlex xxx xxx xxx (2) Are the holders of delinquent shares still entitled to notice of the regular meeting of shareholders and special meeting of shareholders called for the purpose of amending the company's articles of incorporation and increasing the authorized capital stock? (3) Are delinquent shares included in the determination of a quorum for shareholders meetings? (4) Are the delinquent shares included in the computation of the outstanding capital stock needed for the 2/3 approval for the amendment of the articles of incorporation and increase of authorized capital stock? The pertinent provision of the Corporation Code provides: "SECTION 71. Effect of delinquency . No delinquent stock shall be voted for or be entitled to vote or to representation at a stockholder's meeting, nor shall the holder thereof be entitled to any of the rights of a stockholder except the right to dividends in accordance with the provisions of this Code, until and unless he pays the amount due on his subscription with accrued interest, and the costs and expenses of advertisement, if any." (Emphasis supplied). The above-cited provision clearly states, that once an unpaid subscription becomes delinquent, the subscriber loses the right to be voted for and to vote at any stockholders' meeting as well as all the rights pertaining to a stockholder , except the right to dividends in accordance with Sec. 43 of the Corporation Code. Take note that the provision provides for only one exception re : right to dividend. However, while it is allowed such right, the cash dividend due shall first be applied to the unpaid balance, while stock dividend shall be withheld until the unpaid balance is fully paid. Hence, in effect, the stockholder's dividend right is being restricted. Thus, the intention of the law is really to deprive a delinquent stockholder of all rights pertaining to a stockholder until full payment of the unpaid subscription. Therefore, the answers to the above 3 queries are in the negative. cdll xxx xxx xxx (5) Is it correct to assume that shares that become delinquent after the record date for a shareholders meeting but prior to the said meeting are not allowed to vote at the said shareholders meeting? As above stated, Section 67 of the Corporation Code expressly provides that the delinquent stockholder loses his rights pertaining to a stockholder the moment the unpaid subscription becomes delinquent. Thus, the prohibition to vote applies even if the delinquent status of the unpaid subscription occurs after the record date has been fixed. To rule otherwise would in effect allow delinquent shares to vote and would tolerate continuance of the delinquency status of the subscription as the delinquent stockholder would have no more interest of paying the unpaid balance. LexLib Please be advised accordingly. Very truly yours, (SGD.) PERFECTO R. YASAY, JR. Chairman