Re : Auction Sale of Membership Certificates

March 5, 2004 SEC OPINION NO. 16-04 Re : Auction Sale of Membership Certificates Atty. Addison B. Castro Alampay Gatchalian Mawis & Alampay 5th Floor, Domingo Building, 833 Arnaiz Avenue, Makati City 1229, Philippines S i r : This refers to your letter dated February 10, 2004 inquiring on whether or not Section 68 of the Corporation Code regarding the sale of delinquent stock may be applied to the auction sale of membership certificates in a non-stock corporation for delinquent dues and assessments; and secondly, whether the cost of publication of such sale may be deducted from the proceeds of the sale. The Commission answers in the affirmative for both queries. Second paragraph of Section 87 of the Corporation Code provides: "The provisions governing stock corporations, when pertinent, shall be applicable to non-stock corporations, except as may be covered by specific provisions of this Title." Since there is no similar provision under Title XI of the Corporation Code on non-stock corporations, Section 68 of the Corporation Code may be applied insofar as pertinent. ACDTcE Under the said section it is provided that the stockholder or the highest bidder is liable to pay the full amount of the balance due on the subscription, plus accrued interest, costs of advertisement and expense of sale. Based on this, the expense of publication may be classified under cost of advertisement, which forms part of the amount deductible from the proceeds of the auction sale. This is also in line with Section 64 of the Corporation Code which provides that "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." It is clear from a reading of the above-quoted section that expenses incurred as a result of delinquency of shares are deductible from the proceeds of the auction sale because what is being auctioned is the entire subscription, for which a corresponding certificate will be issued only upon complete payment of the full amount of subscription plus interest and expenses. AcHEaS For your information and guidance. Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel