No delinquent stock shall be voted for be entitled to vote or to representation at any 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. (50a) Effect of Deliquency:
(1) Deprives the stockholder the right: a) To be voted for; or
b) To be entitled to vote; or
c) To representation at any stockholders’ meeting
(2) Deliquent stockholder shall not be entitled to any of the rights of a stockholder but he shall still be entitled to receive dividends. (3) Deliquent stocks shall be subject to delinquency sale
Note: If the delinquent stockholder is a director, he shall continue to be a director but he cannot run for re-election. (JRS at 307)
(f) What is a delinquency sale and how is it
conducted? (Section 68)
Sec. 68. Delinquency sale
The board of directors may, by resolution, order the sale of delinquent stock and shall specifically state the amount due on each subscription plus all accrued interest, and the date, time and place of the sale which shall not be less than thirty (30) days nor more than sixty (60) days from the date the stocks become delinquent.
Notice of said sale, with a copy of the resolution, shall be sent to every delinquent stockholder either personally or by registered mail. The same shall furthermore be published once a week for two (2) consecutive weeks in a newspaper of general circulation in the province or city where the principal office of the corporation is located.
Unless the delinquent stockholder pays to the corporation, on or before the date specified for the sale of the delinquent stock, the balance due on his subscription, plus accrued interest, costs of advertisement and expenses of sale, or unless the board of directors otherwise orders, said delinquent stock shall be sold at public auction to such bidder who shall offer to pay the full amount of the balance on the subscription together with accrued interest, costs of advertisement and expenses of sale, for the smallest number of shares or fraction of a share. The stock so purchased shall be transferred to such purchaser in the books of the corporation and a certificate for such stock shall be issued in his favor. The remaining shares, if any, shall be credited in favor of the delinquent stockholder who shall likewise be entitled to the issuance of a certificate of stock covering such shares.
Should there be no bidder at the public auction who offers to pay the full amount of the balance on the subscription together with accrued interest, costs of advertisement and expenses of sale, for the smallest number of shares or fraction of a share, the corporation may, subject to the provisions of this Code, bid for the same, and the total amount due shall be credited as paid in full in the books of the corporation. Title to all the shares of stock covered by the subscription shall be vested in the corporation as treasury shares and may be disposed of by said corporation in accordance with the provisions of this Code.
Procedure for collection and delinquency sale: (1) Call whenever required must be made by the Board
(2) Notice of call- the stockholders are given notice of the board resolution by the corporate secretary, either personally or by registered mail.
(3) If the stockholders concerned do not pay within thirty (30) days from the date specified in the contract of subscription or in the call, all the stocks covered by the subscription shall be declared delinquent and shall be subject to sale under Section 68.
(4) Notice of delinquency served on the subscribers either personally or registered mail and publication in a newspaper of general circulation in the province or the city where principal office is located once a week for two consecutive weeks. Notice shall state the amount due on each subscription plus accrued interest, and the date, time and place of the sale which shall not be less than 30 days nor more than 60 days form the date the stocks become delinquent.
(5) Sale—such number of shares as may be necessary to pay the amount due on subscription, plus interest and other amounts due, will be sold at public auction.
The highest bidder is the person offering to pay the full amount of the balance on the subscription and other amount that are due for the smallest number of shares or fraction of a share. Catindig Class Notes
The Certificate of Stock representing the stock dividends are considered civil fruits of the delinquent shares. Hence, the buyer of the Dshares shall own the certificate of stocks representing the stock dividends.
(g) Could a sale of delinquent shares be questioned?
(Section 69)
Sec. 69. When sale may be questioned
No action to recover delinquent stock sold can be sustained upon the ground of irregularity or defect in the notice of sale, or in the sale itself of the delinquent stock, unless the party seeking to maintain such action first pays or tenders to the party holding the stock the
sum for which the same was sold, with interest from the date of
sale at the legal rate; and no such action shall be maintained unless it
is commenced by the filing of a complaint within six (6) months from the date of sale. (47a)
Catindig Class Notes
Yes, a sale of delinquent shares may be questioned provided there is tender…
5.10 Case
Apodaca v. NLRC (1989)
Unpaid subscriptions are not due and payable until a call is made by the corporation for payment through a board resolution.
An obligation arising from non-payment of stock subscriptions to a corporation cannot be offset against a money claim of an employee against the employer.
5.11 Voting Rights
What are the basic rights of shareholders?
(1) Direct or indirect participation in management; (2) Voting rights (Section 6)
(3) Right to remove directors (Section 28) (4) Proprietary rights:
(i) right to dividends
(ii) appraisal right (Section 81)
(iii) right to issuance of stock certificate for fully paid shares (Section 64)
(iv) Proportionate participation in distribution of assets in liquidation (Section 188-119)
(v) Right to transfer of stocks in corporate books (Section 63) (vi) Pre-emptive right (Section 39)
(5) Right to inspect books and records (Section 74)
(6) Right to be furnished with the most recent financial statement/financial report (Section 74,75)
(7) Right to recover stocks unlawfully sold for delinquent payment of subscription;
(8) Right to file individual suit, representative suit, and derivative suits.(Page 298 of JRS)
Manner of Voting (1) Directly (in person)
(2) Indirectly, through a representative
(a) by means of proxy (Sections 55, 56, 58 and 89 par. 2) (b) by a trustee under a voting trust agreement (Sec 59) (c) by executors, administrators, receivers, or other legal
representatives duly appointed by the court. (Section 55(2))
*Voting may be either straight or cumulative (See Section 24)
(a) Pledgors and Mortgagors (Section 55)
Sec. 55. Right to vote of pledgors, mortgagors, and administrators In case of pledged or mortgaged shares in stock corporations, the pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders, unless the pledgee or mortgagee is expressly given by the pledgor or mortgagor such right in writing which is recorded on the appropriate corporate books. (n)
When shares are pledged by means of endorsement in blank and delivery of the covering certificates to a loan, the pledgee does not become the owner thereof simply by the failure of the registered stockholder to pay his loan. Consequently, without proper foreclosure, the lender cannot demand that the shares be registered in his name. Lim Tay v. Court of Appeals, 293 SCRA 634 (1998).
(b) Executors, receivers and administrators (Section
55)
Sec. 55. Right to vote of pledgors, mortgagors, and administrators Executors, administrators, receivers, and other legal representatives duly appointed by the court may attend and vote in behalf of the stockholders or members without need of any written proxy. (27a)
Although the Rules of Court, while permitting an executor or administrator to represent or to bring suits on behalf of the deceased, do no prohibit the heirs from representing the
deceased. When no administrator has been appointed, there is all the more reason to recognize the heirs as the proper representatives of the deceased. Gochan v. Young, 354 SCRA 207 (2001).