Hi Cuayo!

Here are my findings on the matter discussed.

Thanks,
Daphne

1. Appraisal right – the right of a stockholder to demand payment of the fair value
of his shares, after dissenting to a proposed corporate act involving a fundamental
change in the corporate setting. [Philippine Corporation Law, Cesar L. Villanueva,
2010 Edition, pp. 488]. Only prejudiced stockholders can exercise the right so he
must have (1) dissented in the meeting where the proposal was approved and (2)
voted against the transaction.[Id.]

Grounds for the exercise of appraisal right:

“Sec. 81. Instances of appraisal right. Any stockholder of a corporation

shall have the right to dissent and demand payment of the fair value of
his shares in the following instances:
1. In case any amendment to the articles of incorporation has
the effect of changing or restricting the rights of any stockholder
or class of shares, or of authorizing preferences in any respect
superior to those of outstanding shares of any class, or of
extending or shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge
or other disposition of all or substantially all of the
corporate property and assets as provided in the Code; and
3. In case of merger or consolidation. (n)”

4. In case the corporation decides to invest its funds in

another corporation or business outside of its primary
purpose (Section 42)

How it is exercised:

The process of how to exercise said appraisal right, as well as the valuation for
the sale of the shares is also provided in the code.

“Sec. 82. How right is exercised. - The appraisal right may be exercised
by any stockholder who shall have voted against the proposed corporate
action, by making a written demand on the corporation within
thirty (30) days after the date on which the vote was taken for
payment of the fair value of his shares: Provided, That failure to make
the demand within such period shall be deemed a waiver of the appraisal
right. If the proposed corporate action is implemented or affected, the
corporation shall pay to such stockholder, upon surrender of the
 certificate or certificates of stock representing his shares, the fair value
thereof as of the day prior to the date on which the vote was
taken, excluding any appreciation or depreciation in anticipation of such
corporate action.

If within a period of sixty (60) days from the date the corporate action
was approved by the stockholders, the withdrawing stockholder and the
corporation cannot agree on the fair value of the shares, it shall be
determined and appraised by three (3) disinterested persons,
one of whom shall be named by the stockholder, another by the
corporation, and the third by the two thus chosen. The findings
of the majority of the appraisers shall be final, and their award
shall be paid by the corporation within thirty (30) days after
such award is made…”

4. Limitations to the right

This appraisal right is however subject to the conditions that

(1) “no payment shall be made to any dissenting stockholder unless the
corporation has unrestricted retained earnings in its books to cover
such payment” and

(2) upon payment by the corporation of the agreed or awarded price, the
stockholder shall forthwith transfer his shares to the corporation. (n)” [Section
82]

Other contractual agreements to transfer of shares

If, however, the foregoing instances where the right of appraisal are not present,
there are still other instances when the Corporation or the other Shareholders may
have the priority to buy the outstanding shares.

Although the general rule is free transferability as

“[s]hares of stock so issued are personal property and may be

transferred by delivery of the certificate or certificates endorsed by the
owner or his attorney-in-fact or other person legally authorized to make
the transfer,” [Section 63, Corporation Code of the Philippines] and

“[t]he owner of shares, as owner of personal property, is at liberty,

under said section to dispose them in favor of whomever he pleases,
without limitation in this respect, than the general provisions of law”
[Fleishcher v. Botica Nolasco, 47 Phil. 583 (1925)],

there are agreements where transfer of shares may be limited. These are in
agreements of Right of First Refusal and Right of First Option.
 1. Right of First Refusal - A Shareholder must first offer the shares to the
corporation or other existing Shareholders of the corporation, under terms and
considerations which are reasonable, and only when the corporation or the
other stockholders do not or fail to exercise their option, is the offering
shareholder at liberty to sell his shares to third parties (i.e., not more than 1
year). [Philippine Corporation Law, Cesar L. Villanueva, 2010 Edition, pp. 439-
440]
a. This right is a right based on contract. It is a mechanism by which
shares are retained by the corporation. It is a contractual configuration
of delectus personae. [Id.]

2. Right of First Option – Grants to the corporation the right to buy the shares
at a fixed price. This is valid as long as the terms are reasonable. [Id.]

On restrictions to the transfer of shares, the SEC has given the following parameters:

1. The restrictions shall not be more onerous than granting the existing
stockholders or the corporation the option to purchase the shares of
the transferring stockholder with such reasonable terms, conditions
or period stated therein;
2. A restriction clause is not valid nor enforceable if it absolutely
prohibits the sale or transfer of stock without the consent of the
existing stockholders, as this would violate the general law on free
alienability of shares of stock;
3. Reasonable option period may range from 30 to 60 days or even
more, depending on the circumstances surrounding the case;
4. After the option period has expired the stockholder is free to sell his
shares to anyone. [Villanueva citing SEC Opinion 8 June, XXIX SEC
Quarterly Bulletin 32 (No. 4, Dec. 1995)]

On such restrictions, jurisprudence however provides that any privilege or

restriction pertaining to shares of stock should be found in the articles of
incorporation. [Rural Bank of Salinas v. CA, 210 SCRA 510 (1992).]

Furthermore, as these contractual agreements merely grant the corporation or

outstanding shareholders priority to buy the shares of the selling stockholder, the
Corporation and the outstanding shareholders cannot be compelled to buy such
offered shares.