APPRAISAL RIGHT

What is appraisal right?

Right to withdraw from the corporation and demand payment of the fair value of his shares
after dissenting from certain corporate acts involving fundamental changes in corporate
structure (Sec. 81)

In what instances may this right be exercised?

a. 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;
b. 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
c. In case of merger or consolidation.

Amendment:
Principal office - from QC to Manila
Primary purpose - from general construction to realty

A objected but outvoted

Can he exercise his appraisal right?

For the principal office - No, it must be changing or restricting the rights of any stockholders
For the primary purpose - Yes, as provided for in Sec. 42 [Subject to the provision of this
Code, a private corporation may invest its fund in any other corporation or business or for
any purpose other than the primary purpose for which it was organized xxx Any dissenting
stockholder shall have the option to exercise his appraisal right]

If the legs of A were amputated, will the change of PO give him the right to an appraisal
right?
If the reason is that he cannot attend meeting, such reason cannot be used because a meeting
may be held anywhere in Metro Manila. However, if the proper forum allows him, A may
exercise such right. If the proper forum does not allow him, A may not exercise it.

NOTE:
In case of close corporation, A may exercise his appraisal right for any reason and compel the
purchase of his shares at fair value when there is sufficient assets (Sec. 105)

Amendment:
Principal office - from QC to Mamasapano

A said he cannot attend meeting. Can he exercise his appraisal right?

It depends upon the nature or reason of each example. Always remember, "restricting or
limiting the rights of any stockholder."

When will the FMV of the objecting stockholder be determined? Will it be on the date
that he made the objection in the meeting? Will it be on the date when he made a
written demand that he be paid the fair value of his share? Or will it be on the date
when he is actually paid the fair value of his share?
The day prior to the date of the meeting where he interposed his objection (Sec. 82, first par.)

If the FMV is P5M

When should the objecting stockholder be paid the fair value of his share or the P5M?
Within 30 days

What would be the effect if the stockholder exercises his appraisal rights? What
happens to his voting and dividend rights if he exercises his appraisal rights?
It will be suspended with a limitation of 30 days (Sec. 83)

What happens if he is not paid the FMV of his shares within the period provided for in
the law?
It will be restored (supra.)

May a stockholder who has not paid his subscription in full exercise his appraisal right?
Yes, he can exercise his appraisal right, by reconciling the provisions of Sections. 72, 82 and
86. The corporation will however demand the surrender of the stock certificate and if it is not
submitted within 10 days from demand, he will cease to be paid the value of his shares at the
option of the corporation.

So why should the corporation then demand the surrender of the stock certificate when
no certificate has not yet been given?
It is only at the option of the corporation

The primary purpose of the corporation was changed from general construction to realty. A
objected but was outvoted. On the 30th day from the date of the meeting, he made a written
demand that he paid the fair value of his share. It was agreed that the FMV of his share is
P5M. But when he made the written demand, the corporation has no more fund. A was not
paid. His dividend and voting rights were restored. A year and a half later, the corporation
made 100M earnings.

May the corporation now pay A his 5M and later declare the entire 95M as cash
dividend to his exclusion?
Yes, as there was no consent of the corporation, the demand made is deemed withdrawn (Sec.
84). Thus, all rights accruing to his shares, including voting and dividend rights, are
suspended except his right to receive payment of 5M (Sec. 83).

Once the right is exercised, it remains forever. When he withdraws his demand for payment
and the corporation consents thereto, the right of a dissenting stockholder to be paid the fair
value of his shares ceases. In this case, it was not mentioned that he made a withdrawal and
even if he may have withdrawn, the corporation must give its consent.

What are the instances when the right of a dissenting stockholder to be paid the fair
value of his shares ceases?
a. When he withdraws his demand for payment and the corporation consents thereto;
b. When the proposed action is abandoned or rescinded by the corporation;
c. When the proposed action is disapproved by the SEC where such approval is
necessary;
d. When the SEC determines that he is not entitled to exercise his appraisal right;
 e. When he fails to submit the stock certificate within ten (10) days from demand to the
corporation for notation that such shares are dissenting shares; and,
f. If the shares are transferred and the certificate subsequently cancelled.

Who bears the cost?

It depends.
a. The corporation bears the cost if:
a) The price offered by the corporation is lower than the fair value of the shares
of the dissenting stockholder as determined by the appraisers; or
b) Where an action is filed by the dissenting stockholder to recover such fair
value and the refusal of the stockholder to receive payment is found by the
court to be justified.
b. Dissenting stockholder will be liable for the cost and expenses of appraisal when:
a) When the price offered by the corporation is approximately the same as the
fair value ascertained by the appraisers; or
b) Where the action filed by the dissenting stockholder and his refusal to accept
payment is found by the court to be unjustified.

May the dissenting stockholder sell, transfer or assign his shares?

Yes, as provided for in Sec. 86

TRUE OR FALSE:
1. No stockholder in a stock corporation can ever demand if the principal office is
amended, changing it from QC to Manila.
2. No stockholder may be able to compel the corporation to pay the value of his shares if
the corporation has no unrestricted retained earnings
3. In amendment of the by-laws, appraisal right is available.

ANSWER:
1. False, a stockholder in a close corporation may for any reason compel the close
corporation that he be paid the fair value of his shares (Sec. 105)
2. False, a stockholder of a close corporation may for any reason, provided only that the
corporation has sufficient assets to cover its debts and liabilities (supra.)
3. False, it is available only if the amendment 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 (Sec. 81[1])

Objectives:
1. What is appraisal right?
2. Enumerate three (3) specific instances when this right may be exercised?

ANSWERS:
1. It is a right granted to dissenting stockholders on certain corporate or business
decisions to demand payment of the FMV of their shares. (p. 430)
2. (a) 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;
(b) 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
(c) In case of merger or consolidation.