# 101

PHILIPPINE TRUST COMPANY, vs .MARCIANO RIVERA

G.R. No. L-19761 January 29, 1923

Facts: Cooperativa Naval Filipina was duly incorporated with a capital of P100,000, divided into 100 shares at a par
value of P100 each. Among its incorporators was Marciano Rivera, who subscribed for 450 shares, representing a
value of P45,000. The company however became insolvent. Philippine Trust became its assignee in bankruptcy.
PhilTrust sought to recover ½ of the stock subscription of Rivera, which admittedly, has never been paid. Rivera
contends that he never paid because the stockholders of Naval issued a resolution shortly after the company’s
incorporation, stating that the capital shall be reduced by 50%. As a result, Rivera contends that the subscribers were
released from the obligation to pay any unpaid balance of their subscription in excess of 50% of their subscriptions.
Rivera further contends that the subscriptions of the subscribers were 50% cancelled, and certificates of shares of
stock were issued for the said remaining 50% of the subscriptions.

Issue: Whether such reduction of the capital stock is valid.

Held: No. SC held that the said resolution is without effect for being:
1. An attempted withdrawal of so much capital from the fund which the company’s creditors were entitled
ultimately to rely, and
2. For having been effected without compliance with the statutory requirements of § 17 of the Corporation Law
regarding reduction of capital stock, and
3. For failure to file a certificate with the Bureau of Commerce and Industry, showing such reduction.

Thus, stockholder is still liable for the unpaid balance of his subscription.

Ratio: Subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for
satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts. A corporation has no power to release an
original subscriber to its capital stock from the obligation of paying for his shares, w/o a valuable
consideration for such release; and as against creditors a reduction of the capital stock can take place only in
the manner and under the conditions prescribed by the statute or the charter or the AOI. Moreoever, strict
compliance with statutory regulations is necessary.

Note: that for reasons 2 and 3, Campos says that § 17 has been replaced by § 38, and now, even if all the
requirements are complied with, if creditors are prejudiced by such reduction, it is most unlikely that the SEC will
approve it.