PHILIPPINE TRUST COMPANY, vs.MARCIANO RIVERAG.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 fromthe 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, and3. 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 cantake 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says that § 17 has been replaced by § 38, and now, even if all the requirements are complied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.