PHILIPPINE TRUST VS RIVERA CASE DIGEST

G.R. No. L-19761             January 29, 1923
PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperativa Naval Filipina," plaintiff-appellee,
vs.
MARCIANO RIVERA, defendant-appellant.

CORPORATION LAW; POWER TO PURCHASE OWN SHARES

FACTS:

• Cooperativa Naval Filipina was duly incorporated under the laws of the Philippine Islands, with a capital divided into one thousand shares. Among the incorporators of this company was numbered the defendant Mariano Rivera, who subscribed for 450 shares.

• In the course of time the company became insolvent and went into the hands of the Philippine Trust Company, as assignee in bankruptcy; and by it this action was instituted to recover one-half of the stock subscription of the defendant, which admittedly has never been paid.

• The reason given for the failure of the defendant to pay the entire subscription is, that not long after the Cooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred, at which a resolution was adopted to the effect that the capital should be reduced by 50 per centum and the subscribers released from the obligation to pay any unpaid balance of their subscription in excess of 50 per centum of the same. As a result of this resolution it seems to have been supposed that the subscription of the various shareholders had been cancelled to the extent stated; and fully paid certificate were issued to each shareholders for one-half of his subscription. It does not appear that the formalities prescribed in section 17 of the Corporation Law (Act No. 1459), as amended, relative to the reduction of capital stock in corporations were observed, and in particular it does not appear that any certificate was at any time filed in the Bureau of Commerce and Industry, showing such reduction.

ISSUE:

 

Whether the resolution is valid

HELD:

• NO, the resolution is not valid. Here is an action instituted by the Philippine Trust Company, as assignee in insolvency of La Cooperativa Naval Filipina, against Marciano Rivera, for the purpose of recovering a balance alleged to be due upon defendant's subscription to the capital stock of said insolvent corporation. (NOTE: In line with Sec. 40 of the RCCP as the corporation's power to acquire own share par. b)

• It is established doctrine that subscription to the capital of a corporation constitute a find 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, without a valuable consideration for such release; and as against creditors a reduction of the capital stock can take place only in the manner an under the conditions prescribed by the statute or the charter or the articles of incorporation. Moreover, strict compliance with the statutory regulations is necessary 

• In the case before us the resolution releasing the shareholders from their obligation to pay 50 per centum of their respective subscriptions was an attempted withdrawal of so much capital from the fund upon which the company's creditors were entitled ultimately to rely and, having been effected without compliance with the statutory requirements, was wholly ineffectual.