Philippine Trust Co. v. Rivera
REITERATIONFacts
The Antecedents: Philippine Trust Company, as assignee in insolvency of La Cooperativa Naval Filipina, filed an action against Marciano Rivera to recover P22,500, representing an unpaid balance on his subscription to the capital stock of the insolvent corporation. Rivera had subscribed to 450 shares valued at P45,000. The corporation was incorporated in 1918 with a capital of P100,000. Procedural History: The Court of First Instance of Manila rendered judgment in favor of the plaintiff. The defendant appealed. The Petition: The defendant argued that a resolution was passed by the stockholders to reduce the capital by 50%, releasing subscribers from paying the unpaid balance in excess of 50%.
Issue(s)
Whether the resolution of the stockholders to reduce the capital stock by 50% and release subscribers from paying the unpaid balance is valid and binding. Whether the defendant is liable for the unpaid balance of his stock subscription.
Ruling
The Supreme Court affirmed the decision of the lower court, holding the defendant liable for the unpaid balance of his stock subscription.
Ratio Decidendi
On the validity of the resolution to reduce capital stock: The Court held that the resolution relied upon by the defendant was without effect. It is established doctrine that subscription to the capital of a corporation constitutes a fund to which creditors have a right to look for satisfaction of their claims. 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. Furthermore, as against creditors, a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute, charter, or articles of incorporation. Strict compliance with the statutory regulations is necessary. The resolution in this case was an attempted withdrawal of capital from the fund upon which the company's creditors were entitled to rely, and having been effected without compliance with the statutory requirements, it was wholly ineffectual. On the defendant's liability for the unpaid balance: Consequently, the defendant remained liable for the unpaid balance of his subscription. The assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. The trial judge was correct in holding that the defendant was still liable for the unpaid balance of his subscription.
Main Doctrine
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. A reduction of capital stock can only take place in the manner and under the conditions prescribed by statute, and strict compliance therewith is necessary. An attempted withdrawal of capital without compliance with statutory requirements is ineffectual as against creditors.