January 29, 1923
FACTS:
Cooperativa Naval Filipina was an entity duly incorporated under the laws of the Philippine Islands in 1918. It had a capital of P100,000 divided into 1,000 shares with a par value of P100 each. Mariano Rivera was one of the incorporators. He subscribed for 450 shares representing a value of P45,000, the remainder of the stock being taken by other persons.
The company became insolvent and went into the hands of Philippine Trust Company (PTC) as assignee in bankruptcy. PTC then filed an action against Rivera to recover ½ of the subscription which he admitted to be still unpaid. Rivera relies on a Resolution during a stockholder’s meeting the capital should be reduced by 50% and the subscribers released from the obligation to pay any unpaid balance of their subscription in excess of 50% of the same.
The RTC held that the Resolution was ineffectual for failure to comply with the law. Further, the RTC held that the said Resolution was without effect and that Rivera was still liable for the unpaid balance of his subscription.
Hence, the instant petition.
ISSUE:
Whether the Resolution was indeed ineffectual. – YES.
HELD:
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.
As such, the resolution releasing the shareholders from their obligation to pay 50% 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.