Phil Trust Co Vs Rivera

Case 1 Digest
Philippine Trust Company vs. Marciano Rivera

GR # L-19761 January 29, 1923
Case Under: Trust Fund Doctrine
Facts:
Action instituted on November 21, 1921 in the CFI of Manila by Phil. Trust
Co. against Marciano Rivera.
The case was for recovery of balance iao P22,500.00, alleged due upon
defendants subscription to the capital amount of insolvent La
Cooperativa Naval Filipina.
CFI ruled in favor of the plaintiff, hence the appeal of the defendant.
The reason for the failure of Mr. Rivera to pay his 450 subscription or iao
45,000.00 (par value is P100) is that not long after the cooperative has
been incorporated, a stockholder meeting occurred, at which a resolution
was adopted to effect that the capital should be reduced 50% and the
subscribers released from obligation to pay any unpaid balance in excess
of 50% of their subscription.
After which, certificates of full payment were released to the respective
subscribers one-half of his fully paid original subscription.
It does not appear that the acts was done correlating to the formalities
prescribed in Sec.17 of the Corporation Law (Act No. 1459)
In time, the company went bankrupt and went into the hands of Phil. Trust
Co, as assignee in bankruptcy.
Issue:
Whether or not the releasing of 50% of the subscription and issuance of full
payment for one-half of his fully paid original subscription is valid.
Ruling:
No. It is not valid.
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 the 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 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% of their respective subscriptions was an attempted
withdrawal of so much capital from the fund upon which the companys creditors
were entitled ultimately to rely and, having been effected without compliance with
the statutory requirements, was wholly ineffectual.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Corporation Law (Act No. 1459)
Section 17. No corporation shall increase or diminish its capital stock, or incur,
create, or increase any bonded indebtedness unless, at a stockholders' meeting
regularly called for the purpose, two-thirds of the entire corporate capital stock
subscribed shall favor the increase or diminution of the capital stock, or a majority
of the subscribed capital stock shall favor the incurring, creating, or increasing of
any bonded indebtedness. Written or printed notice of the proposed increase or
diminution of the capital stock or of the incurring, creating, or increasing of any
bonded indebtedness and of the time and place of the stockholders' meeting at
which the proposed increase or diminution of the capital stock or the incurring,
creating, or increasing of any bonded indebtedness is to be considered must be
addressed to each stockholder at his place of residence as shown by the books of
the corporation and registered and deposited so addressed in the post-office with
postage prepaid.
A certificate in duplicate must be signed by a majority of the directors of the
corporation and countersigned by the chairman and secretary of the stockholders'
meeting showing compliance with the requirements of this section, the amount of
the increase or diminution of the capital stock, or the bonded indebtedness to be
incurred, created, or increased, the actual indebtedness of the corporation on the
day of the meeting, the amount of stock represented at the meeting, and the vote
authorizing the increase or diminution of the capital stock or the incurring, creating,
or increasing of any bonded indebtedness. One of the duplicate certificates shall be
kept on file in the office of the corporation and the other shall be filed in the office
of the Chief of the Division of Archives, Patents, Copyrights, and Trade-Marks of the
Executive Bureau and attached by him to the original articles of incorporation. From
and after the filing of the duplicate certificate with the chief of the said division the
capital stock shall stand increased or diminished and the incurring, creating, or
increasing of any bonded indebtedness authorized as the certificate may declare.
The Chief of the said Division of Archives, Patents, Copyrights, and Trade-Marks
shall be entitled to collect the sum of twenty pesos for filing said duplicate
certificate.

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Case 1 Digest

Philippine Trust Company vs. Marciano Rivera

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