The Philippine Trust Co. sued Mariano Rivera to recover half of the unpaid subscription for 450 shares he agreed to when the Cooperativa Naval Filipina was incorporated. Rivera claimed he did not have to pay because a later shareholders' meeting reduced the capital stock by 50% without subscribers having to pay amounts over 50% of their subscription. The court ruled that the reduction was invalid because it was done without following the statutory requirements to properly reduce capital stock and release subscribers from payment. Creditors are entitled to the full capital stock fund, so the resolution reducing it without legal compliance could not release Rivera from his obligation.
The Philippine Trust Co. sued Mariano Rivera to recover half of the unpaid subscription for 450 shares he agreed to when the Cooperativa Naval Filipina was incorporated. Rivera claimed he did not have to pay because a later shareholders' meeting reduced the capital stock by 50% without subscribers having to pay amounts over 50% of their subscription. The court ruled that the reduction was invalid because it was done without following the statutory requirements to properly reduce capital stock and release subscribers from payment. Creditors are entitled to the full capital stock fund, so the resolution reducing it without legal compliance could not release Rivera from his obligation.
The Philippine Trust Co. sued Mariano Rivera to recover half of the unpaid subscription for 450 shares he agreed to when the Cooperativa Naval Filipina was incorporated. Rivera claimed he did not have to pay because a later shareholders' meeting reduced the capital stock by 50% without subscribers having to pay amounts over 50% of their subscription. The court ruled that the reduction was invalid because it was done without following the statutory requirements to properly reduce capital stock and release subscribers from payment. Creditors are entitled to the full capital stock fund, so the resolution reducing it without legal compliance could not release Rivera from his obligation.
The Philippine Trust Co. sued Mariano Rivera to recover half of the unpaid subscription for 450 shares he agreed to when the Cooperativa Naval Filipina was incorporated. Rivera claimed he did not have to pay because a later shareholders' meeting reduced the capital stock by 50% without subscribers having to pay amounts over 50% of their subscription. The court ruled that the reduction was invalid because it was done without following the statutory requirements to properly reduce capital stock and release subscribers from payment. Creditors are entitled to the full capital stock fund, so the resolution reducing it without legal compliance could not release Rivera from his obligation.
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Philippine Trust Co. vs.
Rivera Ruling:
Facts: A corporation has no power to release an original subscriber to
its capital stock from the obligation of paying for his shares, 1. In 1918, the Cooperativa Naval Filipina was duly incorporated without a valuable consideration for such release; with a capital of P100,000 divided into 1,000 shares of a par As against creditors a reduction of the capital stock can take value of P100 each. Defendant Mariano Rivera, an place only in the manner and under the conditions prescribed incorporator, subscribed for 450 shares representing a value of by the statute or the charter or the articles of incorporation. P45,000. Moreover, strict compliance with the statutory regulations is necessary 2. Subsequently, the company became insolvent and went into the hands of the Phil. Trust Co., as assignee in bankruptcy, and was In this case, the resolution releasing the shareholders from their instituted to recover 1/2 (P22,500) of the stock subscription of obligation to pay 50 per centum of their respective Rivera, which admittedly has never been paid subscriptions was an attempted withdrawal of so much capital from the fund upon which the company’s creditors were 3. Rivera claims that he did not pay because not long after the entitled ultimately to rely and, having been effected without incorporation, a stockholders meeting occurred wherein there compliance with the statutory requirements, such resolution is was a resolution, at which the capital should be reduced by null and void 50% and the subscribers released from the obligation to pay any unpaid balance of their subscription in excess of 50% of Note: the same It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to 4. As a result of the resolution, the supposed subscription of the look for satisfaction of their claims and that the assignee in various shareholders had been cancelled to the extent stated insolvency can maintain an action upon any unpaid stock and fully paid certificates were issued to each shareholders for subscription in order to realize assets for the payment of its ½ of his subscription debts. 5. 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.
Issues: a. Whether or not the reduction of capital by 50% is valid; and b. Does it release Rivera from his obligation to pay the remaining balance of his subscription
