Ms. Flordelis F. Gregorio

March 29, 1993 Ms. Flordelis F. Gregorio Land Bank of the Philippines 6th Floor, BF Condominium, Intramuros, Metro Manila M a d a m : This refers to your letter of March 10, 1993 requesting opinion on the query posed therein. As stated, by virtue of a Deed of Assignment executed on November 20, 1991, the spouses mentioned therein assigned and conveyed to AVOME Company, Inc. conjugal real properties in exchange for shares of stock. On December 13, 1991, AVOME filed with the SEC an application for exemption from registration requirements under the Revised Securities Act for the said issuance of shares of stock. Through an Order dated March 16, 1992, the SEC's Brokers and Exchanges Department found the valuation of the assigned properties to be reasonable and approved the application for exemption per its Resolution No. 179 dated March 16, 1992. The titles to the Quezon City, Calamba, Laguna and Las Pias properties had already been transferred and registered in the name of AVOME Company, Inc. However, the spouses have changed their minds and decided not to proceed with the assignment or transfer of the Cainta, Rizal property. Based on the foregoing facts, you would like to seek our opinion on whether it is legally permissible for the spouses not to proceed with the assignment of the Cainta, Rizal property to AVOME Company, Inc. in exchange for shares of stock considering that the Commission had already approved the transaction. If the answer is in the affirmative, what steps are to be taken and what documents/requirements shall be submitted to the SEC? In connection therewith, please be advised that the Corporation Code of the Philippines does not confer upon any stockholder the right to demand refund of investment conformably to the general rule that the subscription to the capital stock of a corporation constitutes a trust fund for the benefit of the creditors and no valid agreement can be made by which a subscriber can be released therefrom. (SEC Opinion dtd. 1/21/91 addressed to Lorelei Torralba Gangayco, citing 4 Fletcher Cyc. Corps.) Moreover, "a contract of subscription is, at least in the sense which creates an estoppel, a contract among the several subscribers. For this reason, no one of the subscribers can withdraw from the contract without the consent of all the others and thereby diminish without the universal consent, the common fund in which all have acquired interest". (Lingayen Gulf Electric Power Co. v. Baltazar, G.R No. L-4824, 1953, 49 OG 809, cited in Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, 1980 Edition.) Therefore, a stockholder cannot compel the corporation to return his investments without the consent of all the stockholders. Neither does he have the right to withdraw even when all the stockholders assent thereto if there is prejudice to creditors. The underlying reason for the restriction springs from the necessity of imposing safeguards against the depletion by a corporation of its assets and the impairment of its capital needed for the protection of creditors which is expressed in terms of the trust fund doctrine. However, should all the stockholders consent and no creditor is prejudiced, the corporation, pursuant to Section 41 of the Corporation Code, may re-acquire the shares issued in consideration of the above mentioned property, subject to the conditions mentioned therein. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman