Fuji-Haya Electric Corporation of the Philippines

June 23, 1989 Fuji-Haya Electric Corporation of the Philippines 2178 Pasong Tamo Street, Makati, Metro Manila Gentlemen: This refers to the Deed of Cancellation of Unpaid Subscriptions executed by Fuji-Haya Electric Corporation of the Philippines and its stockholders, filed with the Commission on May 10, 1989. The prevailing rule is that a corporation has no power to release a subscriber from the payment of his unpaid subscription 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. (Fletcher Cyclopedia Corporation, Vol. 417 47 citing Leman vs. Tetes, 169/App. 503), Thus, it was held: "A corporation has no power to release on original subscriber of its capital stock from the obligation of paying for his shares, and as against the creditors a reduction of the capital stock can take place only in the manner and under the conditions provided by the statutes. The capital stock constitutes the sole fund to which creditors look for liquidation of their demands; it is regarded in law as a trust pledged for the payment of debts of the corporation , and subscribed shares can not be cancelled by the board of directors without justifiable cause which vitiates a simple contract as this is tantamount to relieving on original subscriber from his subscription which a Corporation has no power to do." (Velasco vs. Poizat, G.R. No. L-11528, March 15, 1918, 37 Phil. 802 (1918), Philippine Trust Co. vs. Rivera, G.R. No. 19761, January 29, 1923, 44 Phil. 469 (1923) cited in SEC Opinions dated July 12, 1965, October 12, 1966 ). The only exception to the foregoing rule is when the release from his unpaid subscription is approved by all the stockholders of the corporation as decided in the case of Lingayen Gulf Electric Power Co. vs. Baltazar, GR No. L-4824, June 30, 1953; but even then such a release must not prejudice creditors of the Corporation. ( SEC Opinion dated July 12, 1965, addressed to Clemente Tionpo, Inc. ). "The management of a corporation may release a subscriber from liability on his subscription in whole or in part, only with the express or implied consent of all the stockholders, and if there is no fraud upon existing or subsequent creditors . (Ballantine on Corporations rec, 196 at 460). Thus, with the consent of all stockholders and all existing creditors of the corporation, a stockholder may be released from his subscription corresponding to the unpaid balance thereof, in which event the cancellation of the unpaid subscription should be effected by way of a formal reduction in the authorized capital stock. Please be advised accordingly. llcd Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman