Mr. Alejandro E. Santos

October 6, 1982 Mr. Alejandro E. Santos 12 Villa Socorro Subdivision Project 6, Quezon City Sir : This refers to your letter of August 3, 1982. requesting the assistance of this office, for and on behalf of Carmen Chunuan, in connection with her desire to obtain a refund of her investment in Agrix Marketing Corporation. The prevailing rule on this matter is that upon acceptance of a previously made stock subscription by a corporation after coming into existence, the subscription becomes a binding contract from which the subscriber cannot withdraw (13 Am Jur 233). Neither does the corporation have the power to release an original subscriber of its capital stock, and as against the creditors, a reduction of the capital stock can only take place in the manner and under the conditions prescribed by the statutes, charter or articles of incorporation. Moreover, strict compliance with statutory regulation is necessary. (Phil. Trust Co. vs. Rivera, GR No. 19761, Jan. 29, 1923, 44 Phil 471). The capital stock constitutes the sole fund to which creditors look for liquidation of their demands; it is regarded in law a trust fund, pledged for the payment of the debts of the corporation. And, subscribed shares cannot be canceled by the board of directors without justifiable cause which vitiates a simple contract as this is tantamount to relieving an 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). The only exception to the foregoing rule, allowing a corporation to cancel a stock subscription contract and release the subscriber from further liability thereon or accept a surrender of the stock certificates is when all the stockholders consent thereto and the rights of the creditors are not impaired (13 Am Jur 262). Thus, no subscriber 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 an interest. (Agbayani, Commentaries & Jurisprudence on Commercial Laws of the Philippines, 1980 Ed. p. 449 citing Lingayen Gulf Electric Power Co. vs. Baltazar G.R. No. L-4824, June 30, 1953, 49 O. G. 809). Neither is a subscriber given the right to withdraw without the consent of the corporation, nor even when the corporation assents thereto, if there is any prejudice to creditors. (Fletcher, Cyc. of Corps., Vol. 4, Sec. 1724). Please be informed further that under the Securities Act, every contract made in violation of any provision of the Act or of any rule or regulation thereunder, or the performance of which involves the violation of, or the continuance of any relationship or practice in violation of any provision of said Act, or any rule or regulation thereunder shall be void as regards the rights of any person, who in violation of any such provision, rule or regulation, shall have made or engaged in the performance of any such contract. Therefore, the validity of the subscription contract itself would have to be assailed. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman