Joaquin Yap & Sons Marketing, Inc.

September 24, 1987 Joaquin Yap & Sons Marketing, Inc. Sogod, Southern Leyte Gentlemen : This refers to the minutes of the stockholders' meeting of that corporation held on March 1, 1983 at Sogod, Southern Leyte. It appears therein that the president of the company, Mr. Joaquin Yap, returned his unpaid subscription to the corporation consisting of 1,150 shares. The stockholders present at said meeting unanimously approved said return of subscription. cdlex In this connection, your attention is invited to the rule that a corporation has no power to release a subscriber from the payment of his unpaid subscription. "A corporation has no power to release an original subscriber of its capital stock from the obligation of paying for his shares, and as against creditors a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statutes. The capital stocks constitute the sole fund to which creditors look for liquidation of their demands; it is regarded in law as a trust fund, pledged for the payment of the debts of the corporation, and subscribed shares cannot be cancelled 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 v. Poizat, G.R. No. L-11528, March 15, 1918, 37 Phil. 802 (1918); Philippine Trust Co. v. 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 of the subscriber from his unpaid subscription is approved by all the stockholders of record as decided by the Court in Lingayen Gulf Electric Power Co. v. Baltazar, G.R. No. L-4824, June 10, 1953. (SEC Opinions, Supra.). It appears that the foregoing exception to the general rule did not obtain in your case considering that your meeting of March 1, 1983 was not attended by all the stockholders of the company. But even then, such a release must not prejudice creditors of the corporation. "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, sec. 196 at 460). Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Associate Commissioner