Mr. Edmundo M. Tam

August 6, 1987 Mr. Edmundo M. Tam United Coconut Planters Bank (UCPB) UCPB Building, Makati Avenue Makati, Metro Manila Sir : This refers to your letter dated July 17, 1987, requesting clearance for the withdrawal by the United Coconut Planters Bank (UCPB) of its P5 million capital infusion to the Rural Bank of Tagkawayan, Inc. on January 20, 1984 and P1.194 million representing negotiated share on the earnings of said P5 million capital infusion. prcd It appears therein that P5 million was booked in the record of the Rural Bank of Tagkawayan, Inc. as UCPB's deposit for future subscription to the proposed increase of authorized capital stock of the former corporation to P15 million. To date the proposed increase of capital stock has not been filed or approved by the Securities and Exchange Commission, in violation of one of the conditions embodied in the Subscription Agreement relative thereto. Hence, the two banks, in a rescission agreement, mutually agreed to rescind the P5 million capital infusion of UCPB and withdraw the negotiated share in the earnings of the proposed P5 million capital infusion. A reading of the Subscription Agreement of subject corporations attached to your letter reveals that the P5 million capital infusion is subject to certain terms and conditions. The agreement provides among others, thus: "SECTION 4.01. The obligation of the investor to subscribe to the capital stock of the Bank and to invest the amount herein contemplated is subject to the following conditions precedent . xxx xxx xxx c) The Bank shall increase its authorized capital stock from P500,000.00 to P15,000,000.00 composed of 150,000 common shares with par value of P50.00 per share and 150,000 preferred shares with par value of P50.00 per share. xxx xxx xxx. SECTION 5.01. The investor may rescind this agreement on the basis of any of the following: a) The increase in the authorized capital stock of the bank as contemplated by Sec. 4.01 paragraph (c),or the amendments to the articles of incorporation or by-laws required in Article IV are not approved by the Central Bank and the Securities and Exchange Commission after the lapse of one (1) year ; In this connection, it is worth mentioning that "A subscription upon a condition precedent, also called conditional subscription, is a subscription which does not take effect so as to make the subscriber a stockholder, until the performance or fulfillment of some stated conditions ," ...(4 Fletcher Sec. 1509, p. 197).Non-performance of conditions precedent constitutes a failure of consideration for a note given for the amount of a subscription. And if such a condition is violated or is not performed, the subscriber may recover back payments already made .(Ibid Sec. 1519, p. 217). Hence, a conditional subscription does not make the subscriber a stockholder or render him liable to pay the amount of the subscription, until the performance or fulfillment of the condition stated therein. In this connection, Section 38 of the Corporation Code provides that the increase of capital stock shall become effective only upon approval by the Commission . The law provides, thus: "SECTION 38. Power to increase or decrease capital stock ;.... ...From and after approval by the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing, the capital stock shall stand increased. .... Considering that to date, the proposed increase of capital stock of the Rural Bank of Tagkawayan, Inc.,a condition precedent in the subscription agreement, has not been filed/approved by the Securities and Exchange Commission, UCPB's subscription to the proposed increase of capital stock of Rural Bank of Tagkawayan, Inc. worth P5 million has not become effective. Therefore, the rescission agreement executed by and between UCPB and Rural Bank of Tagkawayan, Inc. relative to the cancellation of the P5 million infusion has a legal basis. In view of the foregoing, UCPB may withdraw the P5 million proposed conditional subscription from the Rural Bank of Tagkawayan, Inc. Likewise, considering that the proposed subscription did not become effective, the alleged P1.194 million representing the negotiated share on the earning of said amount of capital infusion may also be withdrawn. LexLib Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman