Ms. Josefina Ebido

April 6, 1995 Ms. Josefina Ebido Nagkakaisang Manggagawa ng MMTC North Avenue, Diliman, Quezon City Madam: This refers to your letter of February 27, 1995 informing this Commission of the withdrawal of the subscriptions of 258 employees of Metro Manila Transit in United Workers Transport Corporation. cdll 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 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 previous SEC Opinion and 4 Fletcher Cyc. Corps.) Moreover, "a contract of subscription is, at least in the sense which creates as estoppel, a contract among several subscribers. For this reason, no one among the several 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, GR No. L-4824, June 30, 1953, 49 OG 809, cited in Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines) 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".It has to be emphasized, however, that the prohibition to withdraw applies only to subscriptions which have already become effective. There are instances, however, wherein a corporation is authorized to re-acquire its issued shares. The Corporation Code provides, thus: "SECTION 41. Power to acquire own shares . A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes ,including but not limited to the following cases: Provided, That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired: 1. To eliminate fractional shares arising out of stock dividends; 2. To collect or compromise an indebtedness to corporation arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and 3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code." (Emphasis supplied) The above-quoted provision of the Corporation Code authorizes a corporation to re-purchase or re-acquire its issued shares for a legitimate purpose and only if it has unrestricted retained earnings, and under the trust fund doctrine, such corporate power is always subject to the condition that the purchase shall not prejudice the rights of creditors. As a remedy in the event that return of investment is not possible under the above cited provision. a stockholder may avail of Section 63 of the Corporation Code which allows transfer of shares. Said Section provides: "SECTION 63. Certificates of stock and transfer of shares . ...Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid except as between parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred." (Emphasis supplied) A bonafide transfer of shares to a third party pursuant to the above provision does not require the consent of the corporation and cannot be prevented by it or by its officers. prcd Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner