Osias Educational Foundation

October 16, 1987 Osias Educational Foundation Tarlac, Tarlac Madam : This has reference to your letter dated September 21, 1987, requesting for the opinion of this Commission on the query posed therein. It appears that an heir of a deceased incorporator is demanding that the school pay to him the market value price of the stock of the deceased stockholder. The school advised him that at best it can only transfer to him the shares of stock of the deceased. You now request for the opinion of this Commission on how you can be properly guided on this matter. Relative thereto, this Commission, in a previous opinion has ruled: "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, G.R. No. 19761, January 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 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 vs. Poizat, G.R. No. L-11528, March 15, 1918, 37 Phil. 822)" 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" ( Ltr. to Mr. Alejandro Santos dtd. Oct. 6, 1982 ). Please be guided accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman