PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperativa
Naval Filipina," plaintiff-appellee, vs. MARCIANO RIVERA, defendant-
appellant.
1. CORPORATIONS; DIMINUTION OF CAPITAL. A corporation has
no power to release an original subscriber to its capital stock
from the obligation of paying for his shares, without a valuable
consideration for such release; and as against creditors a
reduction of the capital stock can take place only in the manner
and under and conditions prescribed by law.
FACTS:
Philippine Trust Company, as assignee in insolvency of La
Cooperativa Naval Filipina commenced an against
Marciano Rivera, for the recovery of P22,500
o Alleged to be due upon defendant's subscription to the
capital stock of said insolvent corporation
The trial judge having given judgment in favor of the plaintif
for the amount sued for, the defendant appealed
It appears in evidence that:
1918 Cooperativa Naval Filipina was duly incorporated under the
laws of the Philippine Islands
o Capital of P100,000, dividend into one thousand shares of
a par value of P100 each
o Among the incorporators of this company was numbered
the defendant Marciano Rivera, who subscribed for 450
shares representing a value of P45,000,
o The remainder of the stock being taken by other persons
o The article of incorporation were duly registered in the
Bureau of Commerce and Industry on October 30 of the
same year.
The company became insolvent and went into the hands of
the Philippine Trust Company, as assignee in bankruptcy;
This action was instituted to recover one-half of the stock
subscription of the defendant, which admittedly has never
been paid.
The reason for the failuret to pay the entire subscription is, that
not long after the Cooperativa Naval Filipina had been
incorporated:
o A meeting of its stockholders occurred, at which a
resolution was adopted to the efect that the
capital should be reduced by 50 per centum and
the subscribers released from the obligation to pay
any unpaid balance of their subscription in excess
of 50 per centum of the same
o As a result of this resolution the subscription of various
shareholder had been cancelled to the extent stated; and
fully paid certificates were issued to each shareholder for
one-half of his subscription
o It does not appear that the formalities prescribed
in section 17 of the Corporation Law (Act No. 1459),
as amended, relative to the reduction of capital
stock in corporations were observed, and in
particular it does not appear that any certificate
was at any time filed in the Bureau of Commerce
and Industry, showing such reduction
ISSUE: W/N such reduction of the capital stock is valid
HELD:
The resolution relied upon by the defendant was without effect
and the defendant was still liable for the unpaid balance of his
subscription.
It is established doctrine that subscriptions to the capital of a
corporation constitute a fund to which creditors have a
right to look for satisfaction of their claims and
That the assignee in insolvency can maintain an action upon
any unpaid stock subscription in order to realized assets
for the payment of its debts.
A corporation has no power to release an original
subscriber to its capital stock from the obligation of
paying for his shares, without a valuable
consideration for such release; and as against
creditors a reduction of the capital stock can take
place only in the manner and under the conditions
prescribed by the statute or the charter or the
articles of incorporation. Moreover, strict compliance
with the statutory regulations is necessary
In the case, the resolution releasing the shareholder from their
obligation to pay 50 per centum of their respective subscriptions
was an attempted withdrawal of so much capital from the
fund upon which the company's creditors were entitled
ultimately to rely and,
Having been efected without compliance with the
statutory requirements, was wholly inefectual
MARCUS V. RH MACY
FACTS
Appellant has been the registered owner of 50 shares of the
common stock of the respondent, RH Macy
1945 Respondent gave formal notice to its stockholders that
among other matters at its annual meeting, would be a
proposal, recommended by its board of directors:
 o That its certificate of incorporation be
amended:
o As to add to the rights of preferred
stockholders voting rights,
o Equal share to share, to those to which the
holders of the corporations common stock are
entitled
October 1945 Marcus sent to RH Macy a written notice that she
objected to:
o The proposed amendment &
o To the adoption of any resolution
Which there would be added to the rights of
owners of the corporations preferred stock
voting rights equal, share for share, to the
voting rights of the common stock holders
Appellant demanded for the common stock owned by
Marcus
At the annual meeting, proposal to amend certificate of incorp.
Was approved
o But the common stock owned by Marcus was voted
against such amendment
Marcus instituted the present proceeding to determine the
value of her stock as a basis for the enforcement of
payment therefor
o Her application for the appointment of appraisers to
evaluate her stock was denied & petition was
dismissed
o Appeal! Denied
ISSUE: W/N the appellant may invoke paragraph 9 of sec. 38 of the Stock
Corporation Law as a means to legally appropriate to accomplish the
appraisal of her stock & to enforce payment therefor
HELD:
Such an alteration or limitation in the voting power of the common
shares held by the appellant
o When considered with the facts that she gave to the
respondent formal written notice
o Was sufficient to qualify her to invoke the statutory
procedure upon which the present proceeding is
based
The Stock Corporation Law gives the right to alter the privileges or
voting powers of any shares previously authorized, or the
restrictions or qualifications thereof
o But the statutory right as burdened with conditions set
forth in Sec. 38 which provides
If the certificate * * *
o (d) abolishes any voting right of the holders of shares of any class
or limits their voting rights, except as the same may be limited by
the voting rights given to new shares of any class authorized by
the certificate;
o any holder of any such shares not in favor of such action may at
any time prior to the vote authorizing such action * * * object to
such action and demand payment for his stock, and thereupon
such stockholder or the corporation shall have the right, subject
to the conditions and provisions of section twenty-one, to have
such stock appraised and paid for as provided in said
section. Such objection and demand must be in writing and filed
with the corporation." (Emphasis supplied.)
o When, in the present proceeding, Special Term concluded that,
within the meaning of the statute last quoted above, the new
voting privileges granted to respondent's preferred stockholders
at the meeting of October 30, 1945, did not cause such a
deprivation of an existing stockholder's rights as would justify
granting the relief sought by this proceeding, the court cited our
ruling in Matter of Kinney (as authority for its decision. In doing so
we think Special Term failed to give proper weight to the decisive
fact that the amendment to the certificate of incorporation which
was objected to by the petitioner in the Kinney case ( supra),
involved a new and previously unauthorized issue of preferred
stock, while in the case at bar the charter amendment, to which
the appellant objects, granted new voting rights equal to those
of the common shares to previously authorized preferred stock
of which 165,600 shares were then issued and outstanding. The
significance of that fact is emphasized by the following excerpt
from the opinion per FINCH, J., at pages 430-431 "* * * section
38 permits an appraisal only when an amended certificate alters
the preferential rights of the outstanding stock of a corporation as
between the different classes of stock * * * it does not apply to a
case where such rights are left unchanged as between
themselves, but are both made subject to a new issue of stock
In the case at bar, the appellant as the owner of respondent's
common stock objects to corporate action which granted to
previously authorized preferred stock the right to vote upon
matters as to which the common stock, prior to such action, had
the exclusive right to vote.
By limiting the voting power of the appellant's common
shares to a proportionate extent measured at a given time
by the number of preferred shares then issued and
outstanding,
o The corporate action to which the appellant has objected
was of such a character as to afford her a legal basis
to invoke the procedure prescribed by paragraph
(d) of subdivision 9 of section 38, as a means to
accomplish the appraisal of her stock and payment
therefor.
 With emphasis placed upon the fact that of the 1,656,000 shares
of the respondent's common stock outstanding the appellant
owns only 50 shares, we are told in support of the respondent's
position that "The effect of the amendment upon
appellant's stock (if any) was so trivial and
insignificant that it may fairly be described as de
minimis."
If the appellant had a bona fide desire to sell her stock at market
value
o She could have done so on October 30, 1945, for
approximately three times the amount of her
investment and at more than twenty points per
share above its book value.
As to that argument it is enough to say that the Legislature has
clearly prescribed the conditions under which a nonconsenting
stockholder may have his stock evaluated and enforce payment
therefor.
We find in those conditions no legislative declaration of a
minimum percentage or value of stock which must
be owned by a nonconsenting stockholder to qualify
him to invoke the prescribed statutory procedure
In Anderson v. International Minerals Chemical Corp. we dealt
with an analogous situation which arose as an incident to a
corporate consolidation.
There, as in the case at hand, we considered the Legislature's
purpose in enacting those provisions of the Stock Corporation Law
which, under prescribed conditions, grant to dissenting
shareholders the right to have their stock holdings appraised and
to enforce payment therefor. Referring to the legislative purpose
Judge THACHER wrote for the court at page 350: "The remedy of
appraisal and payment was intended to aford fair and just
compensation to the dissenters and at the same time
provide the method by which their objections could be
fairly composed so as to enable the consolidation to
proceed
Where, as in this instance, the Legislature by precise language has
created a right and with equal precision has set forth the
procedure by which that right may be availed of, the courts may
not limit or enlarge that right or alter that procedure
IGLESIA ENVANGELICA V. BISHOP LAZARO
FACTS:
1909 Bishop Nicolas Zamora established the
Iglesia Evangelica Metodista En Las Islas Filipinas, Inc. as a
corporation sole with Bishop Zamora acting as its "General
Superintendent."
1948 the IEMELIF enacted and registered a by-laws that
established a Supreme Consistory of Elders (the Consistory),
made up of church ministers, who were to serve for four years.
The by-laws empowered the Consistory to elect a General
Superintendent, a General Secretary, a General Evangelist, and a
Treasurer General who would manage the affairs of the
organization.
o For all intents and purposes, the Consistory served
as the IEMELIF's board of directors.
Apparently, although the IEMELIF remained a corporation sole on
paper (with all corporate powers theoretically lodged in the hands
of one member, the General Superintendent), it had always
acted like a corporation aggregate
o The Consistory exercised IEMELIF's decision-making
powers without ever being challenged.
During its 1973 General Conference, the general membership
voted to put things right by changing IEMELIF's organizational
structure from a corporation sole to a corporation aggregate
o The Securities and Exchange Commission (SEC) approved
the vote
o The corporate papers of the IEMELIF remained
unaltered as a corporation sole.
2001 the issue reemerged
In answer to a query from the IEMELIF, the SEC replied on April 3,
2001 that, although the SEC Commissioner did not in 1948 object
to the conversion of the IEMELIF into a corporation aggregate, that
conversion was not properly carried out and documented.
The SEC said that the IEMELIF needed to amend its
articles of incorporation for that purpose
The Consistory resolved to convert the IEMELIF to a corporation
aggregate
Bishop Lazaro, its General Superintendent, instructed all their
congregations to take up the matter with their respective
members for resolution
The general membership approved the conversion, prompting
the IEMELIF to file amended articles of incorporation with the
SEC.
Bishop Lazaro filed an affidavit-certification in support of the
conversion
Petitioners Reverend Nestor Pineda, et al., which belonged
to a faction that did not support the conversion
o Filed a civil case for "Enforcement of Property Rights
of Corporation Sole, Declaration of Nullity of
Amended Articles of Incorporation from Corporation
 Sole to Corporation Aggregate with Application for
Preliminary Injunction and/or Temporary
Restraining Order" in IEMELIF's name against
respondent members of its Consistory before the Regional
Trial Court (RTC) of Manila.
o Claimed that a complete shift from IEMELIF's status as a
corporation sole to a corporation aggregate required, not
just an amendment of the IEMELIF's articles of
incorporation, but a complete dissolution of the
existing corporation sole followed by a re-
incorporation
RTC dismissed the action
o It held that, while the Corporation Code on Religious
Corporations (has no provision governing the amendment
of the articles of incorporation of a corporation sole, its
Section 109 provides that religious corporations shall be
governed additionally "by the provisions on non-stock
corporations insofar as they may be applicable."
o The RTC thus held that Section 16 of the Code that
governed amendments of the articles of
incorporation of non-stock corporations applied to
corporations sole as well
o What IEMELIF needed to authorize the amendment was
merely the vote or written assent of at least two-thirds of
the IEMELIF membership.
ISSUE: Whether or not a corporation may change its character as a
corporation sole into a corporation aggregate by mere amendment of its
articles of incorporation without first going through the process of
dissolution
HELD:
Religious corporations are governed by Sections 109 through 116
of the Corporation Code.
In a 2009 case involving IEMELIF, the Court distinguished a
corporation sole from a corporation aggregate.
o Citing Section 110 of the Corporation Code, the Court said
that a corporation sole is "one formed by the chief
archbishop, bishop, priest, minister, rabbi or other
presiding elder of a religious denomination, sect, or
church, for the purpose of administering or managing,
as trustee, the affairs, properties and temporalities of
such religious denomination, sect or church."
o A corporation aggregate formed for the same purpose, on
the other hand, consists of two or more persons
For non-stock corporations, the power to amend its articles of
incorporation lies in its members.
The code requires two-thirds of their votes for the approval of
such an amendment
Although a non-stock corporation has a personality that is distinct
from those of its members who established it, its articles of
incorporation cannot be amended solely through the action of its
board of trustees.
o The amendment needs the concurrence of at least
two-thirds of its membership. If such approval
mechanism is made to operate in a corporation
sole, its one member in whom all the powers of the
corporation technically belongs, needs to get the
concurrence of two-thirds of its membership. The
one member, here the General Superintendent, is
but a trustee, according to Section 110 of the
Corporation Code, of its membership
There is no point to dissolving the corporation sole of one member
to enable the corporation aggregate to emerge from it.
o Whether it is a non-stock corporation or a corporation
sole, the corporate being remains distinct from its
members, whatever be their number.
The increase in the number of its corporate membership does not
change the complexion of its corporate responsibility to third
parties.
The one member, with the concurrence of two-thirds
of the membership of the organization for whom he
acts as trustee, can self-will the amendment.
o He can, with membership concurrence, increase the
technical number of the members of the corporation from
"sole" or one to the greater number authorized by its
amended articles
The amendment of the articles of incorporation, as correctly put
by the CA, requires merely that
o Amendment is not contrary to any provision or
requirement under the Corporation Code, and
that
o It is for a legitimate purpose
Section 17 of the Corporation Code provides that amendment
shall be disapproved if, among others, the prescribed form of the
articles of incorporation or amendment to it is not observed, or if
the purpose or purposes of the corporation are patently
unconstitutional, illegal, immoral, or contrary to government rules
and regulations, or if the required percentage of ownership is not
complied with
These impediments do not appear in the case of IEMELIF