G.R. No. 1444476, 8 April 2003
In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage and incompletion when its owner, the First Landlink Asia Development Corporation (FLADC. It was heavily indebted to the Philippine National Bank (PNB).
To stave off foreclosure of the mortgage on the two lots where the mall was being built, the Tius invited the Ongs to invest in FLADC. Under the Pre-Subscription Agreement they entered into, the Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each while the Tius were to subscribe to an additional 549,800 shares each in addition to their already existing subscription of 450,200 shares. Moreover, the Ongs were given the right to manage and operate the mall.
Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock while the Tius committed to contribute to FLADC a four-storey building and two parcels of land respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000 shares) and P49.8 million (for 49,800 shares) to cover their additional 549,800 stock subscription therein. The Tius accused the Ongs of (1) refusing to credit to them the FLADC shares covering their real property contributions; (2) preventing David S. Tiu and Cely Y. Tiu from assuming the positions of and performing their duties as Vice-President and Treasurer, respectively, and (3) refusing to give them the office spaces agreed upon. The controversy finally came to a head when the case was commenced by the Tius at the Securities and Exchange Commission (SEC), seeking confirmation of their rescission of the Pre-Subscription Agreement.
After hearing issued a decision confirming the rescission sought by the Tius. The above decision was partially reconsidered but only insofar as the Ongs’ P70 million was declared not as a premium on capital stock but an advance (loan) by the Ongs to FLADC and that the imposition of interest on it was correct. Both parties appealed to the SEC en banc. The SEC en banc confirmed the rescission of the Pre-Subscription Agreement but reverted to classifying the P70 million paid by the Ongs as premium on capital and not as a loan or advance to FLADC, hence, not entitled to earn interest.
Whether the rescission of Pre-Subscription Agreement would result in unauthorized liquidation.
The rescission of the Pre-Subscription Agreement will effectively result in the unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property of the corporation is allowed. Rescission will, in the final analysis, result in the premature liquidation of the corporation without the benefit of prior dissolution in accordance with Sections 117, 118, 119 and 120 of the Corporation Code.
*Case Digest by Lowel Dave D. Manuel, JD-4, Andres Bonifacio Law School, S.Y. 2019-2020