E.

What is subscription
G.R. Nos. L-48195 and 48196 May 1, 1942

SOFRONIO T. BAYLA, ET AL., petitioners,

vs.
SILANG TRAFFIC CO., INC., respondent.
SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET AL., respondents.

E. A. Beltran for petitioners.

Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando for respondent.

OZAETA, J.:

Petitioners in G.R. No. 48195 instituted this action in the Court of First Instance of Cavite against
the respondent Silang Traffic Co., Inc. (cross-petitioner in G.R. No. 48196), to recover certain sums
of money which they had paid severally to the corporation on account of shares of stock they
individually agreed to take and pay for under certain specified terms and conditions, of which the
following referring to the petitioner Josefa Naval, is typical:

AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE "SILANG TRAFFIC

COMPANY, INC.,"

Silang, Cavite, P. I.

THIS AGREEMENT, made and entered into between Mrs. Josefa Naval, of legal age,
married and resident of the Municipality of Silang, Province of Cavite, Philippine Islands,
party of the First Part, hereinafter called the subscriber, and the "Silang Traffic Company,
 Inc.," a corporation duly organized and existing by virtue of and under the laws of the
Philippine Islands, with its principal office in the Municipality of Silang, Province of Cavite,
Philippine Islands, party of the Second Part, hereinafter called the seller,

WITNESSETH:

That the subscriber promises to pay personally or by his duly authorized agent to the seller
at the Municipality of Silang, Province of Cavite, Philippine Islands, the sum of one thousand
five hundred pesos (P1,500), Philippine currency, as purchase price of FIFTEEN (15)
shares of capital stock, said purchase price to be paid as follows, to wit: five (5%) per cent
upon the execution of the contract, the receipt whereof is hereby acknowledged and
confessed, and the remainder in installments of five per cent, payable within the first month
of each and every quarter thereafter, commencing on the 1st day of July, 1935, with interest
on deferred payments at the rate of SIX (6%) per cent per annum until paid.

That the said subscriber further agrees that if he fails to pay any of said installment when
due, or to perform any of the aforesaid conditions, or if said shares shall be attached or
levied upon by creditors of the said subscriber, then the said shares are to revert to the
seller and the payments already made are to be forfeited in favor of said seller, and the
latter may then take possession, without resorting to court proceedings.

The said seller upon receiving full payment, at the time and manner hereinbefore specified,
agrees to execute and deliver to said subscriber, or to his heirs and assigns, the certificate
of title of said shares, free and clear of all encumbrances.

In testimony whereof, the parties have hereunto set their hands in the Municipality of Silang,
Province of Cavite, Philippine Islands, this 30th day of March, 1935.

(Sgd.) JOSEFA NAVAL

SILANG TRAFFIC COMPANY, INC.
Subscriber

By (Sgd.) LINO GOMEZ

President.

(Exhibit 1. Notarial acknowledgment omitted.)

The agreements signed by the other petitioners were of the same date (March 30, 1935) and in
identical terms as the foregoing except as to the number of shares and the corresponding
purchase price. The petitioners agreed to purchase the following number of shares and, up to April
30, 1937, had paid the following sums on account thereof:

Sofronio T. 8 P360
Bayla....... shares
 Venancio 8 375
Toledo........ shares

Josefa 15 675
Naval.............. shares

Paz 15 675
Toledo................ shares

Petitioners' action for the recovery of the sums above mentioned is based on a resolution by the
board of directors of the respondent corporation on August 1, 1937, of the following tenor:

A mocion sel Sr. Marcos Caparas y secundado por el Sr. Alejandro Bayla, que para el bien
de la corporacion y la pronta terminacion del asunto civil No. 3125 titulado "Vicente F.
Villanueva et al. vs. Lino Gomez et al.," en el Juzgado de Primera Instancia de Cavite,
donde se gasto y se gastara no poca cantidad de la Corporacion, se resolvio y se aprobo
por la Junta Directiva los siguientes:

(a) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 de marzo, 1935, art. 11,
sec. 162, sobre las cobranzas que se haran por el Secretario Tesorero de la Corporacion a
los accionistas que habian tomado o suscrito nuevas acciones y que se permitia a estos
pagar 20% del valor de las acciones suscritas en un ao, con interes de 6% y el pago o
jornal que se hara por trimestre.

(b) Se dejara sin efecto, en vista de que aun no esta pagado todo el valor de las 123
acciones, tomadas de las acciones no expedidas (unissued stock) de la Corporacion y que
fueron suscritas por los siguienes:

Lino 10
Gomez.................... Acciones
.

Venancio 8
Toledo............. Acciones

Melchor P. 17
Benitez........ Acciones
 Isaias 14
Videa................. Acciones

Esteban 10
Velasco............ Acciones

Numeriano S. 15
Aldaba.... Acciones

Inocencio 8
Cruz................. Acciones

Josefa 15
Naval .................. Acciones

Sofronio 8
Bayla................. Acciones

Dionisio 3
Dungca............. Acciones

y devolver a las personas arriba descritas toda la cantidad que estas habian pagado por las 123
acciones.

(c) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 marzo, 1935, art. V. sec.
165, sobre el cambio o trueque de las 31 acciones del Treasury Stock, contra las 32
acciones del Sr. Numeriano Aldaba, en la corporacion Northern Luzon Transportation Co. y
que se devuelva al Sr. Numeriano Aldaba las 32 acciones mencionadas despues que el
haya devuelto el certificado de las 31 acciones de la Silang Traffic Co., Inc.

(d) Permitir al Tesorero de la Corporacion para que devuelva a las personas arriba
indicadas, las cantidades pagadas por las 123 acciones. (Exhibit A-1.)

The respondent corporation set up the following defenses: (1) That the above-quoted resolution is
not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on the
date thereof "their subscribed shares of stock had already automatically reverted to the defendant,
and the installments paid by them had already been forfeited"; and (2) that said resolution of
August 1, 1937, was revoked and cancelled by a subsequent resolution of the board of directors of
the defendant corporation dated August 22, 1937.

The trial court absolved the defendant from the complaint and declared canceled (forfeited) in favor
of the defendant the shares of stock in question. It held that the resolution of August 1, 1937, was
null and void, citing Velasco vs. Poizat (37 Phil., 802), wherein this Court held that "a corporation
has no legal capacity to release an original subscriber to its capital stock from the obligation to pay
for shares; and any agreement to this effect is invalid" Plaintiffs below appealed to the Court of
Appeals, which modified of the trial court as follows:

That part of the judgment dismissing plaintiff's complaint is affirmed, but that part thereof
declaring their subscription canceled is reversed. Defendant is directed to grant plaintiffs 30
days after final judgment within which to pay the arrears on their subscription. Without
pronouncement as to costs.

Both parties appealed to this Court by petition and cross-petition for certiorari. Petitioners insist
that they have the right to recover the amounts involved under the resolution of August 1, 1937,
while the respondent and cross-petitioner on its part contends that said amounts have been
automatically forfeited and the shares of stock have reverted to the corporation under the
agreement hereinabove quoted.

The parties litigant, the trial court, and the Court of Appeals have interpreted or considered the said
agreement as a contract of subscription to the capital stock of the respondent corporation. It should
be noted, however, that said agreement is entitled "Agreement for Installment Sale of Shares in the
Silang Traffic Company, Inc.,"; that while the purchaser is designated as "subscriber," the
corporation is described as "seller"; that the agreement was entered into on March 30, 1935, long
after the incorporation and organization of the corporation, which took place in 1927; and that the
price of the stock was payable in quarterly installments spread over a period of five years. It also
appears that in civil case No. 3125 of the Court of First Instance of Cavite mentioned in the
resolution of August 1, 1937, the right of the corporation to sell the shares of stock to the person
named in said resolution (including herein petitioners) was impugned by the plaintiffs in said case,
who claimed a preferred right to buy said shares.

Whether a particular contract is a subscription or a sale of stock is a matter of construction and

depends upon its terms and the intention of the parties (4 Fletcher, Cyclopedia of Corporation
[permanent edition], 29, cited in Salmon, Dexter & Co. vs. Unson (47 Phil. 649, 652). In the Unson
case just cited, this Court held that a subscription to stock in an existing corporation is, as between
the subscriber and the corporation, simply a contract of purchase and sale.

It seems clear from the terms of the contracts in question that they are contracts of sale and not of
subscription. The lower courts erred in overlooking the distinction between subscription and
purchase "A subscription, properly speaking, is the mutual agreement of the subscribers to take
and pay for the stock of a corporation, while a purchase is an independent agreement between the
individual and the corporation to buy shares of stock from it at stipulated price." (18 C. J. S., 760.)
In some particulars the rules governing subscriptions and sales of shares are different. For
instance, the provisions of our Corporation Law regarding calls for unpaid subscription and
assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that
corporation has no legal capacity to release an original subscriber to its capital stock from the
obligation to pay for his shares, is inapplicable to a contract of purchase of shares.
The next question to determine is whether under the contract between the parties the failure of the
purchaser to pay any of the quarterly installments on the purchase price automatically gave rise to
the forfeiture of the amounts already paid and the reversion of the shares to the corporation. The
contract provides for interest of the rate of six per centum per annum on deferred payments. It is
also provides that if the purchaser fails to pay any of said installments when due, the said shares
are to revert to the seller and the payments already made are to be forfeited in favor of said seller.
The respondent corporation contends that when the petitioners failed to pay the installment which
fell due on or before July 31, 1937, forfeiture automatically took place, that is to say, without the
necessity of any demand from the corporation, and that therefore the resolution of August 1, 1937,
authorizing the refund of the installments already paid was inapplicable to the petitioners, who had
already lost any and all rights under said contract. The contention is, we think, untenable. The
provision regarding interest on deferred payments would not have been inserted if it had been the
intention of the parties to provide for automatic forfeiture and cancelation of the contract. Moreover,
the contract did not expressly provide that the failure of the purchaser to pay any installment would
give rise to forfeiture and cancelation without the necessity of any demand from the seller; and
under article 1100 of the Civil Code persons obliged to deliver or do something are not in default
until the moment the creditor demands of them judicially or extrajudicially the fulfillment of their
obligation, unless (1) the obligation or the law expressly provides that demand shall not be
necessary in order that default may arise, (2) by reason of the nature and circumstances of the
obligation it shall appear that the designation of the time at which that thing was to be delivered or
the service rendered was the principal inducement to the creation of the obligation.

Is the resolution of August 1, 1937, valid? The contract in question being one of purchase and not
subscription as we have heretofore pointed out, we see no legal impediment to its rescission by
agreement of the parties. According to the resolution of August 1, 1937, the recission was made for
the good of the corporation and in order to terminate the then pending civil case involving the
validity of the sale of the shares in question among others. To that rescission the herein petitioners
apparently agreed, as shown by their demand for the refund of the amounts they had paid as
provided in said resolution. It appears from the record that said civil case was subsequently
dismissed, and that the purchasers of shares of stock, other than the herein petitioners, who were
mentioned in said resolution were able to benefit by said resolution. It would be an unjust
discrimination to deny the same benefit to the herein petitioners.

We may add that there is no intimation in this case that the corporation was insolvent, or that the
right of any creditor of the same was in any way prejudiced by the rescission.

The attempted revocation of said rescission by the resolution of August 22, 1937, was invalid, it not
having been agreed to by the petitioners.

Wherefore, the judgment of the court of appeals is hereby reversed and another judgment will be
entered against the defendant Silang Traffic Co., Inc., ordering it to pay to the plaintiffs Sofronio T.
Bayla, Venancio Toledo, Josefa Naval, and Paz Toledo, the sums of P360, P375, P675, and P675,
respectively, with legal interest on each of said sums from May 28, 1938, the date of the filing of
the complaint, until the date of payment, and with costs in the three instances. So ordered.

G.R. Nos. L-48195 and 48196 May 1, 1942

SOFRONIO T. BAYLA, ET AL., petitioners,

vs.
SILANG TRAFFIC CO., INC., respondent.
SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET AL., respondents.
E. A. Beltran for petitioners.
Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando for respondent.

OZAETA, J.:

Petitioners in G.R. No. 48195 instituted this action in the Court of First Instance of Cavite against
the respondent Silang Traffic Co., Inc. (cross-petitioner in G.R. No. 48196), to recover certain sums
of money which they had paid severally to the corporation on account of shares of stock they
individually agreed to take and pay for under certain specified terms and conditions, of which the
following referring to the petitioner Josefa Naval, is typical:

AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE "SILANG TRAFFIC

COMPANY, INC.,"

Silang, Cavite, P. I.

THIS AGREEMENT, made and entered into between Mrs. Josefa Naval, of legal age,
married and resident of the Municipality of Silang, Province of Cavite, Philippine Islands,
party of the First Part, hereinafter called the subscriber, and the "Silang Traffic Company,
Inc.," a corporation duly organized and existing by virtue of and under the laws of the
Philippine Islands, with its principal office in the Municipality of Silang, Province of Cavite,
Philippine Islands, party of the Second Part, hereinafter called the seller,

WITNESSETH:

That the subscriber promises to pay personally or by his duly authorized agent to the seller
at the Municipality of Silang, Province of Cavite, Philippine Islands, the sum of one thousand
five hundred pesos (P1,500), Philippine currency, as purchase price of FIFTEEN (15)
shares of capital stock, said purchase price to be paid as follows, to wit: five (5%) per cent
upon the execution of the contract, the receipt whereof is hereby acknowledged and
confessed, and the remainder in installments of five per cent, payable within the first month
of each and every quarter thereafter, commencing on the 1st day of July, 1935, with interest
on deferred payments at the rate of SIX (6%) per cent per annum until paid.

That the said subscriber further agrees that if he fails to pay any of said installment when
due, or to perform any of the aforesaid conditions, or if said shares shall be attached or
levied upon by creditors of the said subscriber, then the said shares are to revert to the
seller and the payments already made are to be forfeited in favor of said seller, and the
latter may then take possession, without resorting to court proceedings.

The said seller upon receiving full payment, at the time and manner hereinbefore specified,
agrees to execute and deliver to said subscriber, or to his heirs and assigns, the certificate
of title of said shares, free and clear of all encumbrances.

In testimony whereof, the parties have hereunto set their hands in the Municipality of Silang,
Province of Cavite, Philippine Islands, this 30th day of March, 1935.
 (Sgd.) JOSEFA NAVAL
SILANG TRAFFIC COMPANY, INC.
Subscriber

By (Sgd.) LINO GOMEZ

President.

(Exhibit 1. Notarial acknowledgment omitted.)

The agreements signed by the other petitioners were of the same date (March 30, 1935) and in
identical terms as the foregoing except as to the number of shares and the corresponding
purchase price. The petitioners agreed to purchase the following number of shares and, up to April
30, 1937, had paid the following sums on account thereof:

Sofronio T. 8 P360
Bayla....... shares

Venancio 8 375
Toledo........ shares

Josefa 15 675
Naval.............. shares

Paz 15 675
Toledo................ shares

Petitioners' action for the recovery of the sums above mentioned is based on a resolution by the
board of directors of the respondent corporation on August 1, 1937, of the following tenor:

A mocion sel Sr. Marcos Caparas y secundado por el Sr. Alejandro Bayla, que para el bien
de la corporacion y la pronta terminacion del asunto civil No. 3125 titulado "Vicente F.
Villanueva et al. vs. Lino Gomez et al.," en el Juzgado de Primera Instancia de Cavite,
donde se gasto y se gastara no poca cantidad de la Corporacion, se resolvio y se aprobo
por la Junta Directiva los siguientes:

(a) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 de marzo, 1935, art. 11,
sec. 162, sobre las cobranzas que se haran por el Secretario Tesorero de la Corporacion a
los accionistas que habian tomado o suscrito nuevas acciones y que se permitia a estos
pagar 20% del valor de las acciones suscritas en un ao, con interes de 6% y el pago o
jornal que se hara por trimestre.
(b) Se dejara sin efecto, en vista de que aun no esta pagado todo el valor de las 123
acciones, tomadas de las acciones no expedidas (unissued stock) de la Corporacion y que
fueron suscritas por los siguienes:

Lino 10
Gomez.................... Acciones
.

Venancio 8
Toledo............. Acciones

Melchor P. 17
Benitez........ Acciones

Isaias 14
Videa................. Acciones

Esteban 10
Velasco............ Acciones

Numeriano S. 15
Aldaba.... Acciones

Inocencio 8
Cruz................. Acciones

Josefa 15
Naval .................. Acciones

Sofronio 8
Bayla................. Acciones

Dionisio 3
 Dungca............. Acciones

y devolver a las personas arriba descritas toda la cantidad que estas habian pagado por las 123
acciones.

(c) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3 marzo, 1935, art. V. sec.
165, sobre el cambio o trueque de las 31 acciones del Treasury Stock, contra las 32
acciones del Sr. Numeriano Aldaba, en la corporacion Northern Luzon Transportation Co. y
que se devuelva al Sr. Numeriano Aldaba las 32 acciones mencionadas despues que el
haya devuelto el certificado de las 31 acciones de la Silang Traffic Co., Inc.

(d) Permitir al Tesorero de la Corporacion para que devuelva a las personas arriba
indicadas, las cantidades pagadas por las 123 acciones. (Exhibit A-1.)

The respondent corporation set up the following defenses: (1) That the above-quoted resolution is
not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on the
date thereof "their subscribed shares of stock had already automatically reverted to the defendant,
and the installments paid by them had already been forfeited"; and (2) that said resolution of
August 1, 1937, was revoked and cancelled by a subsequent resolution of the board of directors of
the defendant corporation dated August 22, 1937.

The trial court absolved the defendant from the complaint and declared canceled (forfeited) in favor
of the defendant the shares of stock in question. It held that the resolution of August 1, 1937, was
null and void, citing Velasco vs. Poizat (37 Phil., 802), wherein this Court held that "a corporation
has no legal capacity to release an original subscriber to its capital stock from the obligation to pay
for shares; and any agreement to this effect is invalid" Plaintiffs below appealed to the Court of
Appeals, which modified of the trial court as follows:

That part of the judgment dismissing plaintiff's complaint is affirmed, but that part thereof
declaring their subscription canceled is reversed. Defendant is directed to grant plaintiffs 30
days after final judgment within which to pay the arrears on their subscription. Without
pronouncement as to costs.

Both parties appealed to this Court by petition and cross-petition for certiorari. Petitioners insist
that they have the right to recover the amounts involved under the resolution of August 1, 1937,
while the respondent and cross-petitioner on its part contends that said amounts have been
automatically forfeited and the shares of stock have reverted to the corporation under the
agreement hereinabove quoted.

The parties litigant, the trial court, and the Court of Appeals have interpreted or considered the said
agreement as a contract of subscription to the capital stock of the respondent corporation. It should
be noted, however, that said agreement is entitled "Agreement for Installment Sale of Shares in the
Silang Traffic Company, Inc.,"; that while the purchaser is designated as "subscriber," the
corporation is described as "seller"; that the agreement was entered into on March 30, 1935, long
after the incorporation and organization of the corporation, which took place in 1927; and that the
price of the stock was payable in quarterly installments spread over a period of five years. It also
appears that in civil case No. 3125 of the Court of First Instance of Cavite mentioned in the
resolution of August 1, 1937, the right of the corporation to sell the shares of stock to the person
named in said resolution (including herein petitioners) was impugned by the plaintiffs in said case,
who claimed a preferred right to buy said shares.

Whether a particular contract is a subscription or a sale of stock is a matter of construction and

depends upon its terms and the intention of the parties (4 Fletcher, Cyclopedia of Corporation
[permanent edition], 29, cited in Salmon, Dexter & Co. vs. Unson (47 Phil. 649, 652). In the Unson
case just cited, this Court held that a subscription to stock in an existing corporation is, as between
the subscriber and the corporation, simply a contract of purchase and sale.

It seems clear from the terms of the contracts in question that they are contracts of sale and not of
subscription. The lower courts erred in overlooking the distinction between subscription and
purchase "A subscription, properly speaking, is the mutual agreement of the subscribers to take
and pay for the stock of a corporation, while a purchase is an independent agreement between the
individual and the corporation to buy shares of stock from it at stipulated price." (18 C. J. S., 760.)
In some particulars the rules governing subscriptions and sales of shares are different. For
instance, the provisions of our Corporation Law regarding calls for unpaid subscription and
assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that
corporation has no legal capacity to release an original subscriber to its capital stock from the
obligation to pay for his shares, is inapplicable to a contract of purchase of shares.

The next question to determine is whether under the contract between the parties the failure of the
purchaser to pay any of the quarterly installments on the purchase price automatically gave rise to
the forfeiture of the amounts already paid and the reversion of the shares to the corporation. The
contract provides for interest of the rate of six per centum per annum on deferred payments. It is
also provides that if the purchaser fails to pay any of said installments when due, the said shares
are to revert to the seller and the payments already made are to be forfeited in favor of said seller.
The respondent corporation contends that when the petitioners failed to pay the installment which
fell due on or before July 31, 1937, forfeiture automatically took place, that is to say, without the
necessity of any demand from the corporation, and that therefore the resolution of August 1, 1937,
authorizing the refund of the installments already paid was inapplicable to the petitioners, who had
already lost any and all rights under said contract. The contention is, we think, untenable. The
provision regarding interest on deferred payments would not have been inserted if it had been the
intention of the parties to provide for automatic forfeiture and cancelation of the contract. Moreover,
the contract did not expressly provide that the failure of the purchaser to pay any installment would
give rise to forfeiture and cancelation without the necessity of any demand from the seller; and
under article 1100 of the Civil Code persons obliged to deliver or do something are not in default
until the moment the creditor demands of them judicially or extrajudicially the fulfillment of their
obligation, unless (1) the obligation or the law expressly provides that demand shall not be
necessary in order that default may arise, (2) by reason of the nature and circumstances of the
obligation it shall appear that the designation of the time at which that thing was to be delivered or
the service rendered was the principal inducement to the creation of the obligation.

Is the resolution of August 1, 1937, valid? The contract in question being one of purchase and not
subscription as we have heretofore pointed out, we see no legal impediment to its rescission by
agreement of the parties. According to the resolution of August 1, 1937, the recission was made for
the good of the corporation and in order to terminate the then pending civil case involving the
validity of the sale of the shares in question among others. To that rescission the herein petitioners
apparently agreed, as shown by their demand for the refund of the amounts they had paid as
provided in said resolution. It appears from the record that said civil case was subsequently
dismissed, and that the purchasers of shares of stock, other than the herein petitioners, who were
mentioned in said resolution were able to benefit by said resolution. It would be an unjust
discrimination to deny the same benefit to the herein petitioners.

We may add that there is no intimation in this case that the corporation was insolvent, or that the
right of any creditor of the same was in any way prejudiced by the rescission.

The attempted revocation of said rescission by the resolution of August 22, 1937, was invalid, it not
having been agreed to by the petitioners.

Wherefore, the judgment of the court of appeals is hereby reversed and another judgment will be
entered against the defendant Silang Traffic Co., Inc., ordering it to pay to the plaintiffs Sofronio T.
Bayla, Venancio Toledo, Josefa Naval, and Paz Toledo, the sums of P360, P375, P675, and P675,
respectively, with legal interest on each of said sums from May 28, 1938, the date of the filing of
the complaint, until the date of payment, and with costs in the three instances. So ordered.

G.R. No. L-23608 March 17, 1925

SALMON, DEXTER & CO., plaintiff-appellee,

vs.
TIMOTEO UNSON, defendant-appellant.

Felipe Ysmael for appellant.

J.W. Ferrier for appellee.

MALCOLM, J.:

The plaintiff seeks to recover of the defendant the sum of P1,000 with legal interest on a
subscription for capital stock contract. The defense is that the defendant is released from his
obligation on the subscription agreement by virtue of the increase of the capital stock of the plaintiff
from P250,000, the amount mentioned in the agreement, to P500,000, the amount agreed upon
the stockholders prior to the defendant's signing the agreement. On this issue, judgment in the
lower court was with the plaintiff.

The plaintiff is Salmon, Dexter and Company, a domestic corporation. It was organized under the
name of C.S. Salmon and Company on May 28, 1918, with a capital stock of P250,000. Thereafter,
pursuant to a resolution of the board of directors of the corporation of June 24, 1920, a meeting of
the stockholders was had on July 14, 1920, at which the capital stock of C.S. Salmon and
Company was increased to P500,000. The certificate of increase of capital stock from P250,000 to
P500,000, and articles of incorporation, as amended, of Salmon, Dexter and Company were filed
with the Mercantile Registry of the Bureau of Commerce and Industry on September 16, 1920.

On July 28, 1920, Timoteo Unson, the defendant, to follow the allegation in the third paragraph of
the complaint, "became a subscriber of C.S. Salmon and Company, by signing an agreement in
writing and delivering the same to C.S. Salmon and Company, ... the name of which company was
later changed to Salmon, Dexter and Company." Said agreement, Exhibit A, is in words and figures
the following:
 SUBSCRIPTION FOR CAPITAL STOCK
OF
C.S. SALMON AND COMPANY

Authorized Capital P250,000 Shares P100 each

I hereby subscribe for 10 shares of the capital stock of C.S. Salmon and Company, at the
par value thereof and agree to pay for the same on or before Dec. 15, 1920.

It is understood and agreed that dividends will be prorated and payable, only, from the date
of actual payment of the subscription.

(Sgd.) TIMOTEO UNSON

Iloilo, July 28, 1920

P. O. Address:
Timoteo Unson,
Pontevedra,
Capiz.

Even a casual reading of the admitted facts brings prominently to notice that the agreement
accomplished by Timoteo Unson on July 28, 1920, was for ten shares of the capital stock of C.S.
Salmon and Company, "authorized capital P250,000," and that two weeks before, on July 14,
1920, the stockholders of C.S. Salmon and company, without the acquiescence or participation of
Unson, had authorized an increase of the capital stock of the corporation to P500,000. Three
questions arise: Is the contract of Unson a contract of subscription to the capital stock of C.S.
Salmon and Company, or is it a contract to purchase stock in the corporation? Whether one or the
other, is Unson released from his obligation on the subscription agreement on account of the
increase of the capital stock of C.S. Salmon and Company from P250,000 to P500,000? Was there
present such fraud or misrepresentation as would permit the defendant to avoid the contract?

The parties disagree as to the nature of the transaction. The appellant considers Exhibit A as a
subscription, and relies on the case of Newport Cotton Mill Co. vs. Mims ( [1899], 103 Tenn., 465).
(See also Katama Land Company vs. Jernegan [1879], 126 Mass., 155.) Appellee, on the other
hand, alleges that the appellant has failed to take into account the legal distinction between a
subscription to a corporation and a purchase from it of its shares, and reaches the conclusion on
this premise that the contract in the present case one of purchase and sale only.

After incorporation, one may become a shareholder by subscription, or by purchasing stock directly
from the corporation, or from individual owners thereof. A distinction is drawn by the authorities
between a subscription to the capital stock of the corporation after its organization and a sale of
shares by it. Whether a particular contract is a subscription or a sale of stock is a matter of
construction, and depends upon its terms and the intention of the parties. It has been held that a
subscription to stock in an existing corporation is, as between the subscriber and the corporation,
simply a contract of purchase and sale. (Bole vs. Fulton [1912], 233 Pa., 609; 2 Fletcher,
Cyclopedia of Corporations, pp. 1120 et seq.)
The allegation of the complaint is that defendant is a "subscriber." Exhibit A, on its face, purports to
be a "subscription for capital stock." The intention of the parties as gleaned from this contract was
undoubtedly to consider it as such.

Admitting, however, that the terminology of the agreement is not conclusive, and admitting that it is
a contract between a subscriber and the corporation, and thus simply a contract of purchase and
sale, then under the last hypothesis we have to determine if the contract is avoided by
misrepresentation.

Plaintiff's right of recovery rests exclusively upon the written agreement. The promise of Unson in
this agreement was to subscribe for ten shares of the capital stock, authorized capital P250,000, of
C.S. Salmon and Company. One of the essential conditions of this subscription or contract of sale
was that the authorized capital stock of the company was P250,000. As far as we are informed,
Unson would have never have put his name to the agreement if he had known that two weeks
before, the capital had been increased to P500,000. If knowledge of this increase had been
brought home to Unson before he signed, that would be a different question. But the record is
silent on this point. So should the contract be enforced. Unson would be required to take and pay
for a 1/500 part of the capital stock of Salmon, Dexter and Company, whereas his obligation was to
take and pay for a 1/250 part of the capital stock. Paraphrasing the United States Supreme Court
in the case of Chicago City Railway Company vs. Allerton ( [1874], 18 Wall., 233), a change in the
capital stock without the consent of the stockholder would make him a member of an association in
which he never consented to become such. "It would change the relative influence, control and
profit of each member."

In our opinion, a contract different from that which was entered into cannot be made for the parties
and imposed upon Unson. Unson has the right to stand upon the contract he has made. In our
opinion also, there was such a non-disclosure of a material fact as was equivalent to false
representation. This representation was of a character that the party to whom it was made had a
right to rely upon it.

For all the foregoing, the judgment must be reversed and another entered absolving the defendant
from the complaint. Without special pronouncement as to costs in either instance, it is so ordered.

G.R. No. L-52361 April 27, 1981

SUNSET VIEW CONDOMINIUM CORPORATION, petitioner,

vs.
THE HON. JOSE C. CAMPOS, JR. OF THE COURT OF FIRST INSTANCE, BRANCH XXX,
PASAY CITY and AGUILAR-BERNARES REALTY, respondents.

G.R. No. L-52524 April 27, 1981

SUNSET VIEW CONDOMINIUM CORPORATION, petitioner,

vs.
THE HON. JOSE C. CAMPOS, JR., PRESIDING JUDGE OF THE COURT OF FIRST INSTANCE,
BRANCH XXX, PASAY CITY, and LIM SIU LENG, respondents.

FERNANDEZ, J.:

These two cases which involve similar facts and raise Identical questions of law were ordered
consolidated by resolution of this Court dated March 17, 1980. 1

The petitioner, Sunset View Condominium Corporation, in both cases, is a condominium

corporation within the meaning of Republic Act No. 4726 in relation to a duly registered Amended
Master Deed with Declaration of Restrictions of the Sunset View Condominium Project located at
2230 Roxas Boulevard, Pasay City of which said petitioner is the Management Body holding title to
all the common and limited common areas. 2

G.R. NO. 52361

The private respondent, Aguilar-Bernares Realty, a sole proprietorship with business name
registered with the Bureau of Commerce, owned and operated by the spouses Emmanuel G.
Aguilar and Zenaida B. Aguilar, is the assignee of a unit, "Solana", in the Sunset View
Condominium Project with La Perla Commercial, Incorporated, as assignor. 3 The La Perla
Commercial, Incorporated bought the "Solana" unit on installment from the Tower Builders, Inc. 4
The petitioner, Sunset View Condominium Corporation, filed for the collection of assessments
levied on the unit against Aguilar-Bernares Realty, private respondent herein, a complaint dated
June 22, 1979 docketed as Civil Case No. 7303-P of the Court of First Instance of Pasay City,
Branch XXX. The private respondent filed a Motion to Dismiss the complaint on the grounds (1)
that the complaint does not state a cause of action: (2) that the court has no jurisdiction over the
subject or nature other action; and (3) that there is another action pending between the same
parties for the same cause. The petitioner filed its opposition thereto. The motion to dismiss was
granted on December 11, 1979 by the respondent Judge who opined that the private respondent
is, pursuant to Section 2 of Republic Act No. 4726, a "holder of a separate interest" and
consequently, a shareholder of the plaintiff condominium corporation; and that "the case should be
properly filed with the Securities & Exchange Commission which has exclusive original jurisdiction
on controversies arising between shareholders of the corporation." the motion for reconsideration
thereof having been denied, the petitioner, alleging grave abuse of discretion on the part of
respondent Judge, filed the instant petition for certiorari praying that the said orders be set aside.

G.R. NO. 52524

The petitioner filed its amended complaint dated July 16, 1979 docketed as Civil Case No. 14127
of Branch I of the City Court of Pasay City for the collection of overdue accounts on assessments
and insurance premiums and the interest thereon amounting to P6,168 06 as of March 31, 1979
against the private respondent Lim Siu Leng 5 to whom was assigned on July 11, 1977 a unit called
"Alegria" of the Sunset. View Condominium Project by Alfonso Uy 6 who had entered into a
"Contract to Buy and Sell" with Tower Builders, Inc. over the said unit on installment basis. 7
The private respondent filed a motion to dismiss on the ground of lack of jurisdiction, alleging that
the amount sought to be collected is an assessment. The correctness and validity of which is
certain to involve a dispute between her and the petitioner corporation; that she has automatically
become, as a purchaser of the condominium unit, a stockholder of the petitioner pursuant to
Section 2 of the Condominium Act, Republic Act No. 4726; that the dispute is intra-corporate and is
consequently under the exclusive jurisdiction of the Securities & Exchange Commission as
provided in Section 5 of P.D. No. 902-A. 8

The petitioner filed its opposition thereto, alleging that the private respondent who had not fully
paid for the unit was not the owner thereof, consequently was not the holder of a separate interest
which would make her a stockholder, and that hence the case was not an intra-corporate dispute. 9

After the private respondent had filed her answer to the opposition to the motion to dismiss 10 of the
petitioner, the trial court issued an order dated August 13, 1979 denying the motion to dismiss. 11
The private respondent's motion for reconsideration thereof was denied by the trial court in its
Order dated September 19, 1979. 12

The private respondent then appealed pursuant to Section 10 of Rule 40 of the Rules of Court to
the Court of First Instance, where the appeal was docketed as Civil Case No. 7530P. The petitioner
filed its "Motion to Dismiss Appeal" on the ground that the order of the trial court appealed from is
interlocutory. 13

The motion to dismiss the appeal was denied and the parties were ordered to submit their
respective memorandum on the issue raised before the trial court and on the disputed order of the
trial judge. 14 After the parties had submitted their respective memoranda on the matter, the
respondent Judge issued an order dated December 14, 1979 in which he directed that "the appeal
is hereby dismissed and d the judgment of the lower court is reversed. The case is dismissed and
the parties are directed to ventilate their controversy with the Securities & Exchange Commission.
15
The petitioner's motion for reconsideration thereof was denied in an order dated January 14,
1980. 16 Hence this petition for certiorari, alleging grave abuse of discretion on the part of the
respondent Judge.

Issues Common to Both Cases

It is admitted that the private respondents in both cases have not yet fully paid the purchase price
of their units. The Identical issues raised in both petitions are the following:

1. Is a purchaser of a condominium unit in the condominium project managed by the petitioner,

who has not yet fully paid the purchase price thereof, automaticaly a ,stockholder of the petitioner
Condominium Corporation

2. Is it the regular court or the Securities & Exchange Commission that has jurisdiction over cases
for collection of assessments assessed by the Condominium Corporation on condominium units
the full purchase price of which has not been paid?

The private respondents in both cases argue that every purchaser of a condominium unit,
regardless of whether or not he has fully paid the purchase price, is a "holder of a separate
interest" mentioned in Section 2 of Republic Act No. 4726, otherwise known as "The Condominium
Act" and is automatically a shareholder of the condominium corporation.

The contention has no merit. Section 5 of the Condominium Act expressly provides that the
shareholding in the Condominium Corporation will be conveyed only in a proper case. Said Section
5 provides:

Any transfer or conveyance of a unit or an apartment, office or other space therein,

shall include the transfer or conveyance of the undivided interests in the common
areas or, in a proper case, the membership or shareholding in the condominium
corporation ...

It is clear then that not every purchaser of a condominium unit is a shareholder of the condominium
corporation. The Condominium Act leaves to the Master Deed the determination of when the
shareholding will be transferred to the purchaser of a unit. Thus, Section 4 of said Act provides:

The provisions of this Act shall apply to property divided or to be divided into
condominium only if there shall be recorded in the Register of Deeds of the province
or city in which the property lies and duly annotated in the corresponding certificate of
title of the land ... an enabling or master deed which shall contain, among others, the
following:

xxx xxx xxx

(d) Astatement of the exact nature of the interest acquired or to be acquired by the
purchaser in the separate units and in the common areas of the condominium project
...

The Amended Master Deeds in these cases, which were duly registered in the Register of Deeds,
and which contain, by mandate of Section 4, a statement of the exact nature of the interest
acquired by a purchaser of a unit, provide in Section 6 of Part 1:

(d) Each Unit owner shall, as an essential condition to such ownership, acquire
stockholding in the Condominium Corporation herein below provided ... 17

The Amended Master Deeds likewise provide in Section 7 (b), thus.

(b) All unit owners shall of necessity become stockholders of the Condominium
Corporation. TOWER shall acquire all the shares of stock of SUNSET VIEW and
shall allocate the said shares to the units in proportion to the appurtenant interest in
the COMMON AREAS and LIMITED COMMON AREAS as provided in Section 6 (b)
above. Said shares allocated are mere appurtenances of each unit, and therefore,
the same cannot be transferred, conveyed, encumbered or otherwise disposed of
separately from the Unit ... 18

It is clear from the above-quoted provisions of the Master Deeds that the shareholding in the
Condominium Corporation is inseparable from the unit to which it is only an appurtenant and that
only the owner of a unit is a shareholder in the Condominium Corporation.
Subparagraph (a) of Part 1, Section 6, of the Master Deeds determines when and under what
conditions ownership of a unit is acquired by a purchaser thus:

(a) The purchaser of a unit shall acquire title or ownership of such Unit, subject to the
terms and conditions of the instrument conveying the unit to such purchaser and to
the terms and conditions of any subsequent conveyance under which the purchaser
takes title to the Unit, and subject further to this MASTER DEED ... 19

The instrument conveying the unit "Solana" in G.R. NO. 52361 is the "Contract to Buy and Sell"
dated September 13, 1977, Annex "D", while that conveying the unit "Alegria" in G.R. NO. 52524 is
the "Contract to Buy and Sell" dated May 12, 1976, Annex "C". In both deeds of conveyance, it is
provided:

4. Upon full payment by the BUYER of the total purchase price and full compliance
by the BUYER of an its obligations herein, the SELLER will convey unto the BUYER,
as soon as practicable after completion of the construction, full and absolute title in
and to the subject unit, to the shares of stock pertaining thereto and to an rights and
interests in connection therewith ... 20

The share of stock appurtenant to the unit win be transferred accordingly to the purchaser of the
unit only upon full payment of the purchase price at which time he will also become the owner of
the unit. Consequently, even under the contract, it is only the owner of a unit who is a shareholder
of the Condominium Corporation. Inasmuch as owners is conveyed only upon full payment of the
purchase price, it necessarily follows that a purchaser of a unit who has not paid the full purchase
price thereof is not The owner of the unit and consequently is not a shareholder of the
Condominium Corporation.

That only the owner of a unit is a stockholder of the Condominium Corporation is inferred from
Section 10 of the Condominium Act which reads:

SEC. 10. ... Membership in a condominium corporation, regardless of whether it is a

stock or non-stock corporation, shall not be transferable separately from the
condominium unit of which it is an appurtenance When a member or stockholder
ceases is to own a unit in the project in which the condominium corporation owns or
holds the common areas, he shall automatically cease to be a member or
stockholder of the condominium corporation.

Pursuant to the above statutory provision, ownership of a unit is a condition sine qua non to being
a shareholder in the condominium corporation. It follows that a purchaser of a unit who is not yet
the owner thereof for not having fully paid the full purchase price, is not a shareholder By
necessary implication, the "separate interest" in a condominium, which entitles the holder to
become automatically a share holder in the condominium corporation, as provided in Section 2 of
the Condominium Act, can be no other than ownership of a unit. This is so because nobody can be
a shareholder unless he is the owner of a unit and when he ceases to be the owner, he also
ceases automatically to be a shareholder.
The private respondents, therefore, who have not fully paid the purchase price of their units and
are consequently not owners of their units are not members or shareholders of the petitioner
condominium corporation,

Inasmuch as the private respondents are not shareholders of the petitioner condominium
corporation, the instant case for collection cannot be a "controversy arising out of intracorporate or
partnership relations between and among stockholders, members or associates; between any or
all of them and the corporation, partnership or association of which they are stockholders,
members or associates, respectively" which controversies are under the original and exclusive
jurisdiction of the Securities & Exchange Commission, pursuant to Section 5 (b) of P.D. No. 902- A.
The subject matters of the instant cases according to the allegations of the complaints are under
the jurisdiction of the regular courts: that of G.R. NO. 52361, which is for the collection of
P8,335.38 with interest plus attorney's fees equivalent to the principal or a total of more than
P10,000.00 is under the jurisdiction of the Court of First Instance; and that of G.R. NO. 52524,
which is for the collection of P6,168-06 is within the jurisdiction of the City Court.

In view of the foregoing, it is no longer necessary to resolve the issue raised in G.R. NO. 52524 of
whether an order of the City Court denying a motion to dismiss on the ground of lack of jurisdiction
can be appealed to the Court of First Instance.

WHEREFORE, the questioned orders of the respondent Judge dated December 11, 1979 and
January 4, 1980 in Civil Case No. 7303-P, subject matter of the Petition in G.R. No. 52361, are set
aside and said Judge is ordered to try the case on the merits. The orders dated December 14,
1979 and January 14, 1980 in Civil Case No. 7530-P, subject matter of the petition in G.R. No.
52524 are set aside and the case is ordered remanded to the court a quo, City Court of Pasay City,
for trial on the merits, with costs against the private respondents.

SO ORDERED.

G.R. No. L-11528 March 15, 1918

MIGUEL VELASCO, assignee of The Philippine Chemical Product Co. (Ltd.), plaintiff-
appellant,
vs.
JEAN M. POIZAT, defendant-appellee.

Vicente Rodriguez for appellant.

A. J. Burke for appellee.

STREET, J.:

From the amended complaint filed in this cause upon February 5, 1915, it appears that the plaintiff,
as assignee in insolvency of "The Philippine Chemical Product Company" (Ltd.) is seeking to
recover of the defendant, Jean M. Poizat, the sum of P1,500, upon a subscription made by him to
the corporate stock of said company. It appears that the corporation in question was originally
organized by several residents of the city of Manila, where the company had its principal place of
business, with a capital of P50,000, divided into 500 shares. The defendant subscribed for 20
shares of the stock of the company, an paid in upon his subscription the sum of P500, the par
value of 5 shares . The action was brought to recover the amount subscribed upon the remaining
shares.

It appears that the defendant was a stock holder in the company from the inception of the
enterprise, and for sometime acted as its treasurer and manager. While serving in this capacity he
called in and collected all subscriptions to the capital stock of the company, except the aforesaid 15
shares subscribed by himself and another 15 shares owned by Jose R. Infante.

Upon July 13, 1914, a meeting of the board of directors of the company was held at which a
majority of the stock was presented. Up[on this occasion two resolutions, important to be here
noted, were adopted. The first was a proposal that the directors, or shareholders, of the company
should make good by new subscriptions, in proportion to their respective holdings, 15 shares
which had been surrendered by Infante. It seems that this shareholder had already paid 25 per
cent of his subscription upon 20 shares, leaving 15 shares unpaid for, and an understanding had
been reached by him and the management by which he was to be released from the obligation of
his subscription, it being understood that what he had already paid should not be refunded.
Accordingly the directors present at this meeting subscribed P1,200 toward taking up his shares,
leaving a deficiency of P300 to be recovered by voluntary subscriptions from stockholders not
present at the meeting.

The other proposition was o the effect that Juan [Jean] M. Poizat, who was absent, should be
required to pay the amount of his subscription upon the 15 shares for which he was still indebted to
the company. The resolution further provided that, in case he should refuse to make such payment,
the management of the corporation should be authorized to undertake judicial proceedings against
him. When notification of this resolution reached Poizat through the mail it evoked from him a
manifestation of surprise and pain, which found expression in a letter written by him in reply, dated
July 27, 1914, and addressed to Velasco, as treasurer and administrator. In this letter Poizat states
that he had been given to understand by some member of the board of directors that he was to be
relieved from his subscription upon the terms conceded to Infante; and he added:

My desire to be relieved from the payment of the remaining 75 per cent arises from the poor
opinion which I entertain of the business and the faint hope of ever recovering any money
invested. In consequence, I prefer to lose the whole of the 25 per cent I have already paid
rather than to continue investing more money in what I consider to be ruinous proposition.

Within a short while the unfavorable opinion entertained by Poizat as to the prospect of the
company was found to be fully justified, as the company soon went into voluntary insolvency,
Velasco being named as the assignee. He qualified at once by giving bond, and was duly inducted
into the office of assignee upon November 25, 1914, by virtue of a formal transfer executed by the
clerk in pursuance of section 32 of Act No. 1956.

The answer of the defendant consisted of a general denial and a so-called special defense,
consisting of a concatenation of statements more appropriate for a demurrer than as material for a
special defense. The principal contention is that the call made by the board of directors of the
company on July 13, 1914 , was not made pursuant to the requirements of sections 37 and 38 of
the Corporation Law (Act No. 1459), and in particular that the action was instituted before the
expiration of the 30 days specified in section 38.
At the hearing of the Court of First Instance, judgment was rendered in favor of the defendant, and
the complaint was dismissed. From this action the plaintiff has appealed.

We think that Poizat is liable upon this subscription. A stock subscription is a contract between the
corporation on one side, and the subscriber on the other, and courts will enforce it for or against
either. It is a rule, accepted by the Supreme Court of the United States, that a subscription for
shares of stock does not require an express promise to pay the amount subscribed, as the law
implies a promise to pay on the part of the subscriber. (7 Ruling Case Law, sec. 191.) Section 36 of
the Corporation Law clearly recognizes that a stock subscription is subsisting liability from the time
the subscription is made, since it requires the subscriber to pay interest quarterly from that date
unless he is relieved from such liability by the by-laws of the corporation. The subscriber is as
much bound to pay the amount of the share subscribed by him as he would be to pay any other
debt, and the right of the company to demand payment is no less incontestable.

The provisions of the Corporation Law (Act No. 1459) given recognition of two remedies for the
enforcement of stock subscriptions. The first and most special remedy given by the statute consists
in permitting the corporation to put up the unpaid stock for sale and dispose of it for the account of
the delinquent subscriber. In this case the provisions of section 38 to 48, inclusive , of the
Corporation Law are applicable and must be followed. The other remedy is by action in court,
concerning which we find in section 49 the following provision:

Nothing in this Act shall prevent the directors from collecting, by action in any court of proper
jurisdiction, the amount due on any unpaid subscription, together with accrued interest and
costs and expenses incurred.

It is generally accepted doctrine that the statutory right to sell the subscriber's stock is merely a
remedy in addition to that which proceeds by action in court; and it has been held that the ordinary
legal remedy by action exists even though no express mention thereof is made in the statute.
(Instone vs. Frankfort Bridge Co., 2 Bibb [Ky.], 576; 5 Am. Dec., 638.)

No attempt is made in the Corporation Law to define the precise conditions under which an action
may be maintained upon a stock subscription, as such conditions should be determined with
reference to the rules governing contract liability in general; and where it appears as in this case
that a matured stock subscription is unpaid, none of the provisions contained in section 38 to 48,
inclusive, of Act No. 1459 can be permitted to obstruct or impede the action to recover thereon. By
virtue of the first subsection of section 36 of the Insolvency Law (Act No. 1956) the assignee of the
insolvent corporation succeeds to all the corporate rights of action vested in the corporation prior to
its insolvency; and the assignee therefore has the same freedom with respect to suing upon the
stock subscription as the directors themselves would have had under section 49 above cited.

But there is another reason why the present plaintiff must prevail in this case, even supposing that
the failure of the directors to comply with the requirements of the provisions of sections 38 to 48,
inclusive, of Act No. 1459 might have been an obstacle to a recovery by the corporation itself. That
reason is this: When insolvency supervenes upon a corporation and the court assumes jurisdiction
to wind up, all unpaid stock subscriptions become payable on demand, and are at once
recoverable in an action instituted by the assignee or receiver appointed by the court. This rule
apparently had origin in a recognition of the principle that a court of equity, having jurisdiction of the
insolvency proceedings, could, if necessary, make the call itself, in its capacity as successor to the
powers exercised by the board of directors of the defunct company. Later a further rule gained
recognition to the effect that the receiver or assignee, in an action instituted by proper authority,
could himself proceed to collect the subscription without the necessity of any prior call whatever.
This conclusion is well supported by reference to the following authorities:

. . . a court of equity may enforce payment of the stock subscriptions, although there have
been no calls for them by the company. (Hatch vs. Dana, 101 U. S., 205.)

It is again insisted that the plaintiffs cannot recover because the suit was not preceded by a
call or assessment against no right of action accrues. In a suit by a solvent going
corporation to collect a subscription, and in certain suits provided by the statute this would
be true; but it is now quite well settled that when the corporation becomes insolvent, with
proceedings instituted by creditors to wind up and distribute its assets, no call or
assessment is necessary before the institution of suits to collect unpaid balances on
subscription. (Ross-Meehan Shoe F. Co. vs. Southern Malleable Iron Co., 72 Fed., 957,
960; see also Henry vs. Vermillion etc. R. R. Co., 17 Ohio, 187, and Thompson on
Corporations 2d ed., vol. 3, sec. 2697.)

It evidently cannot be permitted that a subscriber should escape from his lawful obligation by
reason of the failure of the officers of the corporation to perform their duty in making a call; and
when the original model of making the call becomes impracticable, the obligation must be treated
as due upon demand. If the corporation must be treated still an active entity, and this action should
be dismissed for irregularity in the making of the call, other steps could be taken by the board to
cure the defect and another action could be brought; but where the company is being wound up,
no such procedure would be practicable. The better doctrine is that when insolvency supervenes
all unpaid subscriptions become at once due and enforceable.

The printed bill of exceptions in this cause does not contain the original complaint, nor does it state
who was plaintiff therein or the date when the action was instituted. It may, however, be gathered
from the papers transmitted to this court that the action was originally instituted in the name of the
Philippine Chemical Product Co. (Ltd.), prior to its insolvency, and that later the assignee was
substituted as plaintiff and then filed the amended complaint, with the permission of the court. Now,
if we concede that no right of action existed when the original complaint was filed, a right of action
certainly existed when the assignee filed his amended complaint; and as the bill of exceptions fails
to show that any exception was taken to the action of the court in allowing the amended complaint
to be filed, no objection would be here entertained on the ground that the action was prematurely
brought.

The circumstance that the board of directors in their meeting of July 13, 1914, resolved to release
Infante from his obligation upon a subscription for 15 shares is no wise prejudicial to the right of the
corporation or its assignee to recover from Poizat upon a subscription made by him. In releasing
Infante the board transcended its powers, and he no doubt still remained liable on such of his
shares as were not taken up and paid for by other persons.

The general doctrine is that the corporation has no legal capacity to release an original
subscriber to its capital stock from the obligation of paying for his shares, in whole or in part,
. . . (10 Cyc., 450.)
The suggestion contained in Poizat's letter of July 27, 1914, to the effect that he understood that
he was to be relieved upon the same terms as Infante is, for the same reason, of no merit as
matter of defense, even if an agreement to that effect had been duly proved.

From what has been said it is manifest that the defendant is liable for P1,500, the amount of his
subscription upon the unpaid shares. Under section 36 of the Corporation Law he is also liable for
interest at the lawful rate from the date of his subscription, unless relieved from this liability by the
by-laws of the company. These by-laws have not been introduced in evidence and there is no proof
showing the exact date upon which the subscription was made, though it is alleged in the original
complaint that the company was organized upon March 23, 1914. This allegation is not admitted in
the agreed statement of facts. The defendant, however, inferentially admits in his letter of July 27,
1914, that his subscription had been made prior to July 13, 1914. It resulted that in our opinion he
should be held liable for interest from that date.

The judgment of the lower court is therefore reversed, and judgment will be rendered in favor of
the plaintiff and against the defendant for the sum of one thousand five hundred pesos (P1,500),
with interest from July 13, 1014, and costs of both instances. So ordered.