G.R. No.

L-19893 March 31, 1923

ARNALDO F. DE SILVA, plaintiff-appellant,

vs.
ABOITIZ & COMPANY, INC., defendant-appellee.

Del Rosario and Del Rosario and Andres Jayme for appellant.
Rodriguez and Zacarias for appellee.

ARAULLO, C. J.:

The plaintiff subscribed for 650 shares of stock of the defendant corporation of the value of P500
each, of which he has paid only the total value of 200 shares, there remaining 450 shares unpaid, for
which he was indebted to the corporation in the sum of P225,000, the value thereof. On April 22,
1922, he was notified by the secretary of the corporation of a resolution adopted by the board of
directors of the corporation on the preceding day, declaring the unpaid subscriptions to the capital
stock of the corporation to have become due and payable on the following May 31st at the office
thereof, the payment to be made to the treasurer, and stating that all such shares as may have not
been paid then, with the accrued interest up to that date, will be declared delinquent, advertised for
sale at public auction, and sold on the following June 16th, for the purpose of paying up the amount
of the subscription and accrued interest, with the expenses of the advertisement and sale, unless
said payment was made before. The proper advertisement having been published, as announced in
the aforesaid notice, the plaintiff filed a complaint in the Court of First Instance of Cebu on May 5th
of the same year against the said corporation, wherein, after relating the above-mentioned facts, he
prayed for a judgment in his favor, decreeing that, in prescribing another method of paying the
subscription to the capital stock different from that provided in article 46 of its by-laws, in declaring
the aforesaid 450 shares delinquent, and in directing the sale thereof, as advertised, the corporation
had exceeded its executive authority, and as a consequence thereof he asked that a writ of
injunction be issued against the said defendant, enjoining it from taking any further action of
whatever nature in connection with the acts complained of and that it pay the costs of this suit.

The plaintiff alleged as the grounds of his petition: (1) That, according to aforesaid article 46 of the
by-law of the corporation, which was inserted in the complaint, all the shares subscribed to by the
incorporation that were not paid for at the time of the incorporation, shall be paid out of the 70 per
cent of the profit obtained, the same to be distributed among the subscribers, who shall not receive
any dividend until said shares were paid in full; (2) that in declaring the plaintiff's unpaid subscription
to the capital stock to have become due and payable on May 31st, and in publishing the aforesaid
notice declaring his unpaid shares delinquent, the defendant corporation has violated the aforesaid
article, which prescribes an operative method of paying for the shares continuously until their full
amortization, thus violating and disregarding a right of the plaintiff vested under the said by-laws; (3)
that the aforesaid acts of the defendant corporation were in excess of its powers and executive
authority and the plaintiff had no other plain, speedy and adequate remedy in the ordinary course of
law than that prayed for in the said complaint, to prevent the defendant from taking any further action
in connection with the sale and alienation of the said shares.

A preliminary injunction having been issued against the defendant, as prayed for by the plaintiff,
upon the giving of the proper bond, and the defendant having been summoned, the latter filed a
demurrer to the complaint on the ground that the facts alleged therein did not constitute a cause of
action, and that even supposing the plaintiff to have any lawful claim against the defendant
corporation, the special remedy applied for by the plaintiff was not the most adequate and speedy.
Hearing having been had the court below by an order dated September 21, 1922, sustained the
aforesaid demurrer on the first ground, giving the plaintiff five days within which to amend his
complaint, but the said period having elapsed without the plaintiff having amended his complaint,
upon motion of the defendant, that court, by an order dated the 2d of the following month of October,
dismissed the complaint and ordered the dissolution of the preliminary injunction previously issued,
with costs, to which orders the plaintiff excepted, asking at the same time for the annulment thereof
and a new hearing, which motion was denied by the lower court. To that ruling the plaintiff also
excepted, and brought the case to this court by the proper bill of exceptions.

Assuming the truth of the facts alleged in the complaint filed against the herein defendant, as the
filling of a demurrer to a complaint is made on that assumption, the question to be decided reduces
itself to determining whether or not, under the provision of article 46 of the by-laws of the defendant
corporation, the latter may declare the unpaid shares delinquent, or collect their value by another
method different from that prescribed in the aforecited article.

Said article reads thus:

ART. 46. The net profit resulting from the annual liquidation shall be distributed as follows:
Ten per cent (10%) for the Board of Directors and in the manner prescribed in article twenty-
six (26) of these by-laws; ten per cent (10%) for the general manager; ten per cent (10%) for
the reserve fund, and seventy per cent (70%) for the shareholders in equal parts; Provided,
however, That from this seventy per cent dividend the Board of Directors may deduct such
amount as it may deem fit for the payment of the unpaid subscription to the capital stock and
not pay any dividend to the holders of the said unpaid shares until they are fully
paid; Provided, further, That when all the shares have been paid in full as provided in the
preceding paragraph, the Board of Directors may also deduct such amount as it may deem
fit for the creation of an emergency special fund, or extraordinary reserve fund when in its
judgment the same may convenient for the development of the business of the corporation or
for meeting any such contingencies as may arise from its operation, whenever the
distributable dividend is found, after the foregoing deduction, to be not less than ten per cent
(10%) of the paid up capital stock.

No dividend shall be declared or paid, except when there remains a net profit after the
payment of all the expenses incurred, or allowances made, by the corporation to carry out
the operation of its business; so that no such dividend may be declared as may affect the
capital of the corporation.

As will be seen from the context of the said article, its first part specifies the manner in which the net
profit from the annual liquidation should be distributed, fixing a certain per cent for the board of
directors; another for the general manager; another for the reserve fund, and the remaining 70 per
cent to be distributed in equal parts among the shareholders. But it authorizes or empowers the
board of directors to collect the value of the shares subscribed to and not fully paid by deducting
from the 70 per cent, distributable in equal parts among the shareholders, such amount as may be
deemed convenient, to be applied on the payment of the said shares, and not to pay the subscriber
until the same are fully paid up. In no other way can the words "Provided, however, that from this
seventy per cent dividend the board of directors may deduct such amount as it may deem fit for the
payment, etc." And this is so clear that in that same article the board of directors is also authorized to
create a special emergency fund or extraordinary reserve fund, when, in its judgment, and in case all
the shares subscribed to have been fully paid, the same is convenient for the development of the
business of the corporation or for meeting any such contingencies as my arise from its operation,
applying said 70 per cent of the profit on the payment of the shares that may have not been fully
paid, provided that the distributable dividend remaining after the deduction to be made for the
creation of the said special emergency fund or extraordinary reserve fund is not less than 10 per
cent of the capital actually paid. So that it is discretionary on the part of the board of directors to do
whatever is provided in the said article relative to the application of a part of the 70 per cent of the
profit distributable in equal parts on the payment of the shares subscribed to and not fully paid, and
to the creation of a special emergency fund or extraordinary reserve fund; and the fact itself that said
special fund may not be created when the dividend appearing to be distributable, after deducting
from the said 70 per cent the amount to be applied on the payment of the unpaid subscription, is less
than 10 per cent of the capital actually paid, shows that it is the board of directors and not the
delinquent subscriber that may and must judge and decide whether or not such value must be paid
out of a part of the 70 per cent of the profit distributable in equal parts among the shareholders, as
provided in the first part of the said article. It lies therefore, within the discretion of the board of
directors to make use of such authority.

If the board of directors does not wish to make, or does not make, use of said authority it has two
other remedies for accomplishing the same purpose. As was said by this court in the case
of Velasco vs. Poizat (37 Phil., 802):

The first and most special remedy given by the statute consists in permitting the corporation
to put the unpaid stock for sale and dispose of it for the account of the delinquent subscriber.
In this case the provisions of sections 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 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."

In the instant case the board of directors of the defendant corporation elected to avail itself of the
first of said two remedies, and, complying strictly with the provisions of sections 37 to 49, inclusive,
of the aforesaid Corporation Law, which is binding upon it and its stockholders. it being an artificial
entity created by virtue of that same law (sec. 2), the board of directors made use of the
discretionary power granted to it by that law and declared that payment of plaintiff's subscription to
450 shares which had not been paid by him was due, and that said shares were delinquent, and
performed all the other acts subsequent to said declaration that are mentioned in the complaint, as it
did not deem it advantageous to the corporation to apply on the payment of said shares, as was
authorized by the by-law, a part of the profit that was, or might have been realized, and was
distributable among the stockholders in equal parts, as to the existence of which profit no allegation
is made in the complaint, or to enforce payment of such shares by bringing in court the proper action
against the debtor or delinquent stockholders. It is, however, alleged by the appellant that the by-law
of the corporation being of the nature of a contract between it and its stockholders or members, and
article 46 of the by-laws of the said corporation providing an operative method for the payment of
stock subscriptions continuously until the full amortization thereof, application cannot be made in the
present case of the provisions above cited of the Corporation Law for the purpose contemplated by
the defendant, as the provision of said article must prevail against that law.

Admitting that the provision of article 46 of the said by-laws maybe regarded as a contract between
the defendant corporation and its stockholders , yet as it is only to the board of directors of the
corporation that said articles gives the authority or right to apply on the payment of unpaid
subscriptions such amount of the 70 per cent of the profit distributable among the shareholders in
equal parts as may be deemed fit, it cannot be maintained that the said article has prescribe an
operative method for the payment of said subscription continuously until their full amortization, or,
what would be the same thing, that said article has prescribe that sole and exclusive method for that
purpose, for, in the first place, the adoption of that method for the purpose of collecting the value of
subscriptions due and unpaid lies, according to said article, within the discretion of the board of
directions, that is, it is subject to this condition, and this can in no way be reconciled with the idea of
method, which implies something fixed as a rule or permanent standard, and not variable at the will
of somebody and according to the circumstances; and, in the second place, in connection with the
provision of the said article relative to the aforesaid discretionary power of the board of directors to
adopt that method, there is also the discretionary power granted the same board of directors to avail
itself, for the same purpose, to either of the two remedies prescribed in sections 38 to 49, inclusive,
of the aforecited Corporation Law.

In the instant case, the defendant corporation, through its board of directors, made use of its
discretionary power, taking advantage of the first of the two remedies provided by the aforesaid law.
On the other hand, the plaintiff has no right whatsoever under the provision of the above cited article
46 of the said by-laws to prevent the board of directors from following, for that purpose, any other
method than that mentioned in the said article, for the very reason that the same does not give the
stockholders any right in connection with the determination of the question whether or not there
should be deducted from the 70 per cent of the profit distributable among the stockholders such
amount as may be deemed fit for the payment of subscriptions due and unpaid. Therefore, it is
evident that the defendant corporation has not violated, nor disregarded any right of the plaintiff
recognized by the said by-laws, nor exceeded its authority in the discharge of its executive functions,
nor abused its discretion when it performed the acts mentioned in the complaint as grounds thereof,
and, consequently, the facts therein alleged do not constitute a cause of action.

For the foregoing, the orders appealed from are affirmed, with the costs of both instances against
the appellant. So ordered.

Street, Malcolm, Avanceña, Ostrand, Johns, and Romualdez, JJ., concur.

 [G.R. No. 118043. July 23, 1998]

LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now

JARDINE-CMG LIFE INSURANCE CO. INC.), petitioner, vs.
COURT OF APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.

DECISION
MENDOZA, J.:

This is a petition for review on certiorari of the decision rendered on November 18,
1994 by the Court of Appeals[1] reversing, in part, the decision of the Court of Tax
Appeals in C.T.A.Case No. 4583.
The facts are not in dispute.[2] Petitioner, now the Jardine-CMG Life Insurance
Company, Inc., is a domestic corporation engaged in the life insurance business. In
1984, it issued 50,000 shares of stock as stock dividends, with a par value of P100 or a
total of P5 million. Petitioner paid documentary stamp taxes on each certificate on the
basis of its par value. The question in this case is whether in determining the amount to
be paid as documentary stamp tax, it is the par value of the certificates of stock or the
book value of the shares which should be considered. The pertinent provision of law, as
it stood at the time of the questioned transaction, reads as follows:

SEC. 224. Stamp tax on original issues of certificates of stock. -- On every

original issue, whether on organization, reorganization or for any lawful
purpose, of certificates of stock by any association, company or corporation,
there shall be collected a documentary stamp tax of one peso and ten
centavos on each two hundred pesos, or fractional part thereof, of the par
value of such certificates: Provided, That in the case of the original issue of
stock without par value the amount of the documentary stamp tax herein
prescribed shall be based upon the actual consideration received by the
association, company, or corporation for the issuance of such stock, and in
the case of stock dividends on the actual value represented by each share. [3]

The Commissioner of Internal Revenue took the view that the book value of the
shares, amounting to P19,307,500.00, should be used as basis for determining the
amount of the documentary stamp tax. Accordingly, respondent Internal Revenue
Commissioner issued a deficiency documentary stamp tax assessment in the amount
of P78,991.25 in excess of the par value of the stock dividends.
 Together with another documentary stamp tax assessment which it also questioned,
petitioner appealed the Commissioners ruling to the Court of Tax Appeals. On March
30, 1993, the CTA rendered its decision holding that the amount of the documentary
stamp tax should be based on the par value stated on each certificate of stock. The
dispositive portion of its decision reads:

WHEREFORE, the deficiency documentary stamp tax assessments in the

amount of P464,898.76 and P78,991.25 or a total of P543,890.01 are hereby
cancelled for lack of merit.Respondent Commissioner of Internal Revenue is
ordered to desist from collecting said deficiency documentary stamp taxes for
the same are considered withdrawn.

SO ORDERED.

In turn, respondent Commissioner of Internal Revenue appealed to the Court of

Appeals which, on November 18, 1994, reversed the CTAs decision and held that, in
assessing the tax in question, the basis should be the actual value represented by the
subject shares on the assumption that stock dividends, being a distinct class of shares,
are not subject to the qualification in the law as to the type of certificate of stock used
(with or without par value). The appellate court, therefore, ordered:

IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby

REVERSED with respect to the deficiency tax assessment on the stock
dividends, but AFFIRMED with regards to the assessment on the Insurance
Policies. Consequently, private respondent is ordered to pay the petitioner
herein the sum of P78,991.25, representing documentary stamp tax on the
stock dividends it issued. No costs pronouncement.

SO ORDERED.

Hence, this petition with the following assignment of error:

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT

STOCK DIVIDENDS INVOLVING SHARES WITH PAR VALUE ARE
SUBJECT TO DOCUMENTARY STAMP TAX BASED ON THE BOOK
VALUE OF SAID SHARES WHICH RULING IS CONTRARY TO WHAT
IS CLEARLY PROVIDED FOR BY SECTION 224 (NOW SECTION 175)
OF THE TAX CODE.

The petition has merit.

First. In ruling that the book value of the shares should be considered in assessing
the documentary stamp tax, the Court of Appeals stated:
There are three (3) classes of stocks referred to in Section 224 (now 175) of
the Internal Revenue Code: (a) Certificate of Stocks with par value,
(b) Certificate of Stock with no par valueand (c) stock dividends. The first two
(2) mentioned are original issuances of the corporation, association or
company while the third ones are taken by the corporation, association or
company out of or from their unissued shares of stock, hence are also
originals. Undoubtedly, all the three classifications are subject to the
documentary stamp tax.

Conformably, in the case of stock certificates with par value, the documentary
stamp tax is based on the par value of the stock; for stock certificates without
par value, the same tax is computed from the actual consideration received by
the corporation, association or company; but for stock dividends, documentary
stamp tax is to be paid on the actual value represented by each share.

Since in dividends, no consideration is technically received by the corporation,

petitioner is correct in basing the assessment on the book value thereof
rejecting the principles enunciated in Commissioner of Internal Revenue vs.
Heald Lumber Co. (10 SCRA 372) as the said case refers to purchases of no-
par certificates of stocks and not to stock dividends. [4]

Apparently, the Court of Appeals treats stock dividends as distinct from ordinary
shares of stock for purposes of the then 224 of the National Internal Revenue Code.
There is, however, no basis for considering stock dividends as a distinct class from
ordinary shares of stock since under this provision only certificates of stock are required
to be distinguished (into either one with par value or one without) rather than the
classes of shares themselves.
Indeed, a reading of the then 224 of the NIRC as quoted earlier, starting from its
heading, will show that the documentary stamp tax is not levied upon the shares of
stock per se but rather on the privilege of issuing certificates of stock.
A stock certificate is merely evidence of a share of stock and not the share
itself. This distinction is clear in the Corporation Code, to wit:

SEC. 63. Certificate of stock and transfer of shares. - The capital stock of
stock corporations shall be divided into shares for which certificates signed by
the president or vice-president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall be issued in
accordance with the by-laws. 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 the
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.

No shares of stock against which the corporation holds any unpaid claim shall
be transferable in the books of the corporation. [5]

Stock dividends are in the nature of shares of stock, the consideration for which is
the amount of unrestricted retained earnings converted into equity in the corporations
books.[6] Thus,

A stock dividend is any dividend payable in shares of stock of the corporation

declaring or authorizing such dividend. It is, what the term itself implies, a
distribution of the shares of stock of the corporation among the stockholders
as dividends. A stock dividend of a corporation is a dividend paid in shares of
stock instead of cash, and is properly payable only out of surplus profits. So, a
stock dividend is actually two things: (1) a dividend and (2) the enforced use
of the dividend money to purchase additional shares of stock at par... [7]

From the foregoing, it is clear that stock dividends are shares of stock and not
certificates of stock which merely represent them. There is, therefore, no reason for
determining the actual value of such dividends for purposes of the documentary stamp
tax if the certificates representing them indicate a par value.
The Solicitor General himself says that, based on the then 224, there are only two
bases for determining the amount of the documentary stamp tax:

An examination of the structure of the main provision of Sec. [224] of the

NIRC will show that it intends to classify the tax bases into two, either the par
value, or the actual consideration or actual value. It specifies in the first part
that the basis for the imposition of the documentary stamp tax on shares of
stocks belonging to the first category, discussed in the early part of this
comment, shall be the face value. In contradistinction, the provision specifies
in the proviso that for the second and third categories, the basis for the tax
shall not be the face value. Rather, the basis is either the actual consideration
received by the corporation for the share or the actual value of the share. [8]

Apparently, the former tax code sought to distinguish between stock dividends
without par value and other transactions involving ordinary shares of stock without par
value in the second clause of the then 224 in order to prevent claims that the former are
exempt from documentary stamp taxes as, unlike in the case of ordinary shares,
corporations actually receive nothing from their stockholders in exchange for such stock
dividends. Hence the provision that, in the case of stock dividends, the amount of the
documentary stamp tax must be based on the actual value of each share. This is the
only purpose for the distinction in the second clause of the subject provision.
 Second. It is error for the Solicitor General to contend that, under the then 224 of
the NIRC, the basis for assessment is the actual value of the business transaction that
is the source of the original issuance of stock certificates.[9] To the contrary, the
documentary stamp tax here is not levied upon the specific transaction which gives rise
to such original issuance but on the privilege of issuing certificates of stock. As we have
held in several cases:

A documentary stamp tax is in the nature of an excise tax. It is not imposed

upon the business transacted but is an excise upon the privilege, opportunity
or facility offered at exchanges for the transaction of the business. It is an
excise upon the facilities used in the transaction of the business separate and
apart from the business itself. (Du Pont v. U.S., 300 U.S. 150; Thomas v.
U.S., 192 U.S., 363; Nicol v. Ames, 173 U.S. 509). With respect to stock
certificates, it is levied upon the privilege of issuing them; not on the money or
property received by the issuing company for such certificates. Neither is it
imposed upon the share of stock. As Justice Learned Hand pointed out in one
case, documentary stamp tax is levied on the document and not on the
property which it described. (Empire Trust co. v. Hoey, 103 F 2d. 430). . . . [10]

Third. Settled is the rule that, in case of doubt, tax laws must be construed strictly
against the State and liberally in favor of the taxpayer. This is because taxes, as
burdens which must be endured by the taxpayer, should not be presumed to go beyond
what the law expressly and clearly declares.[11] That such strict construction is
necessary in this case is evidenced by the change in the subject provision as presently
worded, which now expressly levies the said tax on shares of stock as against the
privilege of issuing certificates of stock as formerly provided:

SEC. 175. Stamp Tax on Original Issue of Shares of Stock. - On every original
issue, whether on organization, reorganization or for any lawful purpose,
of shares of stock by any association, company or corporation, there shall be
collected a documentary stamp tax of Two pesos (P2.00) on each Two
hundred pesos (P200), or fractional part thereof, of the par value, of such
shares of stock: Provided, That in the case of the original issue of shares of
stock without par value the amount of the documentary stamp tax herein
prescribed shall be based upon the actual consideration for the issuance of
such shares of stock: Provided, further, That in the case of stock dividends, on
the actual value represented by each share. [12]

WHEREFORE, the decision of the Court of Appeals is REVERSED insofar as the

deficiency tax assessment on stock dividends is concerned and the decision of the
Court of Tax Appeals is reinstated.
SO ORDERED.
G.R. No. L-4824 June 30, 1953

LINGAYEN GULF ELECTRIC POWER COMPANY, INC., plaintiff-appellant,

vs.
IRINEO BALTAZAR, defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-6244 June 30, 1953

LINGAYEN GULF ELECTRIC POWER COMPANY, INC., plaintiff-appellee,

vs.
IRINEO BALTAZAR, defendant and appellant.

Manuel L. Fernandez for appellant.

Sofronio C. Quimson and daniel C. Macaraeg for appellee.

MONTEMAYOR, J.:

These two cases here on appeal stem from the same case, that of civil case No. 10944 of the Court
of First Instance of Pangasinan. From the trial court's decision, plaintiff Lingayen Gulf Electric Power
Company, Inc. appealed directly to this court under G.R. No. L-4824. Defendant Irineo Baltazar
appealed to the Court of Appeals. By a resolution of that appellate tribunal, the appeal was certified
to this court pursuant to section 17, (5) and (6) of the Judiciary Act of 1948, and is now listed here
under G.R. No. L-6344.

The main facts of the case are not disputed, and we are reproducing and making our own the
relation of facts contained in the decision appealed from.

The plaintiff, Lingayen Gulf Electric Power Company is a domestic corporation with an authorized
capital stock of P300,000 divided into 3,000 shares with a par value of P100 per share. The
defendant, Irineo Baltazar appears to have subscribed for 600 shares on account of which he had
paid upon the organization of the corporation the sum of P15,000. (See Exhibit A, page 2). After
incorporation, the defendant made further payments on account of his subscription, leaving a
balance of P18,500 unpaid for, which amount, the plaintiff now claims in this action.

On July 23, 1946, a majority of the stockholders of the corporation, among them the herein
defendant, held a meeting and adopted stockholders' resolution No. 17. By said resolution, it was
agreed upon by the stockholders present to call the balance of all unpaid subscribed capital stock as
of July 23, 1946, the first 50 per cent payable within 60 days beginnning August 1, 1946, and the
remaining 50 per cent payable within 60 days beginning October 1, 1946. The resolution also
provided, that all unpaid subscription after the due dates of both calls would be subject to 12 per
cent interest per annum. Lastly, the resolution provided, that after the expiration of 60 days' grace
which would be on December 1, 1946, for the first call, and on February 1, 1947, for the second call,
all subscribed stocks remaining unpaid would revert to the corporation. (See Exhibit F and Exhibit I).

On September 22, 1946, the plaintiff corporation wrote a letter to the defendant reminding him that
the first 50 per cent of his unpaid subscription would be due on October 1, 1946. The plaintiff
requested the defendant to "kindly advise the company thru the undersigned your decision regarding
this matter." (See Exhibit 4). The defendant answered on September 25, 1946, asking the
corporation that he be allowed to pay his unpaid subscription by February 1, 1947. In his answer, the
defendant also agreed that if he could not pay the balance of his subscription by February 1, 1947,
his unpaid subscription would be reverted to the corporation. (See Exhibit 5).

On December 19, 1947, the defendant wrote another letter to the members of the Board of Directors
of the plaintiff corporation, offering to withdraw completely from the corporation by selling out to the
corporation all his shares of stock in the total amount of P23,000. (See Exhibit 8). Apparently this
offer of the defendant was left unacted upon by the plaintiff.

On April 17, 1948, the Board of Directors of the plaintiff corporation held a meeting, and in the
course of the said meeting they adopted Resolution No. 17. This resolution in effect set aside the
stockholders resolution approved on June 23, 1946 (Exhibit D), on the ground that said stockholders'
resolution was null and void, and because the plaintiff corporation was not in a financial position to
absorb the unpaid balance of the subscribed capital stock. At the said meeting the directors also
decided to call 50 per cent of the unpaid subscription within 30 days from April 17, 1948, the call
payable within 60 days from receipt of notice from the Secretary-Treasurer. This resolution also
authorized legal counsel of the company to take all the necessary legal steps for the collection of the
payment of the call. (See Exhibit E-2).

On June 10, 1949, the stockholders of the corporation held another meeting in which the
stockholders were all present, either in person or by proxy. At such meeting, the stockholders
adopted resolution No. 4, whereby it was agreed to revalue the stocks and assets of the company so
as to attract outside investors to put in money for the rehabilitation of the company. The president
was authorized to make all arrangement for such appraisal and the Secretary to call a meeting upon
completion of the reassessment. (See Exhibit 2).

It was admitted by the defendant that he received notice from the Secretary-Treasurer of the
company, demanding payment of the unpaid balance of his subscription. It was agreed by the
parties that the call of the Board of Directors was not published in a newspaper of general circulation
as required by section 40 of the Corporation Law.

On September 28, 1949, the legal counsel of the plaintiff corporation wrote a letter to the defendant,
demanding the payment of the unpaid balance of his subscription amounting to P18,500. Copy of
this letter was sent by registered mail to the defendant on September 29,1 949. (See Exhibit G). The
defendant ignored the said demand. Hence this action.

The defendant, in his answer, disclaims liability tot he plaintiff corporation on the following grounds:

1. That the plaintiffs' action is premature because there was no valid call; and

2. That granting that there was a valid call, he was released from the obligation of the balance of his
subscription by stockholders' resolution No. 17 and No. 4.

By way of counterclaim, the defendant also claims from the plaintiff a reasonable compensation at
the rate of P700 per month as president of the company, for the period from March 1, 1946 to
December 31, 1948.

In the light of the foregoing undisputed facts, the only questions are as follows:

1. Was the call Exhibit E-2 valid?

2. Was the defendant released from the obligation of the unpaid balance of his subscription by virtue
of stockholders' resolution Nos. 17 and 4?

3. Is the defendant entitled to compensation as president of the plaintiff corporation?

In an exhaustive and well prepared decision, Judge M. Mejia of the lower court found that the call for
payment embodied in resolution No. 17 of July 23, 1946 was null and void for lack of publication;
consequently, he dismissed the complaint as premature. He further held said resolution null and void
in so far as it tried to relieve the defend- ant from liability on his unpaid subscription, on the ground
that the resolution was not approved by all the stockholders of the corporation. He also dismissed
the defendant's counterclaim for compensation as president of the corporation.

Inasmuch as in the two appeals, the assignment of errors are related to each other, and because
they refer to the same case, we propose to determine both appeals in one single decision.

We agree with the lower court that the law requires that notice of any call for the payment of unpaid
subscription should be made not only personally but also by publication. This is clear from the
provisions of section 40 of the Corporation Law, Act No. 1459, as amended, which reads as follows:

SEC. 40. Notice of call for unpaid subscriptions must be either personally served upon each
stockholder or deposited in the post office, postage prepaid, addressed to him at his place of
residence, if known, and if not known, addressed to the place where the principal office of the
corporation is situated. The notice must also be published once a week for four successive weeks in
some newspaper of general circulation devoted to the publication of general news published at the
place where the principal office of the corporation is established or located, and posted in some
prominent place at the works of the corporation if any such there be. If there be no newspaper
published at the place where the principal office of the corporation is established or located, then
such notice may be published in any newspaper of general news in the Philippines.

It will be noted that section 40 is mandatory as regards publication, using the word "must". As
correctly stated by the trial court, the reason for the mandatory provision is not only to assure notice
to all subscribers, but also to assure equality and uniformity in the assessment on stockholders. (14
C.J. 639).

This rule finds support in authorities on corporation law, such as, Thompson on Corporations, Vol. 5,
3rd edition, pages 588-590, from which we make the following quotation:

SEC. 3744. Provisions requiring notice of calls. — The governing statute, charter or by-laws usually
require that notice of calls be given the subscriber or stockholder. If any particular notice or demand
is required by either of these, or by the contract of subscription, then such notice or demand must be
given, and must be alleged and proved in order to maintain an action for the call.

xxx xxx xxx

SEC. 3745. Notice. — Compliance with requirements-From what has preceded it is clear that where
any particular form or kind of notice is required, such form or kind must be given-the requirement
must be complied with. Thus, where the charter expressly required notice to be given in certain
newspapers for a certain number of days, the corporation must show compliance with the conditions
before recovery on the call. An action is ordinarily made effective by notice thereof to the
subscribers, in accordance with the by-laws or general regulations of the corporation in that regard.
So, where there are statutory or other regulations as to the form and sufficiency of the notice, these
must be followed. Thus, where such a notice was required to be signed by the directors, a notice
with the names of the directors signed by a clerk, was held insufficient. These cases and others
proceed on the theory that where the manner of giving notice is prescribed by law every condition
precedent must be strictly and literally complied with. (Thompson on Corporations, Vol. 5, 3rd ed.)

This view is shared by Justice Fisher. In his book "The Philippine Law on Stock Corporations" he
says: "Not only must personal notice be given in one of these manners, but the notice must also be
published once a week, for four consecutive weeks, in some newspaper." (p. 110.).

We find the citation of authorities made by the plaintiff and appellant inapplicable. In the case
of Velasco vs. Poizat(37 Phil. 805), the corporation involved was insolvent, in which case all unpaid
stock subscriptions become payable on demand and are immediately recoverable in an action
instituted by the assignee. Said the court in that case:

. . . . 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 balance on subscription.

But when the corporation is a solvent concern, the rule is:

It is again insisted that plaintiffs cannot recover because the suit was not proceeded by a call or
assessment against the defendant as a subscriber, and that until this is done no right of action
accrues. In a suit by a solvent going corporation to collect a subscription, and in certain suits
provided by statute this would be true;. . . . . (Id.)

Going to the claim of defendant and appellant that Resolution No. 17 of 1946 released him from the
obligation to pay for his unpaid subscription, the authorities are generally agreed that in order to
effect the release, there must be unanimous consent of the stockholders of the corporation. We
quote some authorities:

Subject to certain exceptions, considered in subdivision (3) of this section, the general rule is that a
valid and binding subscription for stock of a corporation cannot be cancelled so as to release the
subscriber from liability thereon without the consent of all the stockholders or subscribers.
Furthermore, a subscription cannot be cancelled by the company, even under a secret or collateral
agreement for cancellation made with the subscriber at the time of the subscription, as against
persons who subsequently subscribed or purchased without notice of such agreement. (18 C.J.S.
874).

(3) Exceptions.

In particular circumstances, as where it is given pursuant to a bona fide compromise, or to set off a
debt due from the corporation, a release, supported by consideration, will be effectual as against
dissenting stockholders and subsequent and existing creditors. A release which might originally have
been held invalid may be sustained after a considerable lapse of time. (18 C.J.S. 874).

In the present case, the release claimed by defendant and appellant does not fall under the
exception above referred to, because it was not given pursuant to a bona fide compromise, or to set
off a debt due from the corporation, and there was no consideration for it.

Another authority:
SEC. 850. Unanimous consent of stockholders necessary to release subscriber. — It may be
asserted as the first rule under this proposition that, after a valid subscription to the capital stock of a
corporation has been made and accepted, there can be no cancellation or release from the
obligation without the consent of the corporation and all the stockholders; . . . . (2 Thompson on
Corporation, p. 186).

He states the reason for the rule as follows:

SEC. 855. Right to withdraw as against subscribers. — A contract of subscription is, at least in the
sense which creates as estoppel, a contract among the several subscribers. For this reason no one
of the 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 an interest. . . .
(2 Thompson on Corporations, p. 194.).

As already found by the trial court, the release attempted in Resolution No. 17 of 1946 was not valid
for lack of a unanimous vote. If found that at least seven stockholders were absent from the meeting
when said resolution was approved.

Defendant and appellant, however, contends that after dismissing the complaint for being premature,
there was no necessity or reason for the trial court to go further and say that defendant was not
validly released from the payment for his unpaid subscription. It must be borne in mind, however,
that this was one of the principal issues involved in the case and the trial court was called upon to
pass upon it, because unless so passed upon and deter- mined, it might decisively affect the case
on appeal. Supposing that on appeal the appellate court decides that the call was valid, then it would
be important to know whether or not in spite of the validity of the call, defendant was nevertheless
not liable because he had been validly released by a resolution of the corporation. If that question
was not decided by the trial court, and naturally was not touched upon in the appeal, then the
appellate court would have no occasion to pass upon it, and it might be necessary to bring another
action to determine the point, which means multiplicity of suits. Moreover, the authority given to the
courts to render judgments for declaratory relief in order to determine the rights or duties of parties
over a certain transaction or under a certain written instrument, or to remove the uncertainty or
controversy over the same (Rule 66 of the Rules of Court), justified the trial court in passing upon
this question of release.

As regards the compensation of President claimed by defendant and appellant, it is clear that he is
not entitled to the same. The by-laws of the company are silent as to the salary of the President.
And, while resolutions of the incorporators and stockholders (Exhibits G-1 and I-1) provide salaries
for the general manager, secretary-treasurer and other employees, there was no provision for the
salary of the President. On the other hand, other resolutions (Exhibits H-1 and J-3) provide for per
diems to be paid to the President and the directors of each meeting attended, P10 for the President
and P8 for each director, which were later increased to P25 and P15, respectively. This leads to the
conclusions that the President and the board of directors were expected to serve without salary, and
that the per diems paid to them were sufficient compensation for their services. Furthermore, for
defendant's several years of service as President and up to the filing of the action against him, he
never filed a claim for salary. He thought of claiming it only when this suit was brought against him.

In conclusion we hold that under the Corporation Law, notice of call for payment for unpaid
subscribed stock must be published, except when the corporation is insolvent, in which case,
payment is immediately demandable. We also rule that release from such payment must be made
by all the stockholders.
In view of the foregoing and finding no reversible error in the decision appealed, the same is hereby
affirmed.

No pronouncement as to costs.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Reyes, Jugo, Bautista Angelo and Labrador,
JJ., concur.
G.R. No. L-19761 January 29, 1923

PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperativa Naval

Filipina," plaintiff-appellee,
vs.
MARCIANO RIVERA, defendant-appellant.

Araneta and Zaragoza for appellant.

Ross and Lawrence for appellee.

STREET, J.:

This action was instituted on November 21, 1921, in the Court of First Instance of Manila, by the
Philippine Trust Company, as assignee in insolvency of La Cooperativa Naval Filipina, against
Marciano Rivera, for the purpose of recovering a balance of P22,500, 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 plaintiff for the amount sued for, the defendant appealed.

It appears in evidence that in 1918 the Cooperativa Naval Filipina was duly incorporated under the
laws of the Philippine Islands, with a capital of P100,000, divided into one thousand shares of a par
value of P100 each. Among the incorporators of this company was numbered the defendant Mariano
Rivera, who subscribed for 450 shares representing a value of P45,000, the remainder of the stock
being taken by other persons. The articles of incorporation were duly registered in the Bureau of
Commerce and Industry on October 30 of the same year.

In the course of time the company became insolvent and went into the hands of the Philippine Trust
Company, as assignee in bankruptcy; and by it this action was instituted to recover one-half of the
stock subscription of the defendant, which admittedly has never been paid.

The reason given for the failure of the defendant to pay the entire subscription is, that not long after
the Cooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred, at
which a resolution was adopted to the effect 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. As a result of this resolution it seems to have been supposed
that the subscription of the various shareholders had been cancelled to the extent stated; and fully
paid certificate were issued to each shareholders for one-half of his subscription. 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.

His Honor, the trial judge, therefore held that the resolution relied upon the defendant was without
effect and that the defendant was still liable for the unpaid balance of his subscription. In this we
think his Honor was clearly right.

It is established doctrine that subscription to the capital of a corporation constitute a find 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 realize assets for the payment of
its debts. (Velasco vs. Poizat, 37 Phil., 802.) 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 an under the conditions prescribed by the statute or the charter or the
articles of incorporation. Moreover, strict compliance with the statutory regulations is necessary (14
C. J., 498, 620).

In the case before us the resolution releasing the shareholders 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 effected
without compliance with the statutory requirements, was wholly ineffectual.

The judgment will be affirmed with cost, and it is so ordered.

Araullo, C. J., Malcolm, Avanceña, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.
G.R. No. L-35961 December 2, 1932

ROMANA MIRANDA, in her capacity as judicial administratrix of the intestate estate of her
deceased father, Alberto Miranda, plaintiff-appellant,
vs.
THE TARLAC RICE MILL CO., INC., defendant-appellee.

Fausto and Ramos for appellant.

Enrique Maglanoc for appellee.

VICKERS, J.:

This is an appeal by the plaintiff from a decision of Judge A. M. Recto of the Court of First Instance
of Tarlac, dismissing the case without a special finding as to costs.

The case was tried on the following agreed statement of facts:

Comparecen las partes — la demandante, asistida de su infrascrito abogado, y la

demandada, por medio de su presidente y abogado que subscriben — y para abreviar la
vista de esta causa y sin perjuicio de practicarse pruebas adicionales sobre hechos en los
que las partes no estan de acuerdo, respetuosamente someten, para la decision de esta
causa, las siguientes estipulaciones:

1. Que la demandante Romana Miranda es la administradora judicial, debidamente

nombrada, del Intestado del finado Don Alberto Miranda, Civil No. 3090, de este mismo
Juzgado; y la entidad demandada es una corporacion debidamente organizada de acuerdo
con las leyes en vigor en estas Islas, teniendo su domicilio legal, lo mismo que la
demandante, en esta cabecera de Tarlac, Provincia de Tarlac;

2. Que, con fecha 8 de junio de 1926, el hoy difunto Don Alberto Miranda — de cuyo
intestado es administradora judicial la aqui demandante — subscribo acciones de la
corporacion demandada, otorgando al efecto un contrato de subscripcion, copia auntentica
del cual se une al presente y se hace parte integrante del mismo, como exhibit A;

3. Que, en relacion con el contrato de subcripcion Exhibit A, a que se contrae el parrafo que
precede, Don Alberto Miranda otorgo luego una escritura de poder a favor de la demandada,
cuyo original se une asimismo al presente, haciendose parte integrante del mismo, como
Exhibit B;

4. Que, por virtud de los documentos a que se contraen los dos parrafos inmediatamente
anteriores la corporacion demandada contrajo una deuda de P10,000 a los Sres. Mariano
Tablante y Carmen Gueco, de Angeles, Pampanga, como se acredita por la escritura de
prestamo hipotecario otorgada al efecto, que tambien se adjunta a la presente, como
Exhibits C y C-1;

5. Que la demandada no ha pagado en ningun tiempo ni el capital, ni los intereses, del

prestamo arriba mencionado, motivo por el cual el referido Don Alberto Miranda hubo de
entrar en arreglo amistoso con los acreedores, al expirar el plazo convenido para el pago,
 satisfaciendo dicho prestamo y sus intereses devengados, segun consta en la carta de pago
extendida al efecto, que se hace parte integrante del presente convenio como Anexo o
Exhibt D;

6. Que, a partir desde el ano 1928 hasta esta fecha, la demandada ha dejado de hacer
negocios y operaciones de ninguna clase;

7. Que, con excepcion del citado Don Alberto Miranda, ninguno de las otras accionistas y
directores de la corporacion demandada ha pagado o se le ha hecho pagar, conforme los
terminos de los contratos de subscripcion otorgados al efecto, el importe de sus respectivas
acciones, y a pesar de esta morosidad de los fereridos accionistas y directores, la
corporacion demandada no ha dado, hasta la fecha, ningun paso tendente a compeler la
efectividad de las referidas acciones morosas.

The only additional evidence presented was the testimony of Marciano David, which is of no
consequence in our view of the case.

The appellant makes the following assignment of errors:

The trial court erred:

1. In declaring that the defendant corporation did not violate the terms of the power of
attorney Exhibit B, for the plaintiff, when she obtained the loan Exhibit C;

2. In declaring that "all responsibility originating in the execution by the officers of the
defendant corporation of the mortgage contract Exhibit C has already ceased";

3. In pretending to base the decision in this case upon theories neither presented by the
pleadings of the parties nor deduced from the evidence produced by the parties;

4. In denying the motion for new trial of the plaintiff-appellant; and

5. In not sentencing the defendant to pay the plaintiff the sum of P10,000, with interest
thereon at P1,200 a year, from the year 1927 until paid, plus the sum of P1,500, which the
principal had to pay in the form of a penal clause for the violation of the terms of the
mortgage contract Exhibit C, aside from the legal interests of all these amounts from the
presentation of the present complaint, and the costs of the suit.

It appears from the evidence that on June 8, 1926 Alberto Miranda executed a written contract
whereby he subscribed for 100 shares of the capital stock of a corporation to be organized under the
laws of the Philippine Islands for the purpose of operating a rice mill in Tarlac, said corporation to be
known as Tarlac Rice Mill Company, Inc., that the par value of each share was P100; and that
Alberto Miranda obligated himself to pay to the treasurer of the corporation or its assign the sum of
P10,000 as follows:

On or before September 21, 1926 P1,000.00

On or before January 21, 1927 2,000.00
On or before January 21, 1928 2,000.00
On or before January 21, 1929 2,500.00
On or before January 21, 1930 2,500.00
On July 10, 1926 Alberto Miranda by means of a public document "assigned" mortgaged, or
transferred in lieu of cash for the benefit and to the credit of the Tarlac Rice Mill Company, Inc., a
corporation to be organized and to exist under and by virtue of the laws of the Philippine Islands",
the parcel of land described in certificate No. 751 in the land records of the Province of Tarlac; and
"to carry out the true intent, meaning, and purposes thereof I have hereby further voluntarily made,
constituted, and appointed and by these presents do make, constitute and appoint, either jointly,
Evaristo Magbag, duly elected President and Treasurer of said Company, Eusebio R. Cabrera and
Marcos P. Puno, duly elected Vice-Presidents of the same company, or anyone of the three named
elected officers of the Tarlac Rice Mill Company, Inc., jointly with C. M. Dizon to be my true and
lawful attorney-in-fact, for me and in my name, in my behalf to transfer, mortgage, convey or confirm
or in any way convenient to them to any local or foreign bank, firm or individual in order to obtain,
secure or solicit credit against my above described property in an amount not to exceed ten
thousand pesos (P10,000), Philippine currency, in accordance with the subscription contract
voluntary executed by me, for or to increase the capital of the said Tarlac Rice Mill Company, Inc., in
order to carry out the purposes for which such firm is to be organized.

That for the foregoing purposes, I hereby transfer my right and interest in the said described
properties, and by these presents do hereby give and grant unto my said attorneys-in fact full
power and authority to do and perform all and every act and thing whatsoever requisite and
necessary to be done in all about the premises as fully to all intents and purposes as I might
or could do if personally present with full power of substitution or revocation, hereby ratify
and confirm all that my said attorneys-in-fact, anyone or all of the three Evaristo Magbag,
Eusebio R. Cabrera, and Marcos P. Puno, jointly with C. M. Dizon or their substitutes shall
lawfully do or cause to be done by virtue of these presents.

On February 19, 1927 the president and vice-president of the Tarlac Rice Mill Company, Inc., and C.
M. Dizon, acting on behalf of said corporation and Alberto Miranda, borrowed P10,000 from Mariano
Tablante, and agreed to repay said sum on or before February 19, 1928, with interest at 12 per cent
per annum, and to pay a further sum of 25 per cent of the principal for attorney's fees and expenses
of collection in case the promissory note should not be paid at maturity. Marcos Puno, Evaristo
Magbag, and Dizon & Co., Inc., jointly and severally guaranteed the payment of this sum; and the
president and vice-president of the Tarlac Rice Mill Company, Inc., and C. M. Dizon as attorneys-in-
fact of Alberto Miranda mortgaged to Mariano Tablante the aforementioned parcel of land to secure
the payment of said promissory note.

The sum of P10,000 obtained from Mariano Tablante was retained by the corporation. When the
promissory note became due, Alberto Miranda arranged for an extension of time in which to pay it,
and on July 19, 1929 he sold the aforementioned parcel of land under pacto de retro to Vicente
Panlilio for P10,000, and paid Mariano Tablante.

According to an allegation in the complaint, Alberto Miranda died on May 24, 1930.

It is agreed that the defendant corporation ceased to do business from the year 1928, and that the
other stockholders have not paid for their shares in accordance with their subscription agreement,
and that no action has been taken by the corporation to require them to do so.

The principal contention of the appellant is that the officers of the corporation violated the terms of
the power of attorney in mortgaging the land on February 19, 1927 for P10,000, because the only
sum then due and payable by Alberto Miranda to the corporation was P3,000, and that when the
remaining instalments of the stock subscription became due, Alberto Miranda was under no
obligation to pay them, because the corporation had already ceased to do business, and it had taken
no steps to compel the other stockholders to pay for the shares for which they had subscribed.
No question as to the validity of subscription agreement is raised, and no fraud on the part of the
officers of the corporation is alleged or proved. We shall therefore confine ourselves to the issues
raised by the pleading.

It is true that when the property was mortgaged on February 19, 1927 the amount due from Alberto
Miranda in accordance with the subscription agreement was only P3,000, and it is likewise true that
it does not appear from the evidence that any call was issued by the directors for the payment of any
subscriptions.

The fact that Alberto Miranda agreed on June 8, 1926 to pay the amount of his subscription
installments on certain fixed dates did not, of course prevent him from authorizing the officers of the
corporation as his attorneys-in-fact to pay his subscription prior to the dates fixed in the subscription
agreement. Great stress is laid by the appellant upon the fact that in one paragraph of the power of
attorney it is stated that the attorneys-in-fact of Alberto Miranda are authorized to mortgage or
convey the property in any way convenient to them in the amount not to exceed P10,000 in
accordance with the subscription contract, but the phrase "in accordance with the subscription
contract" is followed by the following words "for or to increase the capital of the said Tarlac Rice Mill
Company, Inc., in order to carry out the purposes for which said firm is to be organized." Under the
circumstances, it seems to us that it would be a strained construction of the power of attorney, taking
into consideration the whole document, to hold that the officers of the corporation acting as
attorneys-in-fact- of Alberto Miranda were authorized to mortgage or convey the land for only the
amount then due from Alberto Miranda in accordance with the subscription agreement. It can hardly
be contended that the power of attorney contemplated that the property should be mortgaged three
times, that is, each time that an instalment became due. We are inclined to the view that it was the
intention of the parties that the property should be mortgaged immediately for a sum not to exceed
P10,000, not only for the purpose of paying the subscription agreement of Alberto Miranda, but also
for the purpose, as stated in the power of attorney, of increasing the capital of the corporation, not
the capital stock, in order to carry out the purposes for which it was to be organized. This view of the
matter is confirmed by the subsequent conduct of the parties. Although the corporation retained the
full amount of the loan obtained from Mariano Tablante, and Alberto Miranda had to pay that
obligation, he never sought, so far as the record shows, to recover from the corporation any part of
the sum of P10,000. As we have already stated, the mortgage was executed on February 19, 1927;
it was satisfied by Alberto Miranda on July 19, 1929, and he lived until May 24, 1930. It does not
appear that he ever sought to evade the satisfaction of the mortgage by alleging that his attorneys-
in-fact exceeded their authority in mortgaging the property on February 19, 1927 for P10,000. On the
contrary he repaid to Mariano Tablante the amount which the officers of the corporation had
borrowed. The fact that he at no time sought to recover from the corporation any part of the sum
borrowed by the officers of the corporation in his name certainly tends to show that he acquiesced in
the action taken by them. The phrase "in accordance with the subscription contract" found in the
power of attorney probably was intended to mean "in pursuance of the subscription agreement", that
is, it referred to the obligation, and had no particular reference to the dates when the different
installments were to be paid.

Section 38 of the Corporation Law provides that the board of directors of every corporation may at
any time declare due and payable to the corporation unpaid subscriptions to the capital stock and
may collect the same with interest accrued thereon or such percentage of said unpaid subscriptions
as it may deem necessary. In his work, "The Philippine Law of Stock Corporations", page 97, Justice
Fisher expresses the opinion that this power of the directors is absolute and cannot be limited by the
subscription contract, but this does not mean that the directors may not rely on the subscription
contract if they see fit to do so.

No call is necessary when a subscription is payable, not upon call or demand by the
directors or stockholders, but immediately, or on specified day, or on or before a specified
 day, or when it is payable in installments at specified times. In such cases it is the duty of the
subscriber to pay the subscription or instalment thereof as soon as it is due, without any call
or demand, and, if he fails to do so, an action may be brought at any time. (Fletcher:
Cyclopedia of the Law of Private Corporations, vol. 2, page 1509.)

When this action was filed on September 2, 1930, the last of the instalments had already become
payable in accordance with the subscription agreement. it must be borne in mind that this is not an
action by the corporation to recover on a subscription agreement, but an action by the administratrix
of a stockholder to recover what was paid in to the corporation by the stockholder. It does not appear
from the evidence whether or not the corporation has any debts. Neither the fact that the corporation
has ceased to do business nor the fact that the other stockholders have not been required to pay for
their shares in accordance with their subscription agreement justifies us in ordering the corporation
to return to the plaintiff the amount paid in by Alberto Miranda. If the directors have failed to perform
their duty with respect to the other stockholders, the law provides a remedy therefor.

In the case of Velasco vs. Poizat (37 Phil., 802), this court held that a stock subscription is a contract
between the corporation and the subscriber, and courts will enforce it for or against either; that a
corporation has no legal capacity to release a subscriber to its capital stock from the obligation to
pay for his shares, and that any agreement to this effect is invalid.

In the case at bar it is not contended that Alberto Miranda cancelled his subscription agreement, or
that the corporation attempted to release him therefrom.

For the foregoing reasons, the decision appealed from is affirmed, with the costs against the
appellant.

Street, Malcolm, Ostrand and Imperial, JJ., concur.

G.R. No. L-45493 April 21, 1939

GERARDO GARCIA, plaintiff-appellee,

vs.
ANGEL SUAREZ, defendant-appellant.

Sotto and Sotto for appellant.

Ramirez and Ortigas for appellee.

CONCEPCION, J.:

On October 4, 1924, the appellant subscribed to sixteen shares of the capital stock of the Compañia
Hispano-Filipina, Inc., a corporation which is duly formed and organized. Of the sixteen subscribed
shares, at the par value of P100 each, the appellant only paid P400, the value of four shares. On
June 5, 1931, the plaintiff-appellee was appointed by the court receiver of the Compañia Hispano-
Filipina, Inc., to collect all the credits of said corporation, pay its debts and dispose of the remainder
of its assets and of its properties. On June 18, 1931, the plaintiff-appellee in vain made demand
upon the defendant-appellant to pay the balance of his subscription. On July 10, 1933, the plaintiff,
as receiver, brought an action in the Court of First Instance of Manila to recover from the defendant-
appellant and other shareholders the balance of their subscriptions, but the complaint was dismissed
for lack of prosecution. On October 10, 1935, a similar complaint was filed against the appellant, and
after trial, judgment was rendered therein ordering the said defendant to pay to the plaintiff, as
receiver of Compañia Hispano-Filipina, Inc., the sum of P1,200, with legal interest thereon from
October 4, 1924, and the costs. The defendant appealed and in this instance contends that the trial
court erred in holding that the action of the plaintiff-appellee has not prescribed, and that the
appellant has not been released from his obligation to pay the balance of his subscription.

The first alleged error is based on the ground that the obligation contracted by the appellant to pay
the value of his subscription was demandable, according to him, from the date of subscription in the
absence of any stipulation to the contrary, and he says that from the date of his subscription,
October 4, 1924, until the filing of the complaint on October 10, 1935, more than ten years have
elapsed, a period which is more than sufficient for the prescription of the action against the
appellant.

In support of his contention, the appellant cites section 37 of the Corporation Law, amended by Act
No. 3518, according to which subscribers for stock shall pay to the corporation quarterly on all
unpaid subscription interest, from the date of subscription, at the rate of six per centum per annum
unless otherwise provided in the by-laws. From this legal provision the appellant infers that the
subscriber is bound to pay the total amount of the subscription from the perfection of the contract,
there being, as there is none of this case, any stipulation to the contrary in the by-laws of the
corporation or in the contract of subscription.

The premise of the argument is wrong because it confuses two distinct obligations: the obligation to
pay interest and that to pay the amount of the subscription. The said section 37 of the Corporation
Law provides when the obligation to pay interest arises and when payment should be made, but it is
absolutely silent as to when the subscription to a stock should be paid. Of course, the obligation to
pay arises from the date of the subscription, but the coming into being of an obligation should not be
confused with the time when it becomes demandable. In a loan for example, the obligation to pay
arises from the time the loan is taken; but the maturity of that obligation, the date when the debtor
can be compelled to pay, is not the date itself of the loan, because this would be absurd. The date
when payment can be demanded is necessarily distinct from and subsequent to that the obligation is
contracted.
By the same token, the subscription to the capital stock of the corporation, unless otherwise
stipulation, is not payable at the moment of the subscription but on a subsequent date which may be
fixed by the corporation. Hence, section 38 of the Corporation Law, amended by Act No. 3518,
provides that:

The board of directors or trustees of any stock corporation formed, organized, or existing
under this Act may at any time declare due and payable to the corporation unpaid
subscriptions to the capital stock . . . .

The board of directors of the Compañia Hispano-Filipino, Inc., not having declared due and payable
the stock subscribed by the appellant, the prescriptive period of the action for the collection thereof
only commenced to run from June 18, 1931 when the plaintiff, in his capacity as receiver and in the
exercise of the power conferred upon him by the said section 38 of the Corporation Law, demanded
of the appellant to pay the balance of his subscription. The present action having been filed on
October 10, 1935, the defense of prescription is entirely without basis.

The second alleged error of the court assigned by the appellant consists in not holding that he was
released from the obligation to pay the balance of his subscription. In support of his connection, the
appellant adduced as evidence a letter, allegedly signed by R. Pando, acting president of the
corporation Compañia Hispano-Filipina, Inc., wherein the appellant was released by Pando from all
obligation with respect to the payment of his subscription in consideration of his transfer of his
shares to the corporation.

The very citation of authorities made by the appellant in his brief destroys his contention. It says:

Released of subscribers by the corporation. — There can be no doubt that a corporation may
effectually release a subscriber from liability on his subscription, in whole or in part, or allow
him to modify his contract, if all the stockholders expressly or impliedly consent . . . .

The agents or officers of the corporation have no such power, however, unless it is expressly
conferred upon them by the charter or statute, or by the stockholders by a by-law or
otherwise. . . . (Thomas vs. Wentworth Hotel Co., 117 Pac., 1041; Fletcher, Encyc. of Private
Corporations, sec. 638). (Emphasis supplied.)

It has not been established that the stockholders of the Compañia Hispano-Filipina, Inc., have in any
wise consented to release the appellant from his obligation, or that the acting president, R. Pando,
was expressly authorized by the stockholders, or was authorized by the by-laws of the corporation,
to release the appellant from his obligation.

Against the contention of the appellant, this court has held that:

A corporation has no legal capacity to release a subscriber to its capital stock from the
obligation to pay for his shares; and any agreement to this effect is
invalid.(Velasco vs. Poizat, 37 Phil., 802.)

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; . . . .
(Philippine Trust Co. vs. Rivera, 44 Phil., 469.)

A stock subscription is a contract between the corporation and the subscriber, and courts will
enforce it for or against either. A corporation has no legal capacity to release a subscriber to
 its capital stock from the obligation to pay for his shares, and any agreement to this effect is
invalid. (Velasco vs. Poizat, 37 Phil., 802.) (Miranda vs. Tarlac Rice Mill Co., 57 Phil., 619.)

The appealed judgment is affirmed, with costs to the appellant. So ordered.

Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.