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Triplex Shoe Co. v. Rice & Hutchins
The AOI of Triplex Shoe provided an authorized capital stock of $150,000 with 750
preferred shares at par value of $100 each and no par value stocks worth $75,000
in all.
A resolution by the Board of Directors gave the Dillmans and Solly a total of 540
shares of common stock in consideration of services that they have rendered AND
An Amendment to the AOI provided for an increase in the ACS and the exclusive
grant of voting power on the holders of common stock.
Rice & Hutchins bought 249 preferred stocks along with 83 common stocks.
In the 1929 annual meeting of stockholders, the B ticket, which was supported by
the Dillman faction, defeated the A ticket supported by Rice & Hutchins over the
election of directors.
The case filed questioning the validity of the common shares issued to the Dillman
Whether the stocks issued to the Dillman faction were valid stock.
The Court held that the no par stocks issued to Dillman were invalid, noting that the original
ACS indicated no number of shares for the no-par value shares. Issuance of such no-par value
shares is not only unauthorized by any law in the State of Delaware but also inoperative and
The consideration for the no-par value shares was also not fixed as required by the law and
since the AOI did not grant the BOD such power, the BODs resolution to grant the Dillman
faction the questioned shares is invalid (since they essentially fixed the consideration for
those shares by granting them in return for the services that the Dillman have rendered and
to be rendered).
The Court also looked as to whether the consideration for the questioned stocks was lawful.
The Court ruled in the negative as the stocks that were issued to the Dillmans were for
services rendered and to be rendered. Future services are not lawful consideration for the
issuance of stock.

McCarty v. Langdeau
McCarty entered into a written agreement with Estate Life Insurance wherein he
will pay in installment 19,370 no-par value stocks worth $387,380. The written
agreement provided that the company will have a lien over the stocks until they
are paid but the amount of stocks that are covered by actual payments will
nevertheless have the power to vote and shall be under his name. (McCarty
essentially bought the stocks through a promissory note)
McCarty was able to pay a total amount of $8120 until the payments stopped. For
that amount, the company retained 411 shares under his name.
The Company was placed under receivership and the companys receiver
(Langdeau) files a suit against McCarty for the recovery of the whole sum
($379,280) indicated in the written agreement.
McCartys defense: the contact between him and the company was void since it
was against the Texas constitution to issue stocks except for money paid, labor
done or property actually received. Hence the receiver cannot recover from him
since he essentially bought the stock with a promissory note.
Whether the contract is valid.
The law only prohibits the issuance of stock. If it is understood that the stock will not be
issued to the subscriber until the note is paid, the contract is valid and not illegal.
What is void by express provision of law is the fictitious increase of stock or indebtedness.
The law was designed for the protection of the corporation and its creditors. It emphasizes
the stockholders obligations to make full and lawful payment in accord with its mandate,
rather than furnish him with a defense when he has failed in that obligation.
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Its purpose is to give integrity to the corporations capital. None of these objects would be
promoted by declaring a note given by a subscriber for stock uncollectible in the hands of a
bona fide stockholder.

Rhode v. Dock-Hop Company et. al.
This is an action by the judgment creditor of a company against a certain number of
stockholders seeking to collect from them what are claimed to be unpaid balances
on the par value of their shares.
The complainant alleged that the said stockholders only paid 25 cents for a $1 on
the par value of the stocks.
Defense of the Stockholders: they are not subscribers and therefore cannot be held
liable for any supposed discrepancy in the consideration that they have paid for the
stocks that they have purchased
ISSUE: WON the defendants are required, because of the creditors claim, to make up for any
difference which may exist between what was actually paid on their stock and its par value.
The stocks issued were held to be watered stocks which are stocks issued for less than their
par value.
The Court held that the stockholders were innocent transferees of watered stock and
cannot be held to answer for the deficiency of the stocks even at the suit of the creditor of
the company. The creditors remedy is against the original owner of the watered stock.
Campos note: The innocent purchaser of watered stocks is thus treated like the holder in
good faith of a negotiable instrument, based on the policy of encouraging the free
transferability of shares as a means of enhancing the growth of commerce and industry
(since purchasers will not be hesitant to purchase stocks lest they be ran after by creditors
for discrepancies in the amount that they have paid as was in this case). The remedy of the
defrauded creditor would be against the original owner of the watered stocks.


(Short Facts from P.Concepcion Reviewer: Creditor sued Eaton to recover the difference
between the par value of stock issued to him and the fair value of the consideration paid for
the stock.)

1. As a judgment creditor of a corporation the Bing Crosby Minute Maid Corp.
brought this action against a shareholder of the corporation to recover the
difference between the par value of stock issued to him and the fair value of the
consideration he paid for the stock. At the conclusion of the trial, the court, sitting
without a jury, made findings of fact and conclusions of law and entered judgment
for Bing Crosby Minute Maid Corp. In support of his motion for a new trial Eaton
assigned certain alleged defects in the findings as errors of law.

2. Eaton formed a corporation to acquire his going frozen foods business. The
Commissioner of Corporations issued a permit authorizing the corporation to sell
and issue not more than 4,500 shares of $10 par value stock to Eaton and other
named individuals in consideration of the transfer of the business. The permit
provided that 1,022 shares be deposited in escrow and not be transferred without
the written consent of the commissioner, and that the escrowed shares not be sold
or issued until the prospective shareholders named in the permit waived certain
rights to dividends and to participation in any distribution of assets.

3. Eaton transferred his business to the corporation. The corporation placed 1,022
shares in escrow in his name pursuant to the provisions of the permit. The
remaining 3,478 shares were issued outright to Eaton and after three years were
transferred to the other persons named in the permit. Although the 1,022 shares
were listed on the corporate records as held by Eaton (accompanied by the
notation "escrowed"), they were never released from escrow. The corporation had
financial difficulties and executed an assignment of its assets for the benefit of
creditors to a credit association. Bing Crosby Minute Maid Corp. recovered a
judgment against the corporation for $21,246.42. A writ of execution on the
judgment was returned unsatisfied.

4. The trial court found that the value to the corporation of the consideration from
Eaton was $34,780.83; that 4,500 shares of stock having a par value of $10 each
were issued to Eaton and he became the owner of those shares; that subsequent
to the issue of the shares the corporation purchased merchandise from Bing
Crosby Minute Maid Corp. and has not yet paid for all of it; that some $15,000 of
the judgment Bing Crosby Minute Maid Corp. recovered from the corporation
remains unsatisfied, and that the corporation is insolvent.

5. The judgment for Bing Crosby Minute Maid Corp. was for $10,219.17--
approximately the par value of the 1,022 shares of stock placed in escrow. The
judgment was based on the trial court's conclusion that Eaton was liable for the
difference between the par value of the 4,500 shares and the value of the
consideration Eaton paid for them.
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6. Bing Crosby Minute Maid Corp. contends that the trial court's findings of fact
were supported by the evidence and required a judgment in its favor, and
therefore that it was error to grant a new trial. Eaton contends that the order
granting a new trial was proper because (1) the finding that he was the owner of
4,500 shares was unsupported by the evidence, and (2) the trial court failed to
make a finding on a material issue raised by his answer.


Case remanded for new trial. The Court looked into the different theories behind the liability
of a stockholder for watered stock, namely, (1) misrepresentation and (2) statutory
obligation theory.

Misrepresentation theory is the one most accepted. Watered stock is a misrepresentation of
the corporations capital, and creditors who rely on this misrepresentation are entitled to
recover the water from the holders of the watered stock.

In the statutory obligation theory, the holder of watered stock is held responsible to creditors
whether or not they have relied on an overvaluation of corporate capital.

The court found that in this case, there was no reliance on any misrepresentation arising out
of the issuance of watered stock. They then held a new trial was proper to determine which
theory prevails under California law. Under California law, misrepresentation theory prevails
and therefore was applied.

Velasco vs Poizat

From Sui Reviewer:


Velasco is the assignee in the insolvency of Philippine Chemical Product Company and is
seeking to recover from Jean Poizat the unpaid subscription made by him to the stock of the
corporation. Poizat, one of the incorporators and once the treasurer and manager of the
corporation, subscribed for 20 shares and paid in the par value of 5 shares (P500).

While in this capacity he called in and collected all subscriptions except 15 shares subscribed
by him and another 15 by Jose Infante. 2 resolutions were adopted by the board: (1) proposal
that the directors or SHs make good by new subscription the 15 shares w/h had been
surrendered by Infante, and that the latter would be released from his obligation to the
corporation; (2) as to Poizat, who was absent, he should be required to pay the amount of his
subscription upon the 15 shares he owes to the corporation. Poizat, in a letter states that he
was also to be relieved from his subscription, and that he prefers to lose the whole of the
25% rather than continue investing more money in a ruinous proposition.

Soon the company became insolvent, and Velasco as assignee sues Poizat for his unpaid


Poizat is still liable on his subscription. A stock subscription is a contract between the
corporation on one side, and the subscriber on the other. It is a rule 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. A stock subscription is a 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.

There are two (2) remedies for the enforcement of stock subscriptions: (1) the first is a
special remedy which consists in permitting the corporation to put up the unpaid stock for
sale, and is merely a remedy in addition to that which proceeds by action in court; (2) the
other is an action in court, which exists even though no mention thereof is made in statute.

Under the Insolvency Law, 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 a stock subscription as directors
themselves would have had under Sec 49 above cited.

Another reason: When insolvency supervenes upon a corporation and the court assumes
jurisdiction to wind it up, all unpaid stock subscriptions become payable on demand, and are
at once recoverable in an action instituted by the assignee in court.

It evidently cannot be permitted that a subscriber should escape from his lawful obligation by
reason of the failure of officers to perform their duty in making the call; and when the
original mode of making the call becomes impracticable, the obligation must be treated as
due upon demand.

As to the Infante release, it is not prejudicial to the right of the corporation or its assignee to
recover from Poizat, although in releasing Infante, the board overstepped its bounds and
should still be liable on shares that were not taken up and paid for by the corporation.

Lingayen Gulf Electric vs. Baltazar

From Sui Reviewer:


Baltazar subscribed for 600 shares (P100 par value) of Lingayen Gulf and paid P15000, plus
another payment leaving a balance of P18500 unpaid.
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In a SH meeting it was agreed to call the balance of all unpaid subscribed capital stock, the
first 50% payable within 60 days, remaining 50% payable within 60 days hence. All unpaid
subscription after due dates of both calls would be subject to 12% interest. All remaining
unpaid shares would revert to the corporation.

Baltazar offered to withdraw completely from the corporation by selling out all his shares of
stock. Another resolution (No. 17) was adopted rescinding the previous resolution because
the corporation was not in a financial position to absorb the unpaid balance of the
subscribed capital stock. Yet another resolution (No. 4) was adopted to revalue the stock and
assets of the corporation to attract outside investors.

Although Baltazar was informed of the demand for payment the call however was not
published in a newspaper of general circulation. Another demand was made upon Baltazar,
who ignores the same upon the grounds that 1. action is premature because there was no
valid call, and 2. granting there was a valid call, he was released from liability thru SH Res.
Nos. 17 and 4. The corporation sues. TC rules ifo Baltazar, holding that the resolution was
null and void for lack of publication.


TC was correct 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. The publication
requirement is mandatory, and the reason is because it is not only to assure notice to all
subscribers, but also to assure equality and uniformity in the assessment on SHs. Not only
must personal notice be given in one of these matters, but the notice must also be published
once a week, for 4 consecutive weeks in some newspapers.

The court reiterated the ruling in Velasco v Poizat, where 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. But when the corporation is
a solvent concern, the rule is that the suit demanding for payment of unpaid subscriptions
must be preceded by a call or assessment against the subscribers, and only then will there be
a right of action.

As to claim of Baltazar that Resolution 17 released him from obligation to pay, in order to
effect the release, there must be unanimous consent of the SHs (here, 7 SHs were absent
when said Res was made) . The GR is that a valid and binding subscription cannot be
cancelled so as to release the subscriber from liability thereon without the consent of all the

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.

Exceptions: 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 SHs
and subsequent and existing creditors. A release which might originally have been held
invalid may be sustained after a considerable lapse of time. In the present case, the release
claimed by the

Baltazar does not fall under the exceptions 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.

Miranda vs Tarlac Rice Mill Co

From P.Concepcion Reviewer:


Miranda subscribed to 100 shares (par value of P100 per share) of the company. He obligated
himself to pay certain sums of money at certain specified dates. He later executed a
document assigning, mortgaging or transferring to the credit of the company a parcel of land.
The company borrowed P10,000 from a certain Tablante. Miranda sold his land under pacto
de retro to another person and used the proceeds to pay Tablante. Miranda died.

The principal contention of the appellant is that the officers of the company violated the
terms of the power of attorney given by Miranda in mortgaging the land for the P10,000
because the only sum due and payable by Miranda was only P3,000.

ISSUE: Is the contention correct?


NO. It does not appear that Miranda sought to evade the satisfaction of the mortgage. On
the contrary, he repaid to Tablante the sum owed the company. 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, referred to the obligation and
had no particular reference to the dates when the installments were to be paid.

Under the law, 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. Justice Fischer expresses the opinion that this power of 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 a 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
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subscriber to pay the subscription or installment 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.



DE SILVA subscribed for 650 shares of stock (at P500/stock) of ABOITIZ. He only
paid for 200 shares
The BOD of ABOITIZ adopted a resolution declaring that
o the unpaid subscriptions to the capital stock due and demandable
o those subscriptions which will remain unpaid after a month will be
declared delinquent, advertised for sale at public auction, and sold
DE SILVA filed a complaint with the CFI disputing the validity of the resolution and
alleging that it was against Article 46
of the BY-LAWS.




ART. 46 authorizes the BOD to collect the value of the shares subscribed to and not
fully paid by deducting from the 70% such amount as may be deemed convenient,
to be applied on the payment of the said shares, and not pay to the subscriber until
the same are fully paid up.
It is discretionary on the part of the BOD to do whatever is provided in the said
article relative to the application of a part of the 70% of the profit distributable in
equal parts on the payment of the shares subscribed to and not fully paid
It is the BOD and not the delinquent subscriber that may and must judge and
decide WON such value must be paid out a part of the 70% of the profit
distributable in equal parts among the shareholders
If the BOD does not wish to make use of said authority, it has 2 other remedies
(Velasco v Poizat)

ART. 46. The net profit resulting from the annual liquidation shall be distributed as follows:
x x x 70% for the shareholders in equal parts; Provided, however, that from this 70%
dividend the BOD may deduct such amount as it may deem fit for the payment of the unpaid
subscriptions 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 BOD may also deduct such amount as it may
deem fit for the creation of an emergency special fund
o SEC. 38 to 48 permits the corp. to put up the unpaid stock for sale and
dispose of if for the account of the delinquent subscriber
o SEC. 49 allows the corp. to file an action in court for the collection of
unpaid subscription, with accrued interest and costs and expenses
In the instant case, the BOD elected to avail itself of the first 2 remedies, and,
complying strictly with the provisions of SEC. 37 to 49
DE SILVA has no right whatsoever under the ART. 46 of the BY-LAWS to prevent the
BOD from following any other method than that mentioned in said article



I.B. DEXTER signed a written subscription to the corporate stock of C.S. Salmon &
Co. stating that the 300 shares of capital stock will be payable from the first
dividends declared on any and all shares of C.S. Salmon owned by I.B. Dexter at the
time dividends are declared, until the full amount of subscription has been paid.
P15,000 was paid by I.B. DEXTER through the dividends paid by the corp. and by his
own money. There remained a balance of P15,000.
NATIONAL EXCHANGE CO., INC (assignee of C.S. Salmon & Co.) instituted an action
against I.B. DEXTER for the recovery of sum of money owed by the latter as unpaid




In the absence of restrictions in its charter, a corp., under its general power to
contract, has the power to accept subscriptions upon any special terms not
prohibited by positive law or contrary to public policy, provided they are not such
as to require the performance of acts which are beyond the powers conferred
upon the corp. by its charter, and provided they do not constitute a fraud upon
other subscribers or stockholders, or upon persons who are or may become
creditors of the corp.
The stipulation in the stock subscription is illegal for it obligates the subscriber to
pay nothing for the shares except as dividends may accrue upon the stock. In the
contingency that dividends are not paid, there is no liability at all. This is a
discrimination in favor of the particular subscriber, and therefore unlawful
GR: An agreement between a corp. and a particular subscriber, by which the
subscription is not to be payable, or is to be payable in part only, whether it is for
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the purpose of pretending that the stock is really greater than it is, or for the
purpose of preventing the predominance of certain stockholders, or for any other
purpose, is illegal and void as in fraud of other stockholders or creditors, or both,
and cannot be either enforced by the subscriber or interposed as a defense in an
action on the subscription
This jurisdiction makes no distinction between shares subscribed before and after
incorporation. All are bound to pay full par value in cash or its equivalent, and any
attempt to discriminate in favor of one subscriber relieving him of its liability
wholly or in part is forbidden

Lumanlan v Cura
Bonifacio Lumanlan is a subscriber for 300 shares of stock in Dizon & Co., Inc.. At P50 per
stock it was worth P15,000. Several Creditors of the Corporation sued DIZON, and prayed for
appointment of a receiver. At this time the Corp did not have any assets, except the unpaid
subscription by some of the subscribers like Lumanlan.
Lumanlan had only paid P1500 of his total subscription. The receiver filed a suit against him
for P15,109, for P13,500 remainder of his subscription, and P1,609 representing loans and
advances from the Corp. The Court found for the Corporation, and sentenced Lumanlon to
pay the amount plus interest (the JUDGMENT).
While the case was on Appeal, the corporation had meetings with the Creditors. It was
agreed there that the Creditors were to be paid by the subscribers that had not yet paid.
Among those creditors was Valenzuela, who was owed P8,000 plus interest.
Lumanlon and the Corporation came into an agreement. Lumanlon would assume the credit
in favour of Valenzuela, and he would also drop the appeal. The corporation on the other
hand would only collect 50% of his subscription.
Lumanlon, agreed, paid Valenzuela P11,840 and dropped the appeal. Creditors, having paid
asked the court to dismiss the receiver. The corporation now motioned for the execution of
the JUDGMENT. His property were then levied upon.
ISSUE: W/N Corporation had right to collect unpaid stock?
Yes, Subscription to the capital stock of a corporation constitute a fund to which the 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 payment
The Corporation law clearly recognizes that a stock subscription is a 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 corp.
COURT Found him liable to pay for the amount he subscribed to, but took into consideration
that he had assumed and paid the debt of the corporation. He was then asked to pay the
remainder, while the corp was ordered to issue his 300 shares of capital stock.

Fua Cun v Summers
Chua Soco subscribed for 500 shares of stock of Bank Corporation (defendant), at par value
of P100 per share. He paid P25,000, in cash, and he was given a receipt.
About a year after, Chua Soco executed a promissory note in favour of Fua Cun (plaintiff) for
P25,000 payable in 90 days. The note was secured via a chattel mortgage upon the shares of
stock of Chua Soco. Fua Cun brought the receipt to the Bank and informed the latter of the
transaction with Chua Soco but was told to wait upon the Board of Directors.
Chua Soco became indebted to the China Banking Corporation for P37k for dishonoured
acceptance of commercial paper, and on an action against him, the 500 shares subscribed to
were attached.
Sheriff now goes to Defendant, but at that time he already had notice that the receipt was
endorsed to Fua Cun. Fua Cun then brought an action, claiming, as Chua Soco was
subscribed to 500 shares but was only able to pay 50% thereof, he acquired 250 shares.
Issue: W/N Chua Soco was able to acquire 250 shares?
NO, What Chua Soco had was merely an equity which could not be the subject of chattel
mortgage. Subscription is not OWNING the shares of stock, but merely having an equity as
against the corporation, that upon payment of the subscribed amount, corresponding stocks
would be issued.
However, equity in shares of stock may be assigned and that the assignment is valid as
between the parties and as to persons to whom notice is brought home. Such an assignment
exists here, though it was made for the purpose of securing a debt. The endorsement to the
plaintiff of the receipt above mentioned reads:
Page 7 of 8

For value received, I assign all my rights in these shares in favor of Mr. Tua Cun.
Manila, P. I., May 18, 1921.
This endorsement was accompanied by the delivery of the receipt to the plaintiff and further
strengthened by the execution of the chattel mortgage, which mortgage, at least, operated
as a conditional equitable assignment.
As against the rights of the plaintiff the defendant bank had, as we have seen, no lien unless
by virtue of the attachment. But the attachment was levied after the bank had received
notice of the assignment of Chua Soco's interests to the plaintiff and was therefore subject to
the rights of the latter. It follows that as against these rights the defendant bank holds no lien
As we have already stated, the court erred in holding the plaintiff as the owner of two
hundred and fifty shares of stock; "the plaintiff's rights consist in an equity in five hundred
shares and upon payment of the unpaid portion of the subscription price he becomes
entitled to the issuance of certificate for said five hundred shares in his favor."

Baltazar vs Lingayen Gulf


Baltazar together with Rose subscribed to 600 and 400 shares of Lingayen Gulf respectively.
Baltazar fully paid for 535 shares and R fully paid for 375 shares for which the corporation
issued certificated. It is alleged that it has always been the practice and procedure of the
Corporation, to issue certificates of stock to its individual subscribers for unpaid shares of
stock. A competing faction led by Ungson which also had majority control of the Board
passed 3 resolution which Baltazar and Rose claim were enacted to deprive them of their
right to vote and retain control of the corporation. The three resolutions basically imposed
the following rules/conditions:

1. That all unpaid subscription shall be subject to interest and whatever payment made
for those unpaid subscription should first be credited to the interest and not the
2. That any stockholder who is in possession of both paid up and delinquent shares shall
be incapacitated to vote on ALL his shares regardless of whether paid up or
delinquent. (so even if you have 100 paid up shares and 50 delinquent shares you
are still not allowed to exercise your power to vote on the 100 paid up shares)

1. Does a stockholder who has subscribed and partially paid for shares of stock entitled
to vote for those shares that have been fully paid up notwithstanding the fact that
he subsequently became delinquent with the remainder of the subscription? (for
ex. You subscribed for 100 shares in 2008 and paid up 70 shares in 2009, on 2010
however you were declared delinquent for the remaining 30 shares, may you be
deprived of your right to vote on ALL your shares since you were delinquent on
the remaining 30 shares? Take note that you subscribed to all 100 shares at the
same time)

2. Can a corporation that previously allowed payments by shareholders to be directly
credited to the principal before the interest be allowed to unilaterally rescind its
promise and require that interest be paid up first?


1. Yes he still has voting rights but only to the extent of the fully paid up shares.

Where a stockholder subscribed to a certain number of shares with par value and
he made a partial payment and was issued a certificate for the shares covered by
his partial payment, he is entitled to vote the said shares, although he has not paid
the balance of his subscription and a call or demand had been made for the
payment of the par value of the delinquent shares. Only the remaining number of
shares in the subscription will be affected by the subsequent declaration of
delinquency in case of non-payment of the subscription price.

2. No, it cannot unilaterally rescind. Application of payments to the principal previously
agreed upon by the corporation cannot unilaterally be changed as to apply first to
the interest. The Corpo Law and by-laws of the corp do not contain any provision
prohibiting the application of payments to the principal amount first before being
applied to the interest.

Nava vs Peers Marketing

1) This is a mandamus case.

2) Teofilo Po as an incorporator subscribed to 80 of PEERS MARKETING CORP.
(P100/share) for P8,000. Po paid P2,000 or 25% of the amount of his
subscription. No certificate of stock was issued to him or, for that matter, to
any incorporator, subscriber or stockholder. No stock certificate was issued
to Po.

3) Po sold to Ricardo A. Nava for two thousand pesos twenty of his eighty
shares. In the deed of sale Po represented that he was "the absolute and
registered owner of twenty shares" of PEERS MARKETING CORP.
Page 8 of 8

4) Nava requested the officers of the corporation to register the sale in the
books of the corporation.

5) Corporations officers denied the request because Po has not paid fully the
amount of his subscription. Nava was informed that Po was delinquent in the
payment of the balance due on his subscription and that the corporation had
a claim on his entire subscription of eighty shares which included the twenty
shares that had been sold to Nava.

6) Nava filed a Petition for Mandamus to compel the corporation and its EVP
and secretary, respectively, to register the 20 shares in Nava's name in the C's
transfer book contending that under section 37 a certificate of stock may be
issued for shares the par value of which have already been paid for although
the entire subscription has not been fully paid. He contends that Peers
Marketing Corporation should issue a certificate of stock for the twenty
shares, notwithstanding that Po had not paid fully his subscription for the
eighty shares, because section 37 requires full payment for the subscription,
as a condition precedent for the issuance of the certificate of stock, only in
the case of no par stock. Nava relies on Baltazar vs. Lingayen Gulf Electric
Power Co., Inc., L-162,36-38, June 30, 1965, 14 SCRA 522, where it was held
that section 37 "requires as a condition before a shareholder can vote his
shares that his full subscription be paid in the case of no par value stock; and
in case of stock corporation with par value, the stockholder can vote the
shares fully paid by him only, irrespective of the unpaid delinquent shares".

7) Corporations Defense: no shares of stock against which the C holds an
unpaid claim are transferable in the books of the C.


In this case no stock, certificate was issued to Po. Without the stock certificate, which is the
evidence of ownership of corporate stocks; the assignment of corporate shares is effective
only between the parties to the transaction.

There is no parallelism between this case and the Baltazar case. It is noteworthy that in the
Baltazar case the stockholder, an incorporator, was the holder of a certificate of stock for the
shares the par value of which had been paid by him. The issue was whether the said shares
had voting rights although the incorporator had not paid fully the total amount of his
subscription. That is not the issue in this case.

In the Baltazar case, it was held that where a stockholder subscribed to a certain number of
shares with par value and he made a partial payment and was issued a certificate for the
shares covered by his partial payment, he is entitled to vote the said shares, although he has
not paid the balance of his subscription and a call or demand had been made for the
payment of the par value of the delinquent shares.

[Campos Notes: The Nava case reinforced the ruling in the Fua Cun case, making it clear that
the decision in Lingayen Gulf case should be applicable only to the special circumstances
appearing there.]