XII. Consideration for issuance of shares of stock corporations
INTIA
National Exchange Co v Dexter (C)
FACTS​:
● The case is an action instituted by National Exchange Co., petitioner, in
the Court of First Instance as assignee of C.S. Salmon & Co. for the
purpose of recovering from I.B. Dexter a balance of 15,000 pesos.
○ The 15000 pesos is the par value of 150 shares of the capital
stock of C.S. Salmon & Co. with interest and costs
● The trial court gave judgement for National Exchange Co. to recover the
amount claimed with consequent legal interest.
○ It is from this judgement that the defendant, I.B. Dexter is
appealing from.
● I.B. Dexter signed a written subscription to the corporate stock of C.S.
Salmon & Co.
○ The written subscription contains that Dexter subscribes to 300
shares of the capital stock of C.S. Salmon and Company, payable
from the first dividends declared on any and all shares of said
company owned by him at the time dividends are declared, until
the full amount of the subscription has been paid.
● Because of this subscription, 15,000 was paid from a dividend declared at
about that time by C.S. Salmon & Co, supplemented by money supplied by
I.B. Dexter.
○ Beyond this payment nothing has been paid on shares and no
further dividend has been declared by C.S. Salmon.
○ There is still therefore a balance of 15000 still unpaid by
subscription
DE VERA.
ISSUE:
● Whether the stipulation contained in the subscription to the effect that
the subscription is payable from the first dividends declared on the
shares has the effect of relieving the subscriber from personal liability in
an action to recover the value of the shares.
HELD: No. ​Unlawful stipulation.
● A special stipulation contained in a subscription to corporate stock
which, if valid, would lessen the capital of the company and relieve
the subscriber from liability to be sued upon the subscription is
illegal.
● It is declared in the Philippines that all franchises granted by the Govt.
shall forbid the issuance of stock except in exchange for actual cash or for
property at a fair valuation equal to the par value of the stock.
● The subject stipulation has the effect that the subscription shall be
payable from the first dividends to be paid on the shares is unlawful in so
far as it purports to relieve the subscriber from liability to be sued; and
the subscriber is liable for the par value of the stock to the same extent as
if such stipulation had not been inserted in the contract.
● The law in the Philippines states that all subscribers alike are bound to
pay full par value in cash or its equivalent, and any attempt to
discriminate in favor of one subscriber by relieving him of his liability
wholly or in part is forbidden.
● As a general rule, an agreement between the corporation and a particular
subscriber that the subscription is not to be payable, or is to be payable
in part only is illegal and void as it constitutes fraud to other stockholders
or creditors, whether it is for the purpose of making the stock seem
greater than it is, or for the purpose of preventing the predominance of
certain stockholders, or for any other purpose thus, the agreement
cannot be enforced by the subscriber or interpose it as a defense in an
action on the subscription.
● "Conditions attached to subscriptions, which, lessen the capital of the
company, are a fraud upon the grantor of the franchise, and upon those
who may become creditors of the corporation, and upon unconditional
stockholders."
1
XII. Consideration for issuance of shares of stock corporations
Triplex Shoe Co. vs. Rice & Hutchins Inc (L)
FACTS:
● Triplex Shoe Co was incorporated Dec 13, 1919 and its certificate of
Incorporation provides that its authorized capital stock is $150k
classified into two types (75k preferred share at par value $100 and $75k
common share at no par value)
● During the first meeting of the directors, the ff were elected officers:
○ Pres: Albert Dillman
○ VPres and Sec: Elmer Solly
○ Treasurer: Louis Dillman
● As stated in the meeting held, they are agreeing to serve the company at a
much smaller compensation and to receive the ff shares of common stock
○ Pres: Albert Dillman ---- 376
○ VPres and Sec: Elmer Solly ---114 (who later on transferred to
the 2 other BOD)
○ Treasurer: Louis Dillman ----50
● At a special meeting called, a resolution calling for amendment was
adopted (as substitute to the original)
○ That the total authorized capital stock would be:
■ 2,375 of preferred shares at par value $100 → $237,500
■ 175 of common shares w/o par value
■ The sole voting power shall reside in the holders of
common stock
● Rice & Hutchins Inc purchased 249 shares of prefered stock and was
given 83 shares of common stock as a bonus.
● In a subsequent annual meeting of stockholders, a contest for election of
officers ensued.
○ A ticket - supported by Rice & Hutchins
○ B ticket - supported by Dillman (winner)
● The case was filed questioning the validity of the common shares issued
to Dillman faction
McCarthy vs. Langdeau (C)
McCarty entered into a written agreement with Estate Life Insurance wherein -
● He paid $20 cash downpayment
● He will pay in installment 19,370 no-par value stocks worth $387,380.
● 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
DE VERA. INTIA
ISSUE​:
● WON there was any common stocks that were issued to Dillman were
valid - NO
HELD:
● The provision in the certificate of Incorporation that a certain part of the
capital of the incorporation is in the shares of common stock without any
par value, without stating the number of shares is NOT ONLY
unauthorized by any law and inoperative BUT ALSO meaningless in view
of the law.
○ That being the case, the no par value stock attempted to be
issued under the original cert of incorporation was INVALID.
● The certificate of Incorporation didn’t confer upon the BOD authority to
fix the consideration for no par value stock, and therefore the
consideration could be fixed only by the stockholders as provided by the
statute.
● The stockholders never fixed the consideration for any of the no par
value stock issued by the corporation after its organization
○ Therefore, ALL such stock was INVALID at the time of the
election in question and not entitled to be voted.
● The reason or consideration for such issuance of shares in favor to
Dillman and Solly ​was for the services rendered in organizing the
company and agreeing to a much smaller compensation​.
○ This kind of consideration was not of such as the law
contemplates.
○ The services do not appear to be essentially different or greater
than the services ordinarily rendered in the promotion and
organization of the corporation.
○ Hence, no proper and lawful consideration was for the common
share at the 1st board meeting
ISSUE:
● WON the agreement providing payment for the stocks through a
promissory note is valid.
HELD: YES.
● 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
2
XII. Consideration for issuance of shares of stock corporations
stopped.
● For that amount, the company did not elect to terminate the contract and
retained 411 shares under his name.
● The Company was placed under receivership and the company’s receiver
(Langdeau) files a suit against McCarty for the recovery of the whole sum
($379,280) indicated in the written agreement.
● McCarty’s 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.
Rhode vs. Dock-Hop (L)
FACTS​:
● The judgment creditor of Dock-hop filed an action against some of its
stockholders to collect from them what are claimed to be unpaid
balances on the par value of their shares.
● Allegations in the complaint:
a. Defendants were subscribers and stockholders.
b. Only 25 cents on the dollar had been paid in on the par value of
their shares.
● Answer of the defendants:
1. They were neither subscribers nor stockholders.
i. Court​: It was admitted at the trial that they were so.
1. The court accepted the plaintiff’s theory that it
made no difference whether the defendants
were subscribers or not.
2. The fact that they were stockholders and that
the shares they held, although issued as fully
paid were in fact issued for property which the
directors did not believe was equal in value to
the par value of the shares were enough to
warrant judgment against them.
2. The full par value of their stock had been paid.
i. Court​: Only five-twelfths of the par value had been paid.
Evidence is enough to prove such.
DE VERA. INTIA
corporation and its creditors. It emphasizes the stockholder’s 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.
● Its purpose is to give integrity to the corporation’s 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.
ISSUE​:
● WON defendants are required, because of the plaintiff’s claim, to make up
any difference which may exist between what was actually paid on their
stock and its par value. - ​NO
HELD:
The innocent purchasers of watered stock cannot be made to pay for the
balance.
● Where a person accepts the ownership of stock which purports to be
fully paid, it cannot be said of him that he accepts the stock and enters
upon the relation of stockholder upon any understanding that his stock is
liable for further calls on capital account or that he assumes any such
obligation.
● In fact, he enters upon such relationship with just the contrary
understanding.
One giving credit to a corporation is entitled to rely upon its ostensible
capitalization as the basis for the credit given.
● When the corporation issues watered stock and assumes an ostensible
capitalization in excess of its assets, it commits constructive fraud upon
the creditors.
● In other words, the essence of the right of the creditor to brush aside the
issuance of the stock as fully paid, and to show that it was not such and to
compel the payment of the balance upon it, is that the issuance as fully
paid was as to him a fraud.
The above view is followed in California. The court is, therefore, free to follow the
rule that ​the transferee of watered stock who takes it in ignorance of its real
character is not required, even at the suit of a creditor, to pay in anything more
3
XII. Consideration for issuance of shares of stock corporations
Velasco vs. Poizat
● Velasco is seeking to recover from Poizat, the sum of P1,500, upon a
subscription made by him to the corporate stock of said company.
● The corporation was originally organized with a capital of P50,000,
divided into 500 shares.
○ Poizat subscribed for 20 shares of the stock of the company, and
paid upon his subscription the sum of P500, the par value of 5
shares.
○ Poizat was a stockholder in the company from the inception of
the enterprise, and for sometime acted as its treasurer and
manager.
■ While serving in this capacity he called in and collected
all subscriptions to the capital stock of the company,
except the aforesaid 15 shares subscribed by himself
and another 15 shares owned by Jose R. Infante.
● A meeting of the board of directors of the company was held at which a
majority of the stock was represented.
○ Upon this occasion two resolutions were adopted:
■ 1) The first was a proposal that the directors, or
shareholders, of the company should make good by new
subscription, in proportion to their respective holdings,
15 shares which had been surrendered by Infante.
● It seems that this shareholder had already paid
25 per cent of his subscription upon 20 shares,
leaving 15 shares unpaid for, and an
understanding had been reached by him and
the management by which he was to be
released from the obligation of his subscription,
it being understood that what he had already
DE VERA. INTIA
upon it.
● This is consistent with the principle that recovery is permitted in any
case against the owner of stock issued by the corporation as fully paid.
[Remedy is against the original owner of the watered stocks.]
● Any other rule would subject the innocent purchaser of corporate stock
to obligations in large amounts of which he had no conception when he
acquired such.
Campos​: The innocent purchaser of watered stocks is thus treated like the holder
in good faith in nego, based on the policy of encouraging the free transferability of
shares as a means of enhancing the growth of commerce and industry. Apparently
the remedy of the defrauded creditor would be against the original owner of the
watered stocks
ISSUE:
● WoN Poizat is liable to pay upon this subscription.
HELD: YES.
● A stock subscription is a contract between the corporation on one side,
and the subscriber on the other, and courts will enforce it for or against
either.
○ It is a rule, accepted by the Supreme Court of the United States,
that a subscription for shares of stock does not require an
express promise to pay the amount subscribed, as the law
implies a promise to pay on the part of the subscriber.
● Section 36 of 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 corporation.
○ The subscriber is as much bound to pay the amount of the
share subscriber by him as he would be to pay any other
debt, and the right of the company to demand payment is no
less incontestable​.
● The provisions of the Corporation Law (Act No. 1459) give recognition to
two remedies for the enforcement of stock subscriptions.
○ 1) Permitting the corporation to put up the unpaid stock for sale
and dispose of it for the account of the delinquent subscriber.
○ 2) The other remedy is by action in court.
● The ordinary legal remedy by action exists even though no express
mention thereof is made in the statute.
● No attempt is made in the Corporation Law to define the precise
conditions under which an action may be maintained upon a stock
4
XII. Consideration for issuance of shares of stock corporations
paid should not be refunded.
■ 2) The other proposition was to the effect that Poizat,
who was absent, should be required to pay the amount
of his subscription upon the 15 shares for which he was
still indebted to the company.
● The resolution further provided that, in case he
should refuse to make such payment, the
management of the corporation should be
authorized to undertake judicial proceedings
against him.
● Poizat stated that he had been given to understand by some member of
the board of directors that he was to be relieved from his subscription
upon the terms conceded to Infante; and he added: “I prefer to lose the
whole of the 25 per cent I have already paid rather than to continue
investing more money in what I consider to be a ruinous proposition."
● The company soon went into voluntary insolvency, Velasco being named
as the assignee.
● The principal contention is that the call made by the board of directors of
the company was not made pursuant to the requirements of sections 37
and 38 of the Corporation Law (Act No. 1459), and in particular that the
action was instituted before the expiration of the 30 days specified in
section 38.
● Court of First Instance judgment: in favor of the defendant, and the
complaint was dismissed.
DE VERA. INTIA
subscription, as such conditions should be determined with
reference to the rules governing contract liability in general; and
where it appears as in this case that a matured stock subscription is
unpaid, none of the provisions contained in sections 38 to 48,
inclusive, of Act No. 1459 can be permitted to obstruct or impede
the action to recover thereon.
---
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 or
receiver appointed by the court.
● A court of equity, having jurisdiction of the insolvency proceedings,
could, if necessary, make the case itself, in its capacity as successor to the
powers exercised by the board of directors of the defunct company.
● The receiver or assignee, in an action instituted by proper authority,
could himself proceed to collect the subscription without the necessity of
any prior call whether.
● It evidently cannot be permitted that a subscriber should escape
from his lawful obligation by reason of the failure of the officers of
the corporation to perform their duty in making a call.
○ When the original mode of making the call becomes
impracticable, the obligation must be treated as due upon
demand.
● If the corporation were still an active entity, and this action should be
dismissed for irregularity in the making of the call, other steps could be
taken by the board to cure the defect and another action taken by the
board to cure the defect and another action could be brought;
● But where the company is being wound up, no such procedure would be
practicable.
● The better doctrine is that when insolvency supervenes → all
unpaid subscription become at once due and enforceable.
The circumstance that the board of directors in their meeting resolved to
release Infante from his obligation upon a subscription for 15 shares is in
no wise prejudicial to the right of the corporation or its assignee to recover
from Poizat upon a subscription made by him.
● In releasing Infante the board transcended its powers, and he no doubt
still remained liable on such of his shares as were not taken up and paid
for by other persons.
● "The general doctrine is that the corporation has no legal capacity to
release an original subscriber to its capital stock from the obligation of
paying for his shares, in whole or in part, . . . "
5
XII. Consideration for issuance of shares of stock corporations
Miranda vs. Tarlac Rice Mill (L)
FACTS:
● Alberto Miranda executed a written contract whereby he subscribed for
100 shares of the capital stock of Tarlac Rice Mill Company, Inc.
● The par value of each share was P100 making his total subscription equal
to P10,000 to be paid on installment according to the subscription
contract as follows:
○ On or before Sep 21, 1926 P1,000
○ On or before Jan 21, 1927 2,000
○ On or before Jan 21, 1928 2,000
○ On or before Jan 21, 1929 2,500
○ On or before Jan 21, 1930 2,500
● In 1927, Alberto Miranda executed a public document where he
○ "assigned," mortgaged, or transferred his parcel of land in Tarlac
to the Tarlac Rice Mill Co. to pay his subscription in lieu of cash
○ appointed the President, Vice Presidents and Treasurer of the
company as his attorney-in-fact to transfer or mortgage his land
to any local or foreign bank or individual
■ to solicit money not exceeding P10,000 in accordance
with the subscription contract or
■ to increase the capital of the said Tarlac Rice Mill
Company , in order to carry out the purposes for which
said firm is to be organized
● Pursuant to this assignment, the president and vice-president of the
Tarlac Rice Mill Company, Inc. borrowed P10,000 from Mariano Tablante
DE VERA. INTIA
● The suggestion contained in Poizat's letter to the effect that he
understood that he was to be relieved upon the same terms as Infante is,
for the same reason, of no merit as matter of defense, even if an
agreement to that effect had been duly proved.
● From what has been said it is manifest that the defendant is liable for
P1,500, the amount of his subscription upon the unpaid shares. e is also
liable for interest at the lawful rate from the date of his subscription,
unless relieved from this liability by the by-laws of the company. (Sec.
36)
● These by-laws showing the exact date upon which the subscription was
made, though it is alleged in the original complaint that the company was
organized upon march 23, 1914.
● This allegation is not admitted in the agreed statement of facts. The
defendant, however, inferentially admits in his letter of July 27, 1914,
that this subscription had been made prior to July 13, 1914. It results that
in our opinion he should be held liable for interest from that date.
ISSUE:
● WON the amounts paid by Miranda to the corporation may be recovered
HELD:​ No, the amounts paid by Miranda cannot be recovered
● There is no question as to the validity of subscription agreement. There is
also no allegation of fraud on the part of the officers.
● When the property was mortgaged on 1927 the amount due from Alberto
Miranda in accordance with the subscription agreement was only P3,000.
It also does not appear from the evidence that the directors called for the
payment of any subscriptions from other stockholders.
● The fact that Alberto Miranda agreed to pay his subscription installments
on certain fixed dates did not prevent him from authorizing the officers
as his attorneys-in-fact to pay his subscription earlier than the dates fixed
in the subscription agreement.
ARGUMENT OF THE MIRANDA’S ADMINISTRATOR​:
● In one paragraph of the power of attorney it is stated that the
attorneys-in-fact are authorized to mortgage the property in any way
convenient to them in the amount not to exceed P10,000 ​in accordance
with the subscription contract
SUPREME COURT:
● However, the phrase "in accordance with the subscription contract" is
followed by the words "to increase the capital of Tarlac Rice Mill
Company, Inc., in order to carry out the purposes for which said firm is to
be organized."
6
XII. Consideration for issuance of shares of stock corporations
and as security for the loan, they also mortgaged to him the land assigned
by Miranda.
● The P10k obtained from Mariano Tablante was retained by the
corporation. When the promissory note became due, the company
defaulted and Alberto Miranda himself arranged for an extension of time
for payment. To meet the obligation, Miranda he sold the land under
pacto de retro to Vicente Panlilio for P10,000, and paid Mariano Tablante.
The corporation ceased to do business from the year 1928 and Alberto
Miranda died in 1930.
● In this action, the administrator of the estate of Alberto Miranda sought
to recover the payments of the subscription made by Miranda to the
corporation based on the ff reasons:
○ The officers of the corporation violated the terms of the power of
attorney in mortgaging the land on 1927 for P10,000, because
the only sum then due to the corporation was P3,000
○ When the remaining installments of the stock subscription
became due, Alberto Miranda was under no obligation to pay
them, because the corporation had already ceased to do business
○ The corporation had taken no steps to compel the other
stockholders to pay for the shares for which they had subscribed.
DE VERA. INTIA
● Under the circumstances, it would be a strained construction of the
power of attorney to hold that the officers were authorized to mortgage
the land only for the amount then due 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
installment became due.
It was the intention of the parties that the property should be mortgaged
immediately for a sum not to exceed P10k, not only for the purpose of
paying the subscription agreement, but also for the purpose of increasing
the capital of the corporation.
● This view is confirmed by the subsequent conduct of the parties.
Although the corporation retained the full amount of the loan from
Tablante, Miranda never sought to recover from the corporation any part
of the P10k.
● The mortgage was executed on 1927; it was satisfied by Alberto Miranda
on 1929 and he lived until 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.
● On the contrary he repaid to Mariano Tablante the amount which the
officers of the corporation had borrowed.
● The fact that he never sought to recover from the corporation the sum
borrowed by the officers tends to show that he acquiesced in the action
taken by them.
● The phrase "in accordance with the subscription contract" in the power
of attorney was intended to mean "in pursuance of the subscription
agreement". Such phrase referred to the obligation to pay the
subscription, and not to the dates when the 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 the book "The Philippine Law of Stock Corporations" by Justice Fisher:
● 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 or demand is necessary when a subscription is payable. In such
cases it is the duty of the subscriber to pay the subscription or
installment as soon as it is due, without any call or demand, and, if he
7
XII. Consideration for issuance of shares of stock corporations DE VERA. INTIA

fails to do so, an action may be brought at any time.

● When this action to recover the payment was filed, the last of the
installments had already become payable in accordance with the
subscription agreement.
● 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.
● The fact that the corporation has ceased to do business or the fact that
the other stockholders have not been required to pay for their shares
does not justify ordering the corporation to return the subscriptions 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 therefore.

In ​Velasco vs. Poizat​:

● 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 this case, there is no allegation that Alberto Miranda cancelled his
subscription agreement, or that the corporation attempted to release him
therefrom.

De Silva vs. Aboitz & Co. (C) ISSUE

● De Silva subscribed for 650 shares of stock of Aboitz & Co. for the value
of P500 each, of which he has paid only the total value of 200 shares.
○ The remaining 450 shares unpaid → indebtedness to Aboitz in
the sum of P225,000
● On April 22, 1922, he was notified by the secretary of the corporation of a
● WON under the provision of article 461 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.
RULING​: YES.

1
​"ART. 46. The net profit resulting from the annual liquidation shall 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 share holders 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 be 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 declared as may affect the capital of the corporation."
8
XII. Consideration for issuance of shares of stock corporations
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
○ That all such shares as may have not been paid then, with the
accrued interest up to that date, will declared delinquent,
advertised for sale at the public auction, and sold for the purpose
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 was published.
● De Silva filed a complaint in the CFI against the said corporation has
exceeded its authority
○ 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,
● De Silva alleged the following as the grounds of his petition:
○ That, according to article 46 of the by-laws of the corporation, all
the shares subscribed to by the incorporators 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;
○ That in declaring the plaintiff's unpaid subscription to the capital
stock to have become due and payable, 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 shares
continuously until their full amortization, thus violating and
disregarding a right of the plaintiff vested under the said
by-laws;
● CFI dismissed the complaint.
DE VERA. INTIA
"​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​."
● 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 subscribes to and not fully paid.
● It lies 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:
○ 1) Permitting the corporation to put up the unpaid stock for sale
and dispose of it for the account of the delinquent subscriber.
○ 2) By action in court.
● The board of directors of the defendants corporation elected to avail
itself of the first of said two remedies.
● The board of director 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-laws​, a
part of the profit that was, or might have been realized. and was
distributable among the stock holders 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 the court the
proper action against the debtor or the delinquent stockholders.
● 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 deemed fit.
○ It cannot be maintained that said article has prescribed an
operative method for the payment of said subscriptions.
● 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 directors​.
○ This can no way be reconciled with the idea of method, which
implies something fixed as rule or permanent standard, and not
variable at the will of somebody and according to the
9
XII. Consideration for issuance of shares of stock corporations
National Exchange Co. vs. Dexter (L)
FACTS:
● I.B. Dexter signed a written subscription to the corporate stock of C.S.
Salmon & Co. in the following form:
○ “I hereby subscribe for 300 shares of the capital stock of C.S.
Salmon and Company, payable from the first dividends declared
on any and all shares of said company owned by me at the time
dividends are declared, until the full amount of this subscription
has been paid.”
● Upon this subscription, P15,000 was paid from a dividend declared by
the company, supplemented by money supplied personally by Dexter.
● Beyond this, nothing has been paid on the shares and no further dividend
has been declared.
● The National Exchange Co., Inc., as assignee (through the PNB) of C.S.
Salmon, instituted in CFI Manila an action to recover from I.B. Dexter a
balance of P15,000, the par value of 150 shares of stock of C.S. Salmon,
with interest and costs.
CFI​: ​In favor of Dexter. Stipulation is invalid.
● In the absence of restrictions in its charter, a corporation, 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
DE VERA. INTIA
circumstances.
● 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 director from
following, for that purpose, any other method than that mentioned in the
said article.
● 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 its performed the acts mentioned in the
complaint as grounds therefor, and, consequently, the facts therein
alleged do not constitute a cause of action.
● For the foregoing, the order appealed from are affirmed, with the costs of
both instances against the appellant. So ordered.
ISSUES:
● WON the stipulation in the subscription (that subscription is payable
from the first dividends declared on the shares) has the effect of relieving
the subscriber from personal liability in an action to recover the value of
the shares.
HELD: ​NO. The stipulation is illegal.
● The prohibition against the issuance of shares by corporations except for
actual cash to the par value of the stock or its full equivalent in property
is enshrined in both the organic and statutory law of the Philippine
Islands.
● Lawmakers used language directly suited to secure absolute equality
among stockholders with respect to their liability upon stock
subscriptions.
● If it is unlawful to issue stock otherwise than as stated, the stipulation in
this case, in a 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, hence the
stipulation is unlawful.
● General doctrine as stated in ​Corpus Juris​:
○ “Nor has a corporation the power to receive a subscription upon
such terms as will operate as a fraud upon the other subscribers
10
XII. Consideration for issuance of shares of stock corporations
which are beyond the powers conferred upon it by its charter, and
provided​ they do not constitute a fraud upon other subscribers/
stockholders, or upon such persons who are or may become creditors of
the corporation.
Lumanlan vs. Cura (C)
● Dizon & Co is a corporation duly organized under the PH laws
● Lumanlan subscribed for 300 shares of stock of said corporation at a par
value of P50 or a total of P15K
● Julio Valenzuela and the other creditors of the corporation filed a suit
against Dizon & Co. praying that a receiver be appointed as it appeared
that the corporation had no assets except credits against those who had
subscribed for shares of stock
○ The Court named Tayag as receiver.
● Lumanlan paid only P1,500 of the P15K​, so Tayag filed a suit against
him for the collection of P15, 109:
○ P13,500 = amount he owed for unpaid stock
○ P1,609 = loans & advances by the corporation to Lumanlan
● The Court in ​Case No. 37492,​ sentenced Lumanlan to pay the said amount.
○ Lumanlan appealed from the said decision.
● Pending such appeal, w/ the permission of the Court, the creditors held
DE VERA. INTIA
or stockholders by subjecting the particular subscriber to lighter
burdens, or by giving greater rights and privileges, or as a fraud
upon creditors of the corporation by withdrawing or decreasing
the capital.
○ As a general rule​, an agreement between a corporation 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 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.”
● The law in force in this jurisdiction makes no distinction, in respect to the
liability of the subscriber, between shares subscribed before
incorporation is effected and shares subscribed thereafter.
● All alike are bound to pay full par value in cash or in its equivalent, and
any attempt to discriminate in favor of one subscriber by relieving him of
its liability wholly or in part is forbidden.
● This has reference primarily to subscriptions to shares that have not
been previously issued.
● It is conceivable that the power of the corporation to make terms with
the purchaser would be greater where the shares have been acquired by
the corporation in the course of commerce after they have already been
once issued; but the shares in this case are not of the latter sort.9
ISSUE:
● Whether or not the corporation has a right to collect all unpaid stock
subscriptions and any other amounts which may be due it.
RULING: YES.
● It is established doctrine that subscriptions to the capital 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 the payment of its debts.
● 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 corporation.
● The subscriber is as much bound to pay the amount of the share
subscribed by him as he would be to pay any other debt, and the right of
11
XII. Consideration for issuance of shares of stock corporations
several meetings, in which it was agreed that subscribers for the capital
stock who were in default should pay.
● Lumanlan was designated to pay the debt of the corporation to Julio
Valenzuela.
● Lumanlan agreed to assume the obligation and in turn the corporation
agreed that ​if Lumanlan would dismiss his appeal, the corporation
would collect only 50% of the amount subscribed by him for stock,
provided that in case the 50% was insufficient to pay Valenzuela he
should pay an additional amount which should not exceed the
amount of the judgment against him
○ In view of the agreement, Lumanlan withdrew his appeal
● Disregarding the agreement, the corporation asked for the execution of
the sentence in ​Case No. 37492​.
● So the Provincial Sheriff levied upon 2 parcels of land belonging to
Lumanlan.
● Lumanlan brought this case to collect from Dizon & Co and to prevent the
sheriff from selling the 2 parcels of land
● Pending result, sheriff was enjoined from proceeding w/ the sale
PNB vs. Bitulok Sawmill (L)
PARTIES TO THE CASE
Petitioner - ​Philippine National Bank
Respondent - ​Bitulok Sawmill et al (lumber companies who invested through
stock subscriptions to the Phil Lumber Distributing agency)
FACTS:
● The Phil lumber distributing agency Inc was organized upon the initiative
and insistence of the late Pres Roxas for the purpose of insuring a steady
supply of lumber which could be sold at reasonable price to enable war
sufferers to rehabilitate their devastated homes.
○ He was able to convince the lumber producers to form a lumber
cooperative and to pool their resources in order to wrest the
retail trade the alien middlemen (In short, Pres Roxas wanted to
have a cooperative who can provide a cheaper price for lumber
w/o the middleman)
● Knowing that such Cooperative agency wouldn’t be successful without
substantial working capital, he promised and agreed that the
Government will invest P9.00 for every P1.00 that members would
invest. (In short, subsidize!!)
○ HOWEVER, such didn’t happen. The Congress didn’t appropriate
any funds for such loan to the agency.
● PNB already granted to the Phil lumber distributing agency an amount of
DE VERA. INTIA
the company to demand payment is no less incontestable.
● The judgment of the trial court is modified in accordance with the above
and Dizon & Co., Inc., is ordered to credit Bonifacio Lumanlan with the
sum of P13,840 against the judgment for P15,109, and to issue to
Bonifacio Lumanlan 300 shares of its capital stock upon payment by him
of the sum of P1,269 with interest thereon at 6% per annum.
● The preliminary injunction issued in this case is hereby dissolved for the
purpose of enabling Dizon & Co., Inc., to ask for a new order of execution
in case No. 37492, Court of First Instance of Manila, for the sum of P1,269
with interest thereon as stated above.
(The ruling of the Court in this case was so short. But basically, Yes the
corporation has a right to collect the amount of shares subscribed just like an
ordinary debt however in this case, since Lumanlan paid the debt of the
corporation amounting to P13,840, the corporation should credit the said
amount against the P15,109 judgment of the court, which Lumanlan was
ordered to pay)
ISSUE​:
● WON the non payment of stock subscription of lumber companies is
justified. - ​NO
HELD​:
● It would be unwarranted to ascribe to the late President Roxas the view
that the payment of the stock subscriptions, as required by law, could be
condoned in the event that the counterpart fund to be invested by the
Government would not be available.
● Even if such were the case, however, and such a promise were in fact
made, to further the laudable purpose to which the proposed corporation
would be devoted and the possibility that the lumber producers would
lose money in the process, still the plain and specific wording of the
applicable legal provision as interpreted by this Court must be
controlling.
● It is a well-settled principle that with all the vast powers lodged in the
Executive, he is still devoid of the prerogative of suspending the
operation of any statute or any of its terms.
● It is at no time did President Roxas ever give Respondent lumber
producers to understand that the failure of the Government for any
reason to put up the counterpart fund could terminate their statutory
liability.
● In the case of Velasco v Poizat:
12
XII. Consideration for issuance of shares of stock corporations
P350k, with an interest og 6% and secured by chattel mortgage on the
stock of lumber. (In short, kawawa si PNB, nagpautang na sila bec of the
promise made by Pres Roxas pero di sila mababayaran)
● PNB now suing to recover the balance of unpaid subscription
DECISION OF LOWER COURT: Dismissed
● It is grossly unfair and unjust for the bank now to compel the lumber
producers to pay the balance of their subscriptions.
● It was Pres Roxas’s words of assurance (that he’ll make good of his
commitment that Govt will invest in said agency), and because of that
bank should not collect any more from the defendants the balance of
their subscriptions to the capital stock of the Philippine Lumber
Distributing Agency, Inc.
Garcia vs. Suarez (C)
FACTS:
● Resp Suarez subscribed 16 shares of the capital stock of the Compania
Hispano Filipina Inc and of the 16 shares at par value of 100 each, he only
paid 400 pesos equivalent to just 4 shares\
● The Petitioner, being the appointed receiver by the court, who is tasked
to collect credits of the company, pay its debts and dispose the
remainder, demanded to Resp Suarez to pay the balance of his
subscription.
● He then initiated an action before CFI, which was at first dismissed for
lack of prosecution. On the 2nd institution of the case, judgment rendered
in his favor and the Resp was made to pay the amount of P1,200 plus the
legal interest.
MAIN CONTENTION OF RESP SUAREZ:
● It contends that trial court erred in saying that the action of the
Petitioner Garcia has not prescribed and he has not been released from
his obligation.
● From the date of subscription which was on Oct 4, 1924 until the filing of
the complaint on Oct 10, 1935, more than 10 years have elapsed which is
more than sufficient for the prescription against the him
DE VERA. INTIA
○ It is established doctrine that subscriptions to the capital of a
corporation constitute a fund to which creditors have a right to
look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its
debt.
○ A corporation has no power to release an original subscriber to
its capital stock from the obligation of paying for his shares,
without a valuable consideration for such release
○ And as against creditors a reduction of the capital stock can take
place only in the manner and under the conditions prescribed by
the statute or the charter or the articles of incorporation.
Moreover, strict compliance with the statutory regulations is
necessary
ISSUE​:
● WON the action for collection has already prescribed - ​NO
● WON the corporation can release a subscriber from the obligation to pay
his shares even if there is an agreement to it - ​NO
HELD​:
1st issue:
● The premise of the argument is wrong because it confuses 2 distinct
obligations: ​the obligation to pay interest and that to pay the amount of
the subscription.
● Sec 37 of the Corporation Law provides ​the obligation to pay interest and
that to pay the amount of the subscription but it is absolutely silent as to
when the subscription to a stock should be paid.
● The BOD of the Compañia Hispano Filipino, not having declared due and
payable the stock subscribed by the Resp Suarez, the prescriptive period
of the action for the collection thereof only commenced to run from June
18, 1931 when the Petitioner, 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.
2nd issue
● 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.
● A corporation has no power to release an original subscriber to its capital
13
XII. Consideration for issuance of shares of stock corporations
Fua Cun v Summers (L)
FACTS:
● Chua Soco subscribed for 500 shares of stock to Resp China banking
Corp. paying the sum of P25,000 which is the one-half of the subscription
price in cash for which a receipt was issued.
○ It was also stated in the receipt that was issued that it is only
upon the receipt of the balance of P25k in accordance with the
terms that the duly executed certificates of shares of stock will
be issued to the subscriber (Chua Soco)
○ Also, it is stipulated therein that if the unpaid balance shall not
be paid within 30 days, it will be subject to sale (to my
understanding going back to the corp)
● Thereafter, Chua Soco executed a promissory note in favour of Fua Cun
for P25, 000 securing with a chattel mortgage on the former’s shares of
stock in China Banking Corp.
● Petitioner Fua Cun then took the receipt to the manager of China Banking
Corp. and informed him of the transaction with Chua Soco, but was told
to await action upon the matter by the BOD.
● In the meantime, Chua Soco appears to be indebted to China Banking
Corp. for the non-payment of drafts (commercial paper)
○ Because of the said indebtedness, Chua Soco’s interest in the 500
shares subscribed for was attached and the receipt seized by the
sheriff. (in favor of the Chinabank)
● Fua Cun is now assailing that by virtue of the partial payment (½) of the
subscribed price, Chua Soco became the owner of the half also and
because such was endorsed (he has a lien over it through PN by virtue of
chattel mortgage hello Nego!) he should be declared to hold priority over
the claim of the Resp Chinabank
● TRIAL COURT rendered judgment in favor of Fua Cun
DE VERA. INTIA
stock from the obligation of paying for his shares, without a valuable
consideration for such release
● 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
ISSUE​:
● WON Fua Cun’s lien is superior than that of Chinabank
HELD: YES
● A corporation has no lien upon the shares of stockholders for any
indebtedness to the corporation
Sec 120 of the Corporation Act provides that:
● “No bank organized under this Act shall make any loan or discount on the
security of the shares of its own capital stock, nor be the purchaser or
holder of any such shares, unless such security or purchase shall be
necessary to prevent loss upon a debt previously contracted in good
faith, and stock so purchased or acquired shall, within six months from
the time of its purchase, be sold or disposed of at public or private sale,
or, in default thereof, a receiver may be appointed to close up the
business of the bank in accordance with law."
● The reason for this is that if banking corporations were given a lien on
their own stock for the indebtedness of the stockholders, the prohibition
against granting loans or discounts upon the security of the stock would
become largely ineffective.
● There can be no doubt that an 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.
● As against the rights of the Pet Fua Cun, the Resp Chinabank had 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 Resp bank holds no lien whatever.
14
XII. Consideration for issuance of shares of stock corporations
Nava v Peers Marketing (C)
FACTS:
● Teofilo Po as an incorporator subscribed to 80 shares of Peers Marketing
Corporation at P100 par value and paid 25%. No certificate of stock was
issued to him or to any incorporator, subscriber or stockholder.
● On April 2, 1966: Po sold to Ricardo A. Nava for P2,000 20 of 80 shares.
Nava requested to register the sale in the books of the corporation.
● Denied ​- Po has not paid fully the amount of his subscription and he was
delinquent of the balance due so the corporation claimed on his entire
subscription of which included 20 shares sold to Nava.
● December 21, 1966: Nava filed this mandamus to register 20 shares in
Nava's name in the corporation's transfer book.
CFI: court dismissed the petition
● Nava appealed on the basis that: Section 37: "no certificate of stock shall
be issued to a subscriber as fully paid up until the full par value thereof,
or the full subscription in case of no par stock, has been paid by him to
the corporation"
DE VERA. INTIA
ISSUE:
● WON officers of Peers Marketing Corporation can be compelled by
mandamus to enter in its stock and transfer book the sale made
HELD:​ NO. Dismissal affirmed.
● No provision of the by-laws of the corporation covers that situation.
● Sec. 35 provides that the capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or the
vice-president, countersigned by the secretary or clerk 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 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 entered and noted upon 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, and the number of shares
transferred.
No share of stock against which the corporation holds any unpaid claim
shall be transferable on the books of the corporation.
SEC. 36. (re voting trust agreement)
● The certificates of stock so transferred shall be surrendered and
cancelled, and new certificates therefor issued to such person or persons,
or corporation, as such trustee or trustees, in which new certificates it
shall appear that they are issued pursuant to said agreement.
● A stock subscription is a subsisting liability from the time the
subscription is made. The subscriber is as much bound to pay his
subscription as he would be to pay any other debt. The right of the
corporation to demand payment is no less incontestable.
● No clear legal duty on the part of the officers of the corporation to
register the 20 shares in Nava's name - no cause of action for mandamus.
15
XII. Consideration for issuance of shares of stock corporations DE VERA. INTIA

Baltazar case:
● Partial payment = 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

● Thus​, ​Ricardo Nava, to whom Teofilo Po transferred 20 of the 80 shares

the latter subscribed but has not yet fully paid, and for which no
certificate of stock has been issued, has no cause of action against the
officers of the corporation for the recognition and recording of the
transaction in the corporate books.
● The transfer of the shares to Nava is valid only between him and Po.

Issuance of Certificate
● Once full payment for the stocks have been tendered to the corporation
in any of the valid forms of consideration for the issuance of stocks, the
purchaser or the subscribers entitled to be issued the corresponding
certificate of stock which evidences their ownership of shares in a
particular corporation

16