Corporate Law Case Write-up
Lingayen Gulf v. Baltazar
I. Facts of the case
Lingayen Gulf Electric Power Company is a domestic corporation with
an authorized capital stock of P300,000 divided into 3,000 shares with a par
value of P100 per share.
Irineo Baltazar appears to have subscribed for 600 shares. Upon
organization of the corporation, he paid P15,000, and after the
incorporation, he made further payments.
The corporation now seeks to collect from Baltazar the balance of the
unpaid subscription in the amount of P18,500.
On July 23, 1946, a majority of the stockholders, among them was
Baltazar, adopted Resolution No. 17, which provided the following: a) it
was agreed upon to call the balance of all unpaid subscribed capital stock
as of July 23, 1946, the first 50 per cent payable within 60 days beginning
August 1, 1946, and the remaining 50 per cent payable within 60 days
beginning October 1, 1946; b) all unpaid subscription after the due dates of
both calls would be subject to 12 per cent interest per annum; c) after the
expiration of 60 days' grace which would be on December 1, 1946 for the
first call, and on February 1, 1947 for the second call, all subscribed stocks
remaining unpaid would revert to the corporation.
The corporation wrote to Baltazar reminding him that the first 50% of
his unpaid subscription will be due on Oct. 1, 1946.
Baltazar wrote 2 letters: first, asking the corporation that he be allowed
to pay his unpaid subscription by February 1, 1947, and that if he could not
pay by that time, his unpaid subscription would be reverted to the
corporation; second, offering to withdraw completely from the corporation
by selling out to the corporation all his shares of stock in the total amount of
P23,000. The offer of the defendant was left unacted upon by the
corporation.
On April 17, 1948, the Board of Directors held a meeting and adopted
Resolution No. 17.
Contents of the resolution:
a) The Board set aside the stockholders’ resolution approved on
July 23, on the ground that said stockholders' resolution was
G.R. NO:
ARTICLE; TOPIC OF CASE: Shares of Stocks
VOL XX [X X X]
By Rafael Hernandez
null and void; and because the plaintiff corporation was not
in a financial position to absorb the unpaid balance of the
subscribed capital stock.
b) The directors decided to call 50 per cent of the unpaid
subscription within 30 days from April 17, 1948, the call
payable within 60 days from receipt of notice from the
Secretary-Treasurer. (Call for Unpaid subscriptions)
c) The resolution authorized the legal counsel of the company
to take all the necessary legal steps for the collection of the
payment of the call.
The call for the payment of unpaid subscriptions was not published
in a newspaper of general circulation as required by section 40 of the
Corporation Law.
On June 10, 1949, the stockholders of the corporation held another
meeting in which all stockholders were present and adopted Resolution No.
4, where it was agreed to revalue the stocks and assets of the company so
as to attract outside investors to put in money for the rehabilitation of the
company. The president was authorized to make all arrangement for such
appraisal and the Secretary to call a meeting upon completion of the
reassessment.
On September 28, 1949, the legal counsel of the corporation wrote
to Baltazar, demanding the payment of the unpaid balance of his
subscription amounting to P18,500.
Baltazar ignored the demand, hence this action.
II. Issue/s
Is Baltazar released from the obligation of the unpaid balance of his
subscription by virtue of stockholders’ resolutions No. 17 and 4?
No. The release claimed by Baltazar does not fall under the exception to the
rule that a subscription may not be cancelled so as to release a subscriber
from liability.
III. Held
PONENTE:
DIGEST MAKER: Rafael Miguel A. Hernandez
 Corporate Law Case Write-up VOL XX [X X X]
Lingayen Gulf v. Baltazar By Rafael Hernandez

The Supreme Court held that in order to effect the release, there must
be unanimous consent of the stockholders of the corporation.
The general rule is that a valid and binding subscription for stock of a
corporation cannot be cancelled so as to release the subscriber from liability
without the consent of all the stockholders or subscribers . Furthermore, a
subscription cannot be cancelled by the company, even under a secret or
collateral agreement for cancellation made with the subscriber at the time of
the subscription, as against persons who subsequently subscribed or
purchased without notice of such agreement.
In this case, no certificates of stock were issued and most small
corporations do not issue certificates of stock. However, this is an
exceedingly dangerous practice. Thus, Section 63 is at the option of the
corporation.
A corporation may apply payments by subscribers either as full
payment, or payment pro rata. But once an alternative is chosen, it must be
applied uniformly. Moreover, the certificate of stock must be issued only
after full payment.

However, there is an exception. The exception is where it is given

pursuant to a bona fide compromise, or to set off a debt due from the
corporation, a release, supported by consideration, will be effectual as
against dissenting stockholders and subsequent and existing creditors. A
release which might originally have been held invalid may be sustained
after a considerable lapse of time.

In the present case, the release claimed by Baltazar does not fall under
the exception 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.

In addition, the release attempted in Resolution No. 17 of 1946 was

not valid for lack of a unanimous vote. It found that at least seven
stockholders were absent from the meeting when the resolution was
approved.

IV. Critic and Comments

The doctrine found herein is still very relevant today. As a general

rule, there must be unanimous consent of the stockholders of the
corporation to release a stockholder from his stock subscription. The
exception is if the release was given pursuant to a bona fide compromise, or
to set off a debt due from the corporation.

Sec. 63 of the Revised Corporation Code states the following:

No certificate of stock shall be issued to a subscriber until the full amount
of his subscription together with interest and expenses (in case of
delinquent shares), if any is due, has been paid.

G.R. NO: PONENTE:

ARTICLE; TOPIC OF CASE: Shares of Stocks DIGEST MAKER: Rafael Miguel A. Hernandez