Velasco vs.

Poizat (37 Phil 802)

EN BANC
[G.R. No. L-11528. March 15, 1918. ]
MIGUEL VELASCO, assignee of The Philippine Chemical Product Co. (Ltd.) ,
Plaintiff-Appellant, v. JEAN M. POIZAT, Defendant-Appellee.
D E C I S I O N STREET, J. :

DOCTRINE:
CORPORATIONS; SUBSCRIPTION TO CAPITAL STOCK. — A stock subscription
is a contract between the corporation and the subscriber, and courts will enforce
it for or against either. No express promise to pay is necessary to make the
subscriber liable.

REMEDIES FOR ENFORCEMENT OF SUBSCRIPTION FOR STOCK. — The

corporation has two remedies against the subscriber to the corporate shares,
namely (1) to sell the stock for the account of the delinquent subscriber, and (2)
to bring a legal action against him for the amount due.

ACTION TO RECOVER STOCK SUBSCRIPTION. — The provisions of section 38 to

48, inclusive, of the Corporation Law are applicable only where the directors of a
corporation intend to subject the stock of the delinquent subscriber to sale in
order to enforce payment of the subscription. They have no application in case a
legal action is brought to recover upon the stock subscription.

INSOLVENCY OF CORPORATION. — When insolvency supervenes upon a

corporation and the court assumes jurisdiction demand, and are at once
recoverable in an action instituted by the assignee in insolvency.

RELEASE OF SUBSCRIBER. — 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.

FACTS: The plaintiff, as assignee in insolvency of "The Philippine Chemical

Product Company" (Ltd.) is seeking to recover of the defendant, Jean M. Poizat,
the sum of P1,500, upon a subscription made by him to the corporate stock of
said company. It appears that the corporation in question was originally
organized by several residents of the city of Manila, where the company had its
principal place of business, with a capital of P50,000, divided into 500 shares.

The defendant subscribed for 20 shares of the stock of the company, an paid in
upon his subscription the sum of P500, the par value of 5 shares . The action was
brought to recover the amount subscribed upon the remaining shares. It appears
that the defendant was a stock holder in the company from the inception of the
enterprise, and for sometime acted as its treasurer and manager.
While serving in this capacity he called in and collected all subscriptions to the
capital stock of the company, except the aforesaid 15 shares subscribed by
himself and another 15 shares owned by Jose R. Infante. A meeting of the board
of directors of the company was held at which a majority of the stock was
presented. Upon this occasion two resolutions were adopted.

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

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

The company soon went into voluntary insolvency, Velasco being named as the
assignee. At the hearing of the Court of First Instance, judgment was rendered in
favor of the defendant, and the complaint was dismissed. From this action the
plaintiff has appealed.

ISSUE: Whether Poizat is liable upon this subscription?

HELD: Poizat is liable upon his subscription. Section 36 of the Corporation Law
clearly recognizes that a stock subscription is subsisting liability from the time
the subscription is made, since it requires the subscriber to pay interest quarterly
from that date unless he is relieved from such liability by the by-laws of the
corporation.

The subscriber is as much bound to pay the amount of the share subscribed by
him as he would be to pay any other debt, and the right of the company to
demand payment is no less incontestable.
The provisions of the Corporation Law (Act No. 1459) given recognition of two
remedies for the enforcement of stock subscriptions.

The first and most special remedy given by the statute consists in permitting the
corporation to put up the unpaid stock for sale and dispose of it for the account
of the delinquent subscriber. In this case the provisions of section 38 to 48,
inclusive, of the Corporation Law are applicable and must be followed. Nothing in
this Act shall prevent the directors from collecting, by action in any court of
proper jurisdiction, the amount due on any unpaid subscription, together with
accrued interest and costs and expenses incurred. The assignee of the insolvent
corporation succeeds to all the corporate rights of action vested in the
corporation prior to its insolvency; and the assignee therefore has the same
freedom with respect to suing upon the stock subscription as the directors
themselves would have had under section 49 above cited.

There is another reason why the present plaintiff must prevail in this case. That
reason is this: When insolvency supervenes upon a corporation and the court
assumes jurisdiction to wind up, all unpaid stock subscriptions become payable
on demand, and are at once recoverable in an action instituted by the assignee or
receiver appointed by the court.

It is now quite well settled that when the corporation becomes insolvent, with
proceedings instituted by creditors to wind up and distribute its assets, no call or
assessment is necessary before the institution of suits to collect unpaid balances
on subscription. It evidently cannot be permitted that a subscriber should escape
from his lawful obligation by reason of the failure of the officers of the
corporation to perform their duty in making a call; and when the original model of
making the call becomes impracticable, the obligation must be treated as due
upon demand. The better doctrine is that when insolvency supervenes all unpaid
subscriptions become at once due and enforceable.

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

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