Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
For Torts
PNB V CA
Cert to review dec. of CA affirmed CFI
Philamgen executed a bond with Tapnio in favor of PNB to guarantee the
payment of defendant Tapnios account with said bank.
In turn, to guarantee the payment of whatever amount the bonding
company would pay to the Philippine National Bank, both defendants executed the
indemnity agreement
the terms and conditions of this indemnity agreement,
whatever amount the plaintiff would pay would earn interest at the rate of
12% per annum, plus attorney's fees in the amount of 15 % of the whole
amount due in case of court litigation.
original amount of the bond was for P4,000.00; but the amount was later
reduced to P2,000.00.
not disputed that defendant Rita Gueco Tapnio was indebted to the bank in
the sum of P2,000.00, plus accumulated interests unpaid, which she failed to pay
despite demands.
Bank wrote a letter of demand to plaintiff: plaintiff paid the bank on
September 18, 1957, the full amount due and owing in the sum of P2,379.91, for
and on account of defendant Rita Gueco's obligation
Palintiff in turn made several demands bith verbal and written to the defs
but to no avail
Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims,
however, when demand was made upon her by plaintiff for her to pay her debt to
the Bank, that she told the Plaintiff that she did not consider herself to be indebted
to the Bank at all because she had an agreement with one Jacobo-Nazon whereby
she had leased to the latter her unused export sugar for a total of 2,800.
Accrdg. The lease agreementwas with the knowledge of the
bank
But the Bank has placed obstacles to the consummation of the lease, and
the delay caused by said obstacles forced 'Nazon to rescind the lease contract.
Tapnio filed her third-party complaint against the Bank to recover from the
latter any and all sums of money which may be adjudged against her and in favor
of the plaitiff plus moral damages, attorney's fees and costs.
HELD:
Affirmed CA
As observed by the trial court, time is of the essence in the approval of the lease of sugar
quota allotments, since the same must be utilized during the milling season, because any
allotment which is not filled during such milling season may be reallocated by the Sugar
Quota Administration to other holders of allotments. 3 There was no proof that there was
any other person at that time willing to lease the sugar quota allotment of private
respondents for a price higher than P2.80 per picul. "The fact that there were isolated
transactions wherein the consideration for the lease was P3.00 a picul", according to the
trial court, "does not necessarily mean that there are always ready takers of said price. "
The unreasonableness of the position adopted by the petitioner's Board of Directors is
shown by the fact that the difference between the amount of P2.80 per picul offered by
Tuazon and the P3.00 per picul demanded by the Board amounted only to a total sum of
P200.00. Considering that all the accounts of Rita Gueco Tapnio with the Bank were
secured by chattel mortgage on standing crops, assignment of leasehold rights and
interests on her properties, and surety bonds and that she had apparently "the means to
pay her obligation to the Bank, as shown by the fact that she has been granted several
sugar crop loans of the total value of almost P80,000.00 for the agricultural years from
1952 to 1956", there was no reasonable basis for the Board of Directors of petitioner to
have rejected the lease agreement because of a measly sum of P200.00.
While petitioner had the ultimate authority of approving or disapproving the proposed
lease since the quota was mortgaged to the Bank, the latter certainly cannot escape its
responsibility of observing, for the protection of the interest of private respondents, that
degree of care, precaution and vigilance which the circumstances justly demand in
approving or disapproving the lease of said sugar quota. The law makes it imperative that
every person "must in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith, 4 This petitioner
failed to do. Certainly, it knew that the agricultural year was about to expire, that by its
disapproval of the lease private respondents would be unable to utilize the sugar quota in
question. In failing to observe the reasonable degree of care and vigilance which the
surrounding circumstances reasonably impose, petitioner is consequently liable for the
damages caused on private respondents. Under Article 21 of the New Civil Code, "any
person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage." The afore-
cited provisions on human relations were intended to expand the concept of torts in this
jurisdiction by granting adequate legal remedy for the untold number of moral wrongs
which is impossible for human foresight to specifically provide in the statutes. 5
A corporation is civilly liable in the same manner as natural persons for torts, because
"generally speaking, the rules governing the liability of a principal or master for a tort
committed by an agent or servant are the same whether the principal or master be a
natural person or a corporation, and whether the servant or agent be a natural or artificial
person. All of the authorities agree that a principal or master is liable for every tort which
he expressly directs or authorizes, and this is just as true of a corporation as of a natural
person, A corporation is liable, therefore, whenever a tortious act is committed by an
officer or agent under express direction or authority from the stockholders or members
acting as a body, or, generally, from the directors as the governing body."
Criminal Liability
PEOPLE V TAN BOON KONG
The defendant Tan Boon Kong was charged with the violation of section
1458 of Act No. 2711 as amended for making a false return for tax purposes.
The trial court ruled in favor of Tan Boon Kong, basing its ruling on the
ground that the offense charged must be regarded as committed by the
corporation and not by its officials or agents.
It recognized and applied the separate juridical personality of the
corporation in the application of the criminal statute for acts done for and in behalf
of the corporation.
Hence the appeal
ISSUE: Whether the information sets forth facts rendering the defendant, as manager of
the corporation liable criminally under section 2723 of Act No. 2711 for violation of
section 1458 of the same act for the benefit of said corporation.
HELD:
he Court brushed aside the defense of separate juridical personality of a corporation by
an officer who seeks to avoid criminal liability arising from violation of the law for
transactions done in behalf of the corporation. The courts reasoning was in line with the
piercing doctrine: that the veil of corporate fiction cannot be used to avoid the penalty
imposable for committing a criminal offense.
A corporation can act only through its officers and agents, and where the business
itself involves a violation of the law, the correct rule is that all who participate in it are
liable. In the present case the information or complaint alleges that the defendant was
the manager of a corporation which was engaged in business as a merchant, and as such
manager, he made a false return, for purposes of taxation, of the total amount of sale
made by said false return constitutes a violation of law, the defendant, as the author of
the illegal act, must necessarily answer for its consequences, provided that the allegation
are proven.
Notes:
Section 1458 and 2723 read as follows:
SEC. 1458. Payment of percentage taxes Quarterly reports of earnings. The
percentage taxes on business shall be payable at the end of each calendar quarter
in the amount lawfully due on the business transacted during each quarter; and it
shall be on the duty of every person conducting a business subject to such tax,
within the same period as is allowed for the payment of the quarterly installments
of the fixed taxes without penalty, to make a true and complete return of the
amount of the receipts or earnings of his business during the preceeding quarter
and pay the tax due thereon. . . . (Act No. 2711.)
SEC. 2723. Failure to make true return of receipts and sales. Any person who,
being required by law to make a return of the amount of his receipts, sales, or
business, shall fail or neglect to make such return within the time required, shall
be punished by a fine not exceeding two thousand pesos or by imprisonment for a
term not exceeding one year, or both.
And any such person who shall make a false or fraudulent return shall be punished
by a fine not exceeding ten thousand pesos or by imprisonment for a term not
exceeding two years, or both. (Act No. 2711.)
SIA V PEOPLE
Petitioner was the president and general manager of the Metal
Manufacturing of the Philippines, Inc. (MEMAP).
His company was in need of raw materials to be imported from abroad, so
he applied for a letter of credit to import steel sheets from Mitsui Bussan Kaisha,
Ltd. of Tokyo, Japan, the application being directed to the Continental Bank, herein
complainant.
He obtained delivery of 150 M/T Cold Rolled Steel Sheets valued at P
71,023.60 under a trust receipt agreement under L/C No. 63/109, which cold rolled
steel sheets were consigned to the Continental Bank, under the express obligation
on the part of the Petitioner that the said steel sheets in trust and selling them and
turning over the proceeds of the sale to the Continental Bank.
He failed to return the said cold rolled sheets or settled his unpaid accounts
thereof despite demands.
He was convicted of estafa for defrauding the Continental Bank, a banking
institution duly organized and doing business in the City of Manila, hence, this
appeal.
Petitioner seeks to avoid liability on his theory that the Bank knew all along
that he was dealing with him only as an officer of the Metal Company which was
the true and actual applicant for the letter of credit and which, accordingly,
assumed sole obligation under the trust receipt.
The trial court, Solicitor General and Court of Appeals disputed the theory
of the Petitioner following the general principle enunciated by the SC in People vs.
Tan Boon Kong, 54 Phil. 607, that for crimes committed by a corporation, the
responsible officers thereof would personally bear the criminal liability.
ISSUE: Whether petitioner Jose O. Sia, having only acted for and in behalf of the Metal
Manufacturing Company of the Philippines as President thereof in dealing with the
complainant, the Continental Bank, he may be liable for the crime charged.
HELD:
No. The Tan Boon Kong case may not be squarely applicable to the instant case
*** TAN BOON KONG:
Tan was the manager of a corporation which was engaged in business as a merchant, and
as such manager, he made a false return, for purposes of taxation, of the total amount of
sale made by said false return constitutes a violation of law. As the author of the illegal
act, must necessarily answer for its consequences provided that the allegations are
proven.
As compared to the SIA case, the Tan case is where corporation was directly required by
law to do an act in a given manner, and the same law makes the person who fails to
perform the act in the prescribed manner expressly liable criminally. The performance of
the act is an obligation directly imposed by the law on the corporation. Since it is a
responsible officer or officers of the corporation who actually perform the act for the
corporation, they must of necessity be the ones to assume the criminal liability; otherwise
this liability as created by the law would be illusory, and the deterrent effect of the law,
negated.
***SIA:
The act alleged to be a crime is not in the performance of an act directly ordained by law
to be performed by the corporation. The act is imposed by agreement of parties, as a
practice observed in the usual pursuit of a business or a commercial transaction. The
offense may arise, if at all, from the peculiar terms and condition agreed upon by the
parties to the transaction, not by direct provision of the law. The intention of the parties,
therefore, is a factor determinant of whether a crime was committed or whether a civil
obligation alone intended by the parties. With this explanation, the distinction adverted to
between the Tan Boon Kong case and the case at bar should come out clear and
meaningful.
In the absence of an express provision of law making the petitioner liable for the criminal
offense committed by the corporation of which he is a president as in fact there is no such
provisions in the Revised Penal Code under which petitioner is being prosecuted, the
existence of a criminal liability on his part may not be said to be beyond any doubt.
Moral Damages
ABS CBN V CA
Viva films and ABS CBN executed a film exhibition agreement.
Wherein ABS SCBN has the right to broadcast in their
network the films made by viva.
Viva films represented by Del Rosario, offered ABS CBN 52 original movies
and 52 re-runs worth 60M (P3M payable in cash and the balanced of 30M in
exchange for television spot).
However, out of this 52 films, Charo Santos-Concio representing ABS CBN
ticks off said films.
Del Rosario met with Eugenio Lopez III and the latter told the former that
ABS CNB is only willing to get 14 films for 36M
An offer was made by the ABS CBN however this offer was refused by Viva
Films board of directors rather they sold the whole package to the RBS Corp
(channel 7).
ABS-CBN sued RBS and Viva films, contending that the contract between
ABS CBN and RBS was valid and that RBS has no right over the film.
The RTC ruled in favour of the defendants and as an additional liability for
the ABS CBN, they required it to pay RBS moral damages because RBS suffered
from the acts of ABS-CBN like advertisement and publication for the airing of
Maging Sino Ka Man.
ISSUE: 1. Whether there was a valid contract bet ABS and VIVA
2. Whether the granting of Moral Damages to RBS Corp is valid.
HELD:
1. There was no valid contract between ABS CBN and Viva Films, since the acceptance of
the offer of the ABS CBN by Del Rosario was made without the necessary approval of the
Board of Directors of Viva Films. The act of the agent outside his authorize acts cannot
make the principal binding.
2. Moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The
award is not meant to enrich the complainant at the expense of the defendant, but to
enable the injured party to obtain means, diversion, or amusements that will serve to
obviate then moral suffering he has undergone. It is aimed at the restoration, within the
limits of the possible, of the spiritual status quo ante, and should be proportionate to the
suffering inflicted. Trial courts must then guard against the award of exorbitant damages;
they should exercise balanced restrained and measured objectivity to avoid suspicion that
it was due to passion, prejudice, or corruption on the part of the trial court.
The award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses, It cannot, therefore,
experience physical suffering and mental anguish, which call be experienced
only by one having a nervous system. The statement in People v. Manero and
Mambulao Lumber Co. v. PNB that a corporation may recover moral damages if it "has a
good reputation that is debased, resulting in social humiliation" is an obiter dictum. On
this score alone the award for damages must be set aside, since RBS is a corporation.
HELD:
The SC held that a juridical person is generally not entitled to moral damages because,
unlike a natural person, it cannot experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish or moral shock.40 The Court of
Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of moral
damages. However, the Courts statement in Mambulao that "a corporation may have a
good reputation which, if besmirched, may also be a ground for the award of moral
damages" is an obiter dictum.
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 of the
Civil Code. This provision expressly authorizes the recovery of moral damages in cases of
libel, slander or any other form of defamation. Article 2219(7) does not qualify whether
the plaintiff is a natural or juridical person. Therefore, a juridical person such as a
corporation can validly complain for libel or any other form of defamation and claim for
moral damages.
Moreover, where the broadcast is libelous per se, the law implies damages.45 In such a
case, evidence of an honest mistake or the want of character or reputation of the party
libeled goes only in mitigation of damages. Neither in such a case is the plaintiff required
to introduce evidence of actual damages as a condition precedent to the recovery of
some damages. In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to
moral damages.
FINANCIAL STRUCTURE
Debt Securities
HELD:
SC affirmed the lower court's decision holding that the terms and conditions of the
agreement showed that the parties intended the repurchase of the shares on the
respective schedule dates to be an absolute obligation (an obligation to pay money at
some fixed future time) which does not depend upon the financial ability of the
corporation. Said obligation was manifested by the fact that Basilio Lirag signed as a
surety.
Therefore, Lirag cannot deny liability to SSS.
Equity Securities
GARCIA V LIM CHU SING
Lim Chu Sing executed and delivered to the Mercantile Bank of China
promissory note for the sum of P19,605.17 with interest thereon at 6 per cent per
annum, payable monthly; on the first of every month thereafter until the amount
of the promissory note together with the interest thereon is fully paid
One of the conditions stipulated in said promissory note is that in case of
defendant's default in the payment of any of the monthly installments, as they
become due, the entire amount or the unpaid balance thereof together with
interest thereon at 6 per cent per annum, shall become due and payable on
demand.
Def. left unpaid balance 9,105.17.: he defaulted in the payment of several
installments by reason of which the unpaid balance of P9,105.17 on the
promissory note has ipso facto become due and demandable.
debt which is the subject matter of the complaint was not really an
indebtedness of the defendant but of Lim Cuan Sy, who had an account with the
plaintiff bank in the form of "trust receipts" guaranteed by the defendant as
surety and with chattel mortgage securities.
plaintiff bank, without the knowledge and consent of the
defendant, foreclosed the chattel mortgage and privately sold the property
covered thereby
as Lim Cuan Sy failed to comply with his obligations, the plaintiff required
the defendant, as surety, to sign a promissory note for the sum of P19,105.17
payable in the manner hereinbefore stated
The defendant is the owner of shares of stock of the plaintiff Mercantile
Bank of China amounting to P10,000. The plaintiff bank is now under liquidation.
HELD:
According to the weight of authority, a share of stock or the certificate thereof is not an
indebtedness to the owner nor evidence of indebtedness and, therefore, it is not a credit
(14 Corpus Juris, p. 388, see. 511). Stockholders, as such, are not creditors of the
corporation (14 Corpus Juris, p. 848, Sec. 1289). It is the prevailing doctrine of the
American courts, repeatedly asserted in the broadest terms, that the capital stock of a
corporation is a trust fund to be used more particularly for the security of creditors of the
corporation, who presumably deal with it on the credit of its capital stock (14 Corpus
Juris, p. 383, sec. 505). Therefore, the defendant-appellant Lim Chu Sing not being a
creditor of the Mercantile Bank of China, although the latter is a creditor of the former,
there is no sufficient ground to justify a compensation (art. 1195, Civil Code; Acua Co
Chongco vs. Dievas, 12 Phil., 250).
In view of the foregoing, this court is of the opinion and so holds: (1) That failure to file an
exception to a ruling rendered in open court denying a motion for the inclusion of a party
as defendant deprives the petitioner, upon appeal of the right to raise the question
whether such denial proper or improper; (2) that the shares of a banking corporation do
not constitute an indebtedness of the corporation to the stockholder and, therefore, the
latter is not a creditor of the former for such shares; (3) that the indebtedness of a
shareholder to a banking corporation cannot be compensated with the amount of his
shares therein, there being no relation of creditor and debtor with respect to such shares;
and (4) that the percentage stipulated in a contract, for costs and attorney's fees for the
collection of an indebtedness, includes judicial costs.
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:
Under the American regime corporate franchises in the Philippine Islands are
granted subject to the provisions of section 74 of the Organic Act. In the Organic Act it is
among other things, declared: "That all franchises, privileges, or concessions granted
under this Act shall forbid the issue of stock or bonds except in exchange for actual cash
or for property at a fair valuation equal to the par value of the stock or bonds so
issued; . . . ." (Act of Congress of July 1, 1902, sec. 74.)
Pursuant to this provision we find that the Philippine Commission inserted in the
Corporation Law, enacted March 1, 1906, the following provision: ". . . no corporation
shall issue stock or bonds except in exchange for actual cash paid to the corporation or
for property actually received by it at a fair valuation equal to the par value of the stock
or bonds so issued." (Act No. 1459, sec. 16 as amended by Act No. 2792, sec. 2.)
The prohibition against the issuance of shares by corporations except for actual
cash to the par value of the stock to its full equivalent in property is thus enshrined in
both the organic and statutory law of the Philippine Islands; and it would seem that our
lawmakers could scarely have chosen language more directly suited to secure absolute
equality stockholders with respect to their liability upon stock subscriptions. Now, if it is
unlawful to issue stock otherwise than as stated it is self-evident that a stipulation such
as that now under consideration, in a stock subcription, is illegal, for this stipulation
obligates the subcriber 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 subcriber, and hence the stipulation is
unlawful.
9
HELD:
The law requires that notice of any call for the payment of unpaid subscription should be
made not only personally but also by publication. This is clear from the provisions of
section 40 of the Corporation Law, Act No. 1459, as amended. It will be noted that
section 40 is mandatory as regards publication, using the word "must". As correctly
stated by the trial court, the reason for the mandatory provision is not only to assure
notice to all subscribers, but also to assure equality and uniformity in the assessment on
stockholders.
Going to the claim of defendant and appellant that Resolution No. 17 of 1946 released
him from the obligation to pay for his unpaid subscription; the authorities are generally
agreed that in order to effect the release, there must be unanimous consent of the
stockholders of the corporation. The release attempted in Resolution No. 17 of 1946 was
not valid for lack of a unanimous vote. If found that at least seven stockholders were
absent from the meeting when said resolution was approved.
In conclusion we hold that under the Corporation Law, notice of call for payment for
unpaid subscribed stock must be published, except when the corporation is insolvent, in
which case, payment is immediately demandable. We also rule that release from such
payment must be made by all the stockholders.
ISSUE: Whether the stockholders are liable for the financial obligations of the corporatiosn
HELD:
As to the liability of the stockholders, it is settled that a stockholder is personally liable for
the financial obligations of a corporation to the extent of his unpaid subscription (Vda. de
Salvatierra vs. Garlitos 103 Phil. 757, 763; 18 CJs 1311-2).
The following respondents are solidarity liable with COB Group Marketing up to the
amounts of their unpaid subscription to be applied to the company's liability herein: Jose
E. Bax P36,000; Francisco C. de Castro, P36,000; Johnny de la Fuente, P12,000; Sergio C.
Ordonez, P12,000; Trinidad C. Ordonez, P3,000; Magno C. Ordonez, P3,000; Adoracion C.
Ordonez P3,000; Tomas C. Lorenzo, Jr., P3,000 and Luz M. Aguilar-Adao, P6,000.
Deliquency Subscription
PHILTRUST V RIVERA
This action was instituted on November 21, 1921, in the CFI of Manila, by
the Philippine Trust Company, as assignee in insolvency of La Cooperativa Naval
Filipina, against Marciano Rivera, to recover a balance of P22,500, alleged to be
due upon defendants subscription to the capital stock of said insolvent
corporation. Upon judgment in favor of plaintiff, the defendant appealed.
ISSUE: Whether the defendant was still liable for the unpaid subscription
HELD:
The reason given for defendants failure to pay the entire subscription is that after the
Cooperative Naval Filipina had been incorporated, a meeting of its stockholders occurred,
at which a resolution was adopted to the effect that the capital should be reduced by 50
per centum and the subscribers released from the obligation to pay any unpaid balance of
their subscription in excess of 50 per centum of the same.
Consequently, the subscriptions of the various shareholders had been cancelled to the
extent stated; and fully paid certificates were issued to each shareholder for one half of
his subscription. It does not appear that the formalities prescribed in Section 17 of the
Corporation Law (Act No. 1459), as amended, relative to the reduction of capital stock in
corporations were observed, and in particular it does not appear that any certificate was
at any time filed in the Bureau of Commerce and Industry, showing such reduction.
The trial judge therefore held that the resolution relied upon by the defendant was
without effect and that the defendant was still liable for the unpaid balance of his
subscription. In this we think his Honor was clearly right.
It is established doctrine that 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 debts. (Velasco vs. Poizat, 37 Phil., 802).
A corporation has no power to release an original subscriber to its capital stock from the
obligation of paying for his shares, without a valuable consideration for such release; and
as against creditors, a reduction of the capital stock can take place only in the manner
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 (14
C.J., 498, 620).
In the case before us, the resolution releasing the shareholders from their obligation to
pay 50 per centum of their respective subscriptions was an attempted withdrawal of so
much capital from the fund upon which the companys creditors were entitled ultimately
to rely and, having been effected without compliance with the statutory requirements,
was wholly ineffectual.
Judgment affirmed.
2. Reduction of capital stock to camouflage profitability to justify a purge of union
members is invalid.
HELD:
It is true that when the property was mortgaged on February 19, 1927 the amount due
from Alberto Miranda in accordance with the subscription agreement was only P3,000,
and it is likewise true that it does not appear from the evidence that any call was issued
by the directors for the payment of any subscriptions.
Section 38 of the Corporation Law provides that the board of directors of every
corporation may at any time declare due and payable to the corporation unpaid
subscriptions to the capital stock and may collect the same with interest accrued thereon
or such percentage of said unpaid subscriptions as it may deem necessary. In his work,
"The Philippine Law of Stock Corporations", page 97, Justice Fisher expresses the opinion
that this power of the directors is absolute and cannot be limited by the subscription
contract, but this does not mean that the directors may not rely on the subscription
contract if they see fit to do so.
No call is necessary when a subscription is payable, not upon call or demand by
the directors or stockholders, but immediately, or on specified day, or on or before
a specified day, or when it is payable in installments at specified times. In such
cases it is the duty of the subscriber to pay the subscription or instalment thereof
as soon as it is due, without any call or demand, and, if he fails to do so, an action
may be brought at any time. (Fletcher: Cyclopedia of the Law of Private
Corporations, vol. 2, page 1509.)
When this action was filed on September 2, 1930, the last of the instalments had already
become payable in accordance with the subscription agreement. it must be borne in
mind that this is not an action by the corporation to recover on a subscription agreement,
but an action by the administratrix of a stockholder to recover what was paid in to the
corporation by the stockholder. It does not appear from the evidence whether or not the
corporation has any debts. Neither the fact that the corporation has ceased to do
business nor the fact that the other stockholders have not been required to pay for their
shares in accordance with their subscription agreement justifies us in ordering the
corporation to return to the plaintiff the amount paid in by Alberto Miranda. If the
directors have failed to perform their duty with respect to the other stockholders, the law
provides a remedy therefor.
In the case at bar it is not contended that Alberto Miranda cancelled his subscription
agreement, or that the corporation attempted to release him therefrom.
For the foregoing reasons, the decision appealed from is affirmed, with the costs against
the appellant.
DE SILVA V ABOITIZ
ISSUE: Whether under the provision of article 46 of the by-laws of the defendant
corporation, the latter may declare the unpaid shares delinquent, or collect their value by
another method different from that prescribed in the aforecited article.
HELD:
es. Said article reads thus:
ART. 46. The net profit resulting from the annual liquidation shall be distributed as
follows:
First
Ten per cent (10%) for the Board of Directors and in the manner prescribed
in article twenty-six (26) of these by-laws;
ten per cent (10%) for the general manager;
ten per cent (10%) for the reserve fund, and
seventy per cent (70%) for the shareholders in equal parts.
Provided, however, That from this seventy per cent dividend the Board of Directors may
deduct such amount as it may deem fit for the payment of the unpaid subscription to the
capital stock and not pay any dividend to the holders of the said unpaid shares until they
are fully paid; and
Provided, further, That when all the shares have been paid in full as provided in the
preceding paragraph, the Board of Directors may also deduct such amount as it may
deem fit for the creation of an emergency special fund, or extraordinary reserve fund
when in its judgment the same may convenient for the development of the business of
the corporation or for meeting any such contingencies as may arise from its operation,
whenever the distributable dividend is found, after the foregoing deduction, to be not
less than ten per cent (10%) of the paid up capital stock.
Second
No dividend shall be declared or paid, except when there remains a net profit after the
payment of all the expenses incurred, or allowances made, by the corporation to carry
out the operation of its business; so that no such dividend may be
declared as may affect the capital of the corporation.
In the instant case the board of directors of the defendant corporation 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.
The words "Provided, however, that from this seventy per cent dividend the board of
directors may deduct such amount as it may deem fit for the payment, etc - means that
the board of directors is also authorized to create a special emergency fund or
extraordinary reserve fund, when, in its judgment, and in case all the shares subscribed
to have been fully paid, the same is convenient for the development of the business of
the corporation or for meeting any such contingencies as may arise from its operation,
applying said 70 per cent of the profit on the payment of the shares that may have not
been fully paid, provided that the distributable dividend remaining after the deduction to
be made for the creation of the said special emergency fund or extraordinary reserve
fund is not less than 10 per cent of the capital actually paid.
So that it is discretionary on the part of the board of directors to do whatever is provided
in the said article relative to the application of a part of the 70 per cent of the profit
distributable in equal parts on the payment of the shares subscribed to and not fully
paid, and to the creation of a special emergency fund or extraordinary reserve fund; and
the fact itself that said special fund may not be created when the dividend appearing to
be distributable, after deducting from the said 70 per cent the amount to be applied on
the payment of the unpaid subscription, is less than 10 per cent of the capital actually
paid, shows that it is the board of directors and not the delinquent subscriber that may
and must judge and decide whether or not such value must be paid out of a part of the
70 per cent of the profit distributable in equal parts among the shareholders, as provided
in the first part of the said article. It lies therefore, within the discretion of the board of
directors to make use of such authority.
and performed all the other acts subsequent to said declaration that are mentioned in
the complaint, as it did not deem it advantageous to the corporation to apply on the
payment of said shares, as was authorized by the by-law, a part of the profit that was, or
might have been realized, and was distributable among the stockholders in equal parts.
For the foregoing, the orders appealed from are affirmed, with the costs of both instances
against the appellant.
CLASSES OF SHARES
Redeemable Shares
REPUBLIC PLANTERS BANK V HON AGANA
Private respondent Corporation secured a loan from petitioner BANK in the
amount of P120,000.
As part of the proceeds of the loan, preferred shares of stocks were issued
to private respondent Corporation. Instead of giving the legal tender totaling to
the full amount of the loan, petitioner lent such amount partially in the form of
money and partially in the form of stock certificates for 800 shares with a par
value of P10.00 per share for a total of P8,000. said stock certificates were in the
name of private respondent Adalia and Carlos Robes.
The stock certificates bear the term and condition - that such preferred
shares may be redeemed, by the system of drawing lots, at any time after 2 years
from the date of issue at the option of the corporation
Thereafter, private respondents proceeded against the petitioner and filed
a complaint anchored on private respondents alleged rights to collect dividends
under the preferred shares in question and to have petitioner redeem the same
under the terms and conditions of the stock certificates.
The trial court rendered the assailed decision in favor of private
respondents and ordered the petitioner to pay the face value of the stock
certificates as redemption price plus interest.
ISSUE: Whther petitioner can be compelled to redeem the preferred shares issued to the
private respondents.
HELD:
NO, because the very wordings of the terms and conditions in the stock certificates
clearly allows redemption of the preferred shares.
While the stock certificate does allow redemption, the option to do so was clearly vested
in the petitioner bank. The redemption is optional Thus, except as otherwise provided
in the stock certificate, the redemption rests entirely with the corporation and the
stockholder is without right to either compel or refuse the redemption of its stock.
The use of the word MAY in the terms and conditions denotes discretion and cannot be
mandatory.
Furthermore, redemption of the said shares cannot be allowed because it would reduce
the assets of the Bank to prejudice its depositors and creditors. As pointed out by the
petitioner, the Central Bank made a finding that said petitioner has been suffering from
chronic reserve deficiency. Thus, redemption of preferred shares was prohibited for a just
and valid reason.
HELD:
NO. The manifest intention of the parties to the trust agreement was to treat the 24,700
shares of Reese as absolutely outstanding shares of Reeses estate until they were fully
paid. Such being the true nature of the 24,700 shares, their declaration as treasury stock
was a complete nullity and plainly violative of public policy. A stock dividend, being one
payable in capital stock, cannot be declared out of outstanding corporate stock, but only
from retained earnings.
Where corporate earnings are used to purchase outstanding stock treated as treasury
stock as a technical, but prohibited device, to avoid effects of income taxation,
distribution of said corporate earnings in the form of stock dividends will subject
stockholders receiving them to income tax.
Treasury shares are issued shares, but being in the treasury, they do not have
the status of outstanding shares.
Appellant Nielson & Co. Inc. and Appellee Lepanto Consolidated Mining Co.
entered a contract whereby appellant Nielson agreed for a period of five years,
with the right to renew for a like period, to explore, develop and operate the
mining claims of Lepanto and to mine, or mine or mill, such pay ore as may be
found therein and to market the metallic products recovered therefrom which may
prove to be marketable, as well as to render for Lepanto other services specified in
the contact.
It thus appear that the principal and paramount undertaking of Nielson
under the management contract was the operation and development of the mine
and operation of the mill.
Nielson would receive 10% of any dividends declared and paid, when and
as paid, Nielson should be paid 10% of the stock dividends declared by Lepanto
during the period of the extension of contract.
ISSUE: Whether the Court erred in ordering Lepanto to issue and deliver to Nielson shares
of stock together with fruits thereof.
HELD:
The term dividend both in the technical sense and its ordinary acceptation, is that part
or portion of the profits, of the enterprise which he corporation, by its governing agents,
sets apart for ratable division among the holders of the capital stock. It means the fund
actually set aside, and declared by the directors of the corporation as a dividends, and
duly ordered by the director, or by the stockholders at a corporate meeting, to be divided
or distributed among the stockholders according to their respective interests.
The consideration for which shares of stock may be issued are: (1) cash;
(2) property; and (3) undistributed profits.
CIR V CA
ISSUE: Whether ANSCOR's redemption of stocks from its stockholder as well as the
exchange of common with preferred shares can be considered as "essentially equivalent
to the distribution of taxable dividend" making the proceeds thereof taxable under the
provisions of the above-quoted law.
HELD:
As a general rule A stock dividend representing the transfer of surplus to capital account
shall not be subject to tax. Except in cases of redemption or cancellation of stock
dividends which is essentially equivalent to a distribution of taxable dividends making
the proceed thereof taxable income. If the source is the original capital subscription upon
establishment of the corporation or from initial capital investment in an existing
enterprise, its redemption to the concurrent value of acquisition may not be considered
as income but a mere return of capital. On the contrary, if the redeemed shares are from
stock dividend declaration other than as initial capital investment, the proceeds of the
redemption is ADDITIONAL WEALTH, for it is not merely a return of capital but a gain
thereon. Applying the rule in the case, the original common shares owned by the estate
were only 25,4247.5. Since there was subsequent increased in the capital stocks, the
redeemed shares to the extent of 80T plus by ANSCOR was made out of corporate profits
such as stock dividend. Therefore it will be subjected to income tax.
STEINBERG V VELASCO
ISSUE: What is the responsibility of the directors when they know that there is an
outstanding debt existing between the corporation and its creditors
HELD:
Creditors of a corporation have the right to assume that so long as there are outstanding
debts and liabilities, the board of directors will not use the assets of the corporation to
purchase its own stock, and that it will not declare dividends to stockholders when the
corporation is insolvent. Therefore Gregorio Et al is required to pay.