NATIONAL EXCHANGE CO., INC., v. I.B. DEXTER
G.R. No. L-27872, February 25, 1928
Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Subscription Contract)
This action was instituted in the Court of First Instance of Manila by the National Exchange Co., Inc., as assignee (through the Philippine National Bank) of C. S. Salmon & Co., for the purpose of recovering from I. B. Dexter a balance of P15,000, the par value of one hundred fifty shares of the capital stock of C. S. Salmon & co., with interest and costs. Upon hearing the cause the trial judge gave judgment for the plaintiff to recover the amount claimed, with lawful interest from January 1, 1920, and with costs. From this judgment the defendant appealed.
It appears that on August 10, 1919, the defendant, I. B. Dexter, signed a written subscription to the corporate stock of C. S. Salmon & Co. in the following form:
I hereby subscribe for three hundred (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 the sum of P15,000 was paid in January, 1920, from a dividend declared at about that time by the company, supplemented by money supplied personally by the subscriber. Beyond this nothing has been paid on the shares and no further dividend has been declared by the corporation. There is therefore a balance of P15,000 still paid upon the subscription.
Whether or not 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?
In discussing this problem we accept as sound law the proposition propounded by the appellant's attorneys and taken from Fletcher's Cyclopedia as follows:
In the absence of restrictions in its character, 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 which are beyond the powers conferred upon the corporation by its character, and provided they do not constitute a fraud upon other subscribers or stockholders, or upon persons who are or may become creditors of the corporation.
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."
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.