Case Digest (G.R. No. 19893)
Facts:
In the case of Arnaldo F. de Silva vs. Aboitiz & Company, Inc., PLANTIFF and APPELLANT Arnaldo F. de Silva, on April 22, 1922, was notified by the corporation’s secretary about a resolution passed by the board of directors declaring the unpaid subscriptions to the capital stock of the corporation due and payable on May 31, 1922. De Silva had subscribed to 650 shares of stock at P500 each, of which only 200 shares had been paid, leaving 450 shares unpaid and creating an indebtedness of P225,000. The notice informed that unpaid shares would become delinquent, advertised for sale at public auction on June 16, unless payment was made beforehand. On May 5, 1922, De Silva filed a complaint in the Court of First Instance of Cebu, alleging that the corporation's acts exceeded its authority and requested an injunction against the sale of the delinquent shares. He claimed a violation of Article 46 of the corporation's by-laws, which mandated that unpaid subscriptions should be paid from tCase Digest (G.R. No. 19893)
Facts:
- Subscription and Payment
- The plaintiff, Arnaldo F. de Silva, subscribed for 650 shares of stock in the defendant corporation at a par value of P500 per share.
- He paid only for 200 shares, leaving 450 shares unpaid, which amounted to a debt of P225,000.
- Board of Directors’ Resolution and Notice
- On April 22, 1922, the secretary of the corporation notified shareholders of a resolution adopted by the board of directors on the preceding day.
- This resolution declared that the unpaid subscriptions were due and payable on May 31, 1922, with payment to be made to the treasurer at the corporation’s office.
- It further stated that any shares not paid by that deadline, together with accrued interest up to that date, would be declared delinquent, advertised for public auction, and sold on June 16 to cover the unpaid amounts and related expenses.
- Filing of the Complaint and Allegations
- The plaintiff filed a complaint on May 5, 1922, in the Court of First Instance of Cebu against the corporation.
- In his complaint, he asserted that the corporation:
- Adopted a method for collecting unpaid shares that deviated from the operative method prescribed in Article 46 of its by-laws.
- Wrongly declared his 450 unpaid shares delinquent and planned to sell them at auction.
- The plaintiff contended that the by-laws, by prescribing that the unpaid shares be paid out of the 70% dividend (distributed equally among shareholders) until fully amortized, guaranteed him a vested right, which was now being disregarded.
- He pleaded for an injunction to restrain the defendant from further action concerning the sale and collection of the unpaid shares, asserting that no plain, speedy, and adequate remedy existed in the ordinary course of law.
- Lower Court Proceedings and Decisions
- A preliminary injunction was issued against the defendant upon the plaintiff’s request after the plaintiff posted the proper bond.
- The defendant filed a demurrer on the grounds that:
- The facts stated did not constitute a cause of action.
- The special remedy (the relief of injunction) was neither the most adequate nor the speedy remedy.
- After a hearing, the lower court sustained the demurrer on its first ground and allowed the plaintiff five days to amend his complaint.
- The plaintiff failed to amend within the given period.
- Subsequently, the lower court dismissed the complaint, dissolved the preliminary injunction, and ordered costs against the plaintiff.
- Relevant Provisions and Context
- Article 46 of the corporation’s by-laws was central; it outlines the distribution of the net profit:
- 10% to the Board of Directors.
- 10% to the general manager.
- 10% to a reserve fund.
- 70% to the shareholders, distributed equally.
- The article also provides that from the 70% dividend, the Board of Directors may deduct an amount for the payment of unpaid subscriptions, withholding dividend payment to subscribers until full payment.
- Additionally, the by-laws empower the board to create a special emergency or extraordinary reserve fund when deemed necessary.
- The case referenced the precedent in Velasco vs. Poizat (37 Phil. 802) regarding the remedies available for collection of unpaid subscriptions under the Corporation Law, namely:
- The sale of shares as provided in sections 38 to 48.
- The option to collect by action in court as provided in section 49.
- The Board’s Exercise of Discretion
- In this case, the board opted to use the first remedy by declaring the unpaid shares due and delinquent and proceeding with the prescribed public auction.
- The plaintiff argued that since the by-laws (viewed as a contract between the corporation and its stockholders) stipulated a continuous method of payment through profit allocation, the board’s alternative method under the Corporation Law was improper.
- The issue thus centered on whether the board’s exercise of its discretionary power under Article 46 and the Corporation Law was valid and did not exceed its authority.
Issues:
- Whether the board of directors exceeded its authority by declaring the unpaid 450 shares delinquent and opting to collect their value through public auction, as stipulated by the Corporation Law, instead of strictly following the continuous payment method provided in Article 46 of the by-laws.
- Whether Article 46 of the by-laws, regarded as a contract between the corporation and its stockholders, obligates the corporation to use the specific method of profit deduction for the payment of unpaid subscriptions, or whether it merely grants the board the discretion to choose from among available remedies.
- Whether the plaintiff had any right or legal remedy to prevent the board from adopting an alternative method (i.e., public sale) for collecting unpaid subscriptions.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)