G.R. No. 27872 - National Exchange Co., Inc. vs. Dexter

The National Exchange Co., Inc. (through the Philippine National Bank as assignee of C. S. Salmon & Co.) instituted an action against I. B. Dexter for the recovery of P15,000, representing the unpaid balance on one hundred fifty shares subscribed by Dexter.
The dispute arose from a written subscription signed by Dexter on August 10, 1919, wherein he subscribed for three hundred (300) shares of C. S. Salmon & Co.
The subscription included a stipulation that payment for the shares would be made “from the first dividends declared” on any shares the subscriber owned, until full payment for the subscription was effected.

Upon entering into the subscription, an initial payment of P15,000 was made in January 1920. This payment consisted of funds received from a dividend declared by the corporation at that time, supplemented by additional money provided personally by Dexter.
No further dividends were declared after that time, and no subsequent payments were received for the shares, leaving an outstanding balance of P15,000.
The core factual controversy centers on whether Dexter’s obligation to pay was effectively discharged or modified by the contingent payment arrangement tied to dividend declarations.

The action was originally filed in the Court of First Instance of Manila, where judgment was rendered in favor of the plaintiff, directing Dexter to pay the balance of P15,000 with lawful interest from January 1, 1920, and costs.
I. B. Dexter, the defendant, appealed the decision, contesting the validity of the stipulation contained in the subscription.

The primary legal issue is whether the stipulation in the subscription—requiring payment only from dividends declared—effectively relieves the subscriber (I. B. Dexter) from his personal liability to pay the full par value of the stock.

Does the dividend-payable arrangement compromise the statutory requirement that stock subscriptions be fully paid in cash or its fair equivalent at par value?
Is such a contingent payment agreement consistent with principles of equal liability among stockholders and the statutory mandates under the Organic Act and subsequent Corporation Law?

A subsidiary issue considers the broader implication of allowing a corporation, under its general contractual power, to accept subscriptions on special terms, particularly if those terms might defraud other subscribers, stockholders, or creditors.