Case Summary (G.R. No. 27872)
Relevant Facts
The plaintiff, through the Philippine National Bank, sought to recover a balance of P15,000 from the defendant, which represented the par value of one hundred fifty shares of capital stock owned by Dexter in C. S. Salmon & Co. Dexter had subscribed for three hundred shares on August 10, 1919. The payment of P15,000 was made in January 1920 from dividends declared by the company, along with personal funds from Dexter. No further payments had been made, and no additional dividends were declared afterward.
Legal Issue
The sole legal question presented was whether the clause in Dexter's subscription agreement—that payment is contingent upon the declaration of dividends—exempts him from personal liability to pay for the shares in a lawsuit intended to recover the value owed.
Trial Court's Decision
The trial court ruled in favor of the plaintiff, concluding that the stipulation regarding dividends did not relieve Dexter of his obligation to pay the full par value of the shares. Dexter subsequently appealed this decision.
Corporate Law Principles
The court relied upon established corporate law, noting that corporations, in the absence of specific charter restrictions, may set subscription terms that do not violate positive law or public policy. Specifically, section 74 of the Organic Act of 1902 and sections of the Corporation Law enacted thereafter dictate that stock can only be issued for actual cash or property at fair valuation equivalent to the par value of said stock.
Analysis of Subscription Validity
The court emphasized that allowing Dexter's agreement—wherein his payment obligation was contingent upon dividend distributions—would undermine the law prohibiting the issuance of stock without actual payment. Such a stipulation would discriminate against other shareholders and creditors by potentially depriving them of the capital they are entitled to.
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Case Background
- The action was initiated by the National Exchange Co., Inc. as the assignee of C. S. Salmon & Co. to recover a balance of P15,000 from I. B. Dexter.
- This amount represented the par value of one hundred fifty shares of capital stock of C. S. Salmon & Co., along with interest and costs.
- The trial court ruled in favor of the plaintiff, ordering Dexter to pay the claimed amount with lawful interest from January 1, 1920, and with costs.
- Dexter appealed the trial court's decision.
Subscription Details
- On August 10, 1919, Dexter signed a subscription for three hundred shares of C. S. Salmon & Co., stipulating that payment would be made from dividends declared on shares owned by him at the time dividends were declared.
- A payment of P15,000 was made in January 1920, using dividends declared at that time supplemented by personal funds from Dexter.
- No further payments were made, and no additional dividends were declared, leaving a balance of P15,000 on the subscription.
Legal Question
- The primary legal question before the court was whether the stipulation in Dexter's subscription allowing payment only from dividends relieved him from personal liability in an action to recover the balance