Lingayen Gulf Electric Power Co. v. Baltazar
REITERATIONFacts
The Antecedents: Plaintiff Lingayen Gulf Electric Power Company, Inc. (LGEPC) sued defendant Irineo Baltazar for the unpaid balance of his stock subscription amounting to P18,500. Baltazar had subscribed for 600 shares, paid P15,000 upon organization, and made subsequent payments, leaving the P18,500 balance. On July 23, 1946, a stockholders' resolution (No. 17) called for the balance of unpaid subscriptions, with the first 50% payable within 60 days from August 1, 1946, and the second 50% within 60 days from October 1, 1946. The resolution stipulated 12% interest on unpaid amounts and reversion of unpaid stocks to the corporation after grace periods. Baltazar agreed to pay by February 1, 1947, and that his unpaid subscription would revert if not paid by then. He later offered to sell his shares back to the corporation. On April 17, 1948, the Board of Directors passed a resolution (No. 17) setting aside the 1946 stockholders' resolution, deeming it null and void, and calling for 50% of unpaid subscriptions payable within 60 days from notice. This resolution authorized legal counsel to collect payments. On June 10, 1949, a stockholders' meeting (No. 4) authorized revaluation of stocks and assets to attract investors. Baltazar admitted receiving notice of the call but it was not published in a newspaper of general circulation as required by Section 40 of the Corporation Law. LGEPC's counsel demanded payment on September 28, 1949. Procedural History: The trial court dismissed the complaint, finding the call premature due to lack of publication. It also declared the resolution attempting to release Baltazar from liability void for lack of unanimous stockholder approval. The defendant's counterclaim for compensation as president was also dismissed. The Petition: Both plaintiff and defendant appealed the trial court's decision directly to the Supreme Court (plaintiff) and the Court of Appeals, which certified the case to the Supreme Court (defendant).
Issue(s)
Whether the call for payment of unpaid subscription was valid. Whether the defendant was released from his obligation to pay the balance of his subscription by virtue of stockholders' resolutions. Whether the defendant is entitled to compensation as president of the plaintiff corporation.
Ruling
The Supreme Court affirmed the decision of the lower court. The call for payment was deemed invalid due to lack of publication. The defendant was not validly released from his obligation as the resolution purporting to do so lacked unanimous stockholder consent. The defendant's counterclaim for salary as president was also denied.
Ratio Decidendi
On the validity of the call: The Court held that the call for payment embodied in Resolution No. 17 of July 23, 1946, was null and void for lack of publication. Section 40 of the Corporation Law mandates that notice of any call for unpaid subscriptions must be published once a week for four successive weeks in a newspaper of general circulation, in addition to personal service. The use of the word "must" in the statute indicates that publication is a mandatory requirement. The purpose of this mandatory publication is to ensure that all subscribers are duly notified and to maintain equality and uniformity in the assessment of stockholders. Failure to comply with this publication requirement renders the call premature and unenforceable against the subscriber. On the release of the defendant from his obligation: The Court ruled that the defendant was not validly released from his obligation to pay the balance of his subscription. Authorities uniformly hold that a valid subscription for stock cannot be cancelled or released without the unanimous consent of all stockholders. The resolution relied upon by the defendant for his claimed release was not approved by all stockholders, as several were absent from the meeting. Therefore, it could not legally effect a release. The exceptions to this rule, such as a bona fide compromise or setting off a debt due from the corporation, were not present in this case. The common fund in which all subscribers have an interest cannot be diminished without universal consent. On the defendant's counterclaim for compensation: The Court found that the defendant was not entitled to compensation as president. The corporation's by-laws were silent on the president's salary. While other officers had salaries provided for, there was no such provision for the president. Resolutions indicated that the president and directors were expected to serve without salary, with per diems provided for meetings attended. Furthermore, the defendant had never filed a claim for salary during his tenure, only asserting it when sued, which suggested it was an afterthought rather than a legitimate claim.
Main Doctrine
Notice of a call for the payment of unpaid subscribed stock must be published as required by Section 40 of the Corporation Law, unless the corporation is insolvent. Furthermore, a release from liability on unpaid subscriptions requires the unanimous consent of all stockholders.