Silva v. Aboitiz & Company
REITERATIONFacts
1. The Antecedents: The plaintiff, Arnaldo F. de Silva, subscribed to 650 shares of stock in Aboitiz & Company, Inc., valued at P500 each. He had paid for only 200 shares, leaving a balance of P225,000 for the remaining 450 unpaid shares. The corporation's board of directors resolved to declare these unpaid subscriptions due and payable by May 31, 1922, with a notice that unpaid shares would be declared delinquent and sold at public auction on June 16, 1922, to cover the subscription amount, accrued interest, and sale expenses. 2. Procedural History: Following the corporation's notice and advertisement for the sale of delinquent shares, the plaintiff filed a complaint in the Court of First Instance of Cebu on May 5, 1922. He sought a writ of injunction to prevent the corporation from proceeding with the sale, arguing that the corporation exceeded its authority by deviating from the method of payment outlined in Article 46 of its by-laws. The trial court issued a preliminary injunction. The defendant corporation demurred to the complaint, asserting that the facts did not constitute a cause of action and that the requested remedy was not the most adequate. The trial court sustained the demurrer, giving the plaintiff five days to amend his complaint. When the plaintiff failed to amend, the court dismissed the complaint and dissolved the injunction. The plaintiff excepted to these orders and appealed to the Supreme Court. 3. The Petition: The plaintiff's petition to the Supreme Court argues that the corporation violated its own by-laws, specifically Article 46, by declaring his unpaid shares delinquent and scheduling their sale. He contends that Article 46 provides a specific method for paying unpaid subscriptions through deductions from shareholder dividends, which he believes is the exclusive method. The plaintiff asserts that the corporation's actions exceeded its executive authority and that he had no other adequate legal remedy. The Supreme Court is asked to review whether the corporation's chosen method of collecting unpaid subscriptions, through delinquency and sale, was permissible despite the provisions of Article 46 of the by-laws.
Issue(s)
Whether the corporation, under its by-laws, could declare the plaintiff's unpaid shares delinquent and proceed to sell them at public auction. Whether the corporation exceeded its executive authority by adopting a method of payment for unpaid subscriptions different from that provided in Article 46 of its by-laws.
Ruling
The Supreme Court affirmed the orders of the lower court, dismissing the complaint and dissolving the preliminary injunction, with costs against the appellant.
Ratio Decidendi
On the issue of whether the corporation could declare shares delinquent and sell them: The Court held that Article 46 of the by-laws, while providing a method for paying unpaid subscriptions using corporate profits, did not prescribe an exclusive method. The article explicitly stated that the Board of Directors "may deduct" from the 70% dividend for this purpose, indicating a discretionary power. This discretion meant that the method was not fixed or permanent but variable at the will of the board. Therefore, the by-law did not preclude the corporation from utilizing other remedies available under the Corporation Law for the collection of unpaid subscriptions. The Court emphasized that the adoption of the method described in Article 46 was contingent upon the board's discretion and was not an obligation. On the issue of whether the corporation exceeded its authority: The Court found that the corporation, through its board of directors, acted within its authority by electing to use one of the remedies provided by the Corporation Law. The law offers two primary remedies for unpaid subscriptions: (1) selling the delinquent stock at public auction, as provided in sections 38 to 48, and (2) collecting the amount due by an action in court, as per section 49. In this case, the board chose the first remedy, declaring the shares delinquent and proceeding with the sale, which was a valid exercise of its discretionary power granted by law. The Court clarified that the plaintiff had no right under Article 46 to prevent the board from pursuing remedies other than the one mentioned in the by-law, as the by-law did not grant stockholders the right to dictate how unpaid subscriptions should be collected. Consequently, the corporation did not violate any right of the plaintiff, exceed its authority, or abuse its discretion.
Main Doctrine
A corporation, through its board of directors, may avail itself of the remedies provided by the Corporation Law for the collection of unpaid stock subscriptions, including declaring shares delinquent and selling them at public auction, even if its by-laws provide for a method of payment using corporate profits, as the by-law provision is discretionary and does not preclude the remedies under the law.