Garcia v. Suarez
REITERATIONFacts
The Antecedents: On October 4, 1924, the appellant subscribed to sixteen shares of the capital stock of Compañia Hispano-Filipina, Inc., paying only for four shares. On June 5, 1931, the appellee was appointed receiver of the corporation. On June 18, 1931, the receiver demanded payment of the balance of the subscription from the appellant, which was not met. Procedural History: The plaintiff-appellee, as receiver, filed an action to recover the balance of subscriptions, which was dismissed for lack of prosecution. A subsequent complaint was filed on October 10, 1935, leading to a judgment ordering the defendant-appellant to pay P1,200 with legal interest from October 4, 1924, and costs. The Petition: The defendant-appellant appealed, contending that the action had prescribed and that he had been released from his obligation to pay the balance of his subscription.
Issue(s)
Whether the action to collect the balance of the stock subscription has prescribed. Whether the appellant was released from his obligation to pay the balance of his subscription.
Ruling
The Supreme Court affirmed the appealed judgment, holding that the action had not prescribed and that the appellant had not been released from his obligation.
Ratio Decidendi
On the issue of prescription: The Court clarified that while the obligation to pay for stock subscription arises from the date of subscription, it does not become demandable until the board of directors declares it due and payable, as provided by Section 38 of the Corporation Law. In this case, the board had not declared the subscription due. Therefore, the prescriptive period commenced only from June 18, 1931, when the receiver, exercising the powers conferred upon him, demanded payment. Since the action was filed on October 10, 1935, it was well within the prescriptive period. The Court distinguished between the obligation to pay interest, which arises from the date of subscription, and the obligation to pay the principal amount of the subscription, which requires a declaration by the board or a demand by the receiver. On the issue of release from obligation: The Court held that a corporation has no legal capacity to release a subscriber from their obligation to pay for shares without valuable consideration and express authorization from the stockholders or by-laws. The appellant's claim of release based on a letter from the acting president was unsubstantiated and invalid, as it was not shown that the acting president had the express authority to grant such a release. The Court cited established jurisprudence holding that such agreements are invalid.
Main Doctrine
The prescriptive period for the collection of unpaid stock subscriptions commences not from the date of subscription, but from the date the board of directors declares the subscription due and payable, or from the date of demand by the receiver if no such declaration is made. A corporation has no legal capacity to release a subscriber from their obligation to pay for shares without valuable consideration and proper authorization.