EN BANC

[G.R. No. 35961. December 2, 1932.]

ROMANA MIRANDA, in her capacity as judicial administratrix of the

intestate estate of her deceased father, Alberto Miranda , plaintiff-
appellant, vs . THE TARLAC RICE MILL CO., INC. , defendant-appellee.

Fausto & Ramos for appellant.

Enrique Maglanoc for appellee.

SYLLABUS

1. CORPORATIONS; PAYMENT OF SUBSCRIPTIONS TO CAPITAL STOCK. —

Section 38 of the Corporation Law provides that the board of directors of every
corporation may at any time declare due and payable to the corporation unpaid
subscriptions to the capital stock and may collect the same with interest accrued
thereon or such percentage of said unpaid subscriptions as it may deem necessary.
2. ID.; A STOCK SUBSCRIPTION IS A CONTRACT. — A stock subscription is a
contract between the corporation and the subscriber, and courts will enforce it for or
against either. A corporation has no legal capacity to release a subscriber to its capital
stock from the obligation to pay for his shares, and any agreement to this effect is
invalid. (Velasco vs. Poizat, 37 Phil., 802.)
3. ID.; ID.; ACTION TO RECOVER AMOUNT PAID IN TO THE CORPORATION. —
This is not an action by the corporation to recover on a subscription agreement, but an
action by the administratrix of a stockholder to recover what was paid in to the
corporation by the stockholder. Neither the fact that the corporation has ceased to do
business, nor the fact that the other stockholders have not been required to pay for
their shares, in accordance with their subscription agreement, would justify an order
requiring the corporation to return to the plaintiff the amount paid by the stockholder.

DECISION

VICKERS , J : p

This is an appeal by the plaintiff from a decision of Judge A.M. Recto of the Court
of First Instance of Tarlac, dismissing the case without a special finding as to costs.

The case was tried on the following agreed statement of facts:

"Comparecen las partes — la demandante, asistida de su infrascrito
abogado, y la demandada, por medio de su presidente y abogado que subscriben
— y para abreviar la vista de esta causa y sin perjuicio de practicarse pruebas
adicionales sobre hechos en los que las partes no estan de acuerdo,
respetuosamente someten, para la decision de esta causa, las siguientes
estipulaciones:
"1. Que la demandante Romana Miranda es la administradora judicial,
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 debidamente nombrada, del Intestado del nado Don Alberto Miranda, Civil No.
3090, de este mismo Juzgado; y la entidad demandada es una corporacion
debidamente organizada de acuerdo con las leyes en vigor en estas Islas,
teniendo su domicilio legal, lo mismo que la demandante, en esta cabecera de
Tarlac, Provincia de Tarlac;
"2. Que, con fecha 8 de junio de 1926, el hoy difunto Don Alberto
Miranda — de cuyo intestado es administradora judicial la aqui damandante —
subscribio acciones de la corporacion, demandada, otorgando al efecto un
contrato de subscripcion, copia autentica del cual se une al presente y se hace
parte integrante del mismo, como Exhibit A;
"3. Que, en relacion con el contrato de subscripcion Exhibit A, a que se
contrae el parrafo que precede, Don Alberto Miranda otorgo luego una escritura
de poder a favor de la demandada, cuyo original se une asimismo al presente,
haciendose parte integrante del mismo, como Exhibit B;
"4. Que, por virtud de los documentos a que se contraen los dos
parrafos inmediatamente anteriores la corporacion demandada contrajo una
deuda de P10,000 a los Sres. Mariano Tablante y Carmen Gueco, de Angeles,
Pampanga, como se acredita por la escritura de prestamo hipotecario otorgada al
efecto, que tambien se adjunta a la presente, como Exhibits C y C-1;
"5. Que la demandada no ha pagado en ningun tiempo ni el capital, ni
los intereses, de prestamo arriba mencionado, motivo por el cual el referido Don
Alberto Miranda hubo de entrar en arreglo amistoso con los acreedores, al expirar
el plazo convenido para el pago, satisfaciendo dicho prestamo y sus intereses
devengados, segun consta en la carta de pago extendida al efecto, que se hace
parte integrante del presente convenio como Anexo o Exhibit D;
"6. Que, a partir desde el año 1928 hasta esta fecha, la demandada ha
dejado de hacer negocios y operaciones de ninguna clase;
"7. Que, con excepcion del citado Don Alberto Miranda, ninguno de las
otras accionistas y directores de la corporacion demandada ha pagado o se la ha
hecho pagar, conforme los terminos de los contratos de subscripcion otorgados
al efecto, el importe de sus respectivas acciones, y a pesar de esta morosidad de
los referidos accionistas y directores, la corporacion demandada no ha dado,
hasta la fecha, ningun paso tendente a compeler la efectividad de las referidas
acciones morosas."
The only additional evidence presented was the testimony of Marciano David,
which is of no consequence in our view of the case.
The appellant makes the following assignment of errors:
"The trial court erred:
"1. In declaring that the defendant corporation did not violate the terms
of the power of attorney Exhibit B, for the plaintiff, when she obtained the loan
Exhibit C;
"2. In declaring that 'all responsibility originating in the execution by
the officers of the defendant corporation of the mortgage contract Exhibit C has
already ceased';
"3. In pretending to base the decision in this case upon theories neither
presented by the pleadings of the parties nor deduced from the evidence
produced by the parties'
"4. In denying the motion for new trial of the plaintiff-appellant; and
"5. In not sentencing the defendant to pay the plaintiff the sum of
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 P10,000, with interest thereon at P1,200 a year, from the year 1927 until paid, plus
the sum of P1,500, which the principal had to pay in the form of a penal clause
for the violation of the terms of the mortgage contract Exhibit C, aside from the
legal interests of all these amounts from the presentation of the present
complaint, and the costs of the suit."
It appears from the evidence that on June 8, 1926 Alberto Miranda executed a
written contract whereby he subscribed for 100 shares of the capital stock of a
corporation to be organized under the laws of the Philippine Islands for the purpose of
operating a rice mill in Tarlac, said corporation to be known as Tarlac Rice Mill
Company, Inc.; that the par value of each share was P100; and that Alberto Miranda
obligated himself to pay to the treasurer of the corporation or its assign the sum of
P10,000 as follows:
On or before September 21, 1926 P1,000.00
On or before January 21, 1927 2,000.00
On or before January 21, 1928 2,000.00
On or before January 21, 1929 2,500.00
On or before January 21, 1930 2,500.00
On July 10, 1926 Alberto Miranda by means of a public document "assigned,
mortgaged, or transferred in lieu of cash for the bene t and to the credit of the Tarlac
Rice Mill Company, Inc., a corporation to be organized and to exist under and by virtue
of the laws of the Philippine Islands", the parcel of land described in certi cate No. 751
in the land records of the Province of Tarlac; and "to carry out the true intent, meaning,
and purposes thereof I have hereby further voluntarily made, constituted, and appointed
and by these presents do make, constitute and appoint, either jointly, Evaristo Magbag,
duly elected President and Treasurer of said Company, Eusebio R. Cabrera and Marcos
P. Puno, duly elected Vice-Presidents of the same company, or anyone of the three
named elected o cers of the Tarlac Rice Mill Company, Inc., jointly with C. M. Dizon to
be my true and lawful attorneys-in-fact, for me and in my name, and in my behalf to
transfer, mortgage, convey or con rm or in any way convenient to them to any local or
foreign bank, rm or individual in order to obtain, secure or solicit credit against my
above described property in an amount not to exceed ten thousand pesos (P10,000),
Philippine currency, in accordance with the subscription contract voluntary executed by
me, for or to increase the capital of the said Tarlac Rice Mill Company, Inc., in order to
carry out the purposes for which such firm is to be organized.
"That for the foregoing purposes, I hereby transfer my right and interest in
the said described properties, and by these presents do hereby give and grant
unto my said attorneys-in-fact full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done in all about the
premises as fully to all intents and purposes as I might or could do if personally
present with full power of substitution or revocation, hereby ratify and con rm all
that my said attorneys-in-fact, anyone or all of the three, Evaristo Magbag,
Eusebio R. Cabrera, and Marcos P. Puno, jointly with C.M. Dizon or their
substitutes shall lawfully do or cause to be done by virtue of these presents."
On February 19, 1927 the president and vice-president of the Tarlac Rice Mill
Company, Inc., and C.M. Dizon, acting on behalf of said corporation and Alberto
Miranda, borrowed P10,000 from Mariano Tablante, and agreed to repay said sum on
or before February 19, 1928, with interest at 12 per cent per annum, and to pay a further
sum of 25 per cent of the principal for attorney's fees and expenses of collection in
case the promissory note should not be paid at maturity. Marcos Puno, Evaristo
Magbag, and Dizon & Co., Inc., jointly and severally guaranteed the payment of this sum;
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 and the president and vice-president of the Tarlac Rice Mill Company, Inc., and C.M.
Dizon as attorneys-in-fact of Alberto Miranda mortgaged to Mariano Tablante the
aforementioned parcel of land to secure the payment of said promissory note.
The sum of P10,000 obtained from Mariano Tablante was retained by the
corporation. When the promissory note became due, Alberto Miranda arranged for an
extension of time in which to pay it, and on July 19, 1929 he sold the aforementioned
parcel of land under pacto de retro to Vicente Panlilio for P10,000, and paid Mariano
Tablante.
According to an allegation in the complaint, Alberto Miranda died on May 24,
1930.
It is agreed that the defendant corporation ceased to do business from the year
1928, and that the other stockholders have not paid for their shares in accordance with
their subscription agreement, and that no action has been taken by the corporation to
require them to do so.
The principal contention of the appellant is that the o cers of the corporation
violated the terms of the power of attorney in mortgaging the land on February 19,
1927 for P10,000, because the only sum then due and payable by Alberto Miranda to
the corporation was P3,000, and that when the remaining installments of the stock
subscription became due, Alberto Miranda was under no obligation to pay them,
because the corporation had already ceased to do business, and it had taken no steps
to compel the other stockholders to pay for the shares for which they had subscribed.
No question as to the validity of subscription agreement is raised, and no fraud
on the part of the o cers of the corporation is alleged or proved. We shall therefore
confine ourselves to the issues raised by the pleading.
It is true that when the property was mortgaged on February 19, 1927 the
amount due from Alberto Miranda in accordance with the subscription agreement was
only P3,000, and it is likewise true that it does not appear from the evidence that any
call was issued by the directors for the payment of any subscriptions.
The fact that Alberto Miranda agreed on June 8, 1926 to pay the amount of his
subscription in installments on certain xed dates did not, of course, prevent him from
authorizing the o cers of the corporation as his attorneys-in-fact to pay his
subscription prior to the dates xed in the subscription agreement. Great stress is laid
by the appellant upon the fact that in one paragraph of the power of attorney it is stated
that the attorneys-in-fact of Alberto Miranda are authorized to mortgage or convey the
property in any way convenient to them in the amount not to exceed P10,000 in
accordance with the subscription contract, but the phrase "in accordance with the
subscription contract" is followed by the following words "for or to increase the capital
of the said Tarlac Rice Mill Company, Inc., in order to carry out the purposes for which
said rm is to be organized." Under the circumstances, it seems to us that it would be a
strained construction of the power of attorney, taking into consideration the whole
document, to hold that the o cers of the corporation acting as attorneys-in-fact of
Alberto Miranda were authorized to mortgage or convey the land for only the amount
then due from Alberto Miranda in accordance with the subscription agreement. It can
hardly be contended that the power of attorney contemplated that the property should
be mortgaged three times, that is, each time that an installment became due. We are
inclined to the view that it was the intention of the parties that the property should be
mortgaged immediately for a sum not to exceed P10,000, not only for the purpose of
paying the subscription agreement of Alberto Miranda, but also for the purpose, as
stated in the power of attorney, of increasing the capital of the corporation, not the
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 capital stock, in order to carry out the purposes for which it was to be organized. This
view of the matter is con rmed by the subsequent conduct of the parties. Although the
corporation retained the full amount of the loan obtained from Mariano Tablante, and
Alberto Miranda had to pay that obligation, he never sought, so far as the record shows,
to recover from the corporation any part of the sum of P10,000. As we have already
stated, the mortgage was executed on February 19, 1927; it was satis ed by Alberto
Miranda on July 19, 1929, and he lived until May 24, 1930. It does not appear that he
ever sought to evade the satisfaction of the mortgage by alleging that his attorneys-in-
fact exceeded their authority in mortgaging the property on February 19, 1927 for
P10,000. On the contrary he repaid to Mariano Tablante the amount which the o cers
of the corporation had borrowed. The fact that he at no time sought to recover from the
corporation any part of the sum borrowed by the officers of the corporation in his name
certainly tends to show that he acquiesced in the action taken by them. The phrase "in
accordance with the subscription contract" found in the power of attorney probably
was intended to mean "in pursuance of the subscription agreement", that is, it referred
to the obligation, and had no particular reference to the dates when the different
installments were to be paid.
Section 38 of the Corporation Law provides that the board of directors of every
corporation may at any time declared due and payable to the corporation unpaid
subscriptions to the capital stock and may collect the same with interest accrued
thereon or such percentage of said unpaid subscriptions as it may deem necessary. In
his work, "The Philippine Law of Stock Corporations", page 97, Justice Fisher expressed
the opinion that this power of the directors is absolute and cannot be limited by the
subscription contract, but this does not mean that the directors may not rely on the
subscription contract it they see fit to do so.
"No call is necessary when a subscription is payable, not upon call or
demand by the directors or stockholders, but immediately, or on a speci ed day,
or on or before a speci ed day, or when it is payable in installments at speci ed
times. In such cases it is the duty of the subscriber to pay the subscription or
installment thereof as soon as it is due, without any call or demand, and , if fails
to do so, an action may be brought at any time." (Flecther: Cyclopedia of the Law
of Private Corporations, vol. 2, page 1509.)
When this action was led on September 2, 1930, the last of the installments had
already become payable in accordance with the subscription agreement. It must be
borne in mind that this is not an action by the corporation to recover on a subscription
agreement, but an action by the administratrix of a stockholder to recover what was
paid in to the corporation by the stockholder. It does not appear from the evidence
whether or not the corporation has any debts. Neither the fact that the corporation has
ceased to do business nor the fact that the other stockholders have not been required
to pay for their shares in accordance with their subscription agreement justi es us in
ordering the corporation to return to the plaintiff the amount paid in by Alberto Miranda.
If the directors have failed to perform their duty with respect to the other stockholders,
the law provides a remedy therefor.
In the case of Velasco vs. Poizat (37 Phil., 802), this court held that a stock
subscription is a contract between the corporation and the subscriber, and courts will
enforce it for or against either; that a corporation has no legal capacity to release a
subscriber to its capital stock from the obligation to pay for his shares, and that any
agreement to this effect is invalid.
In the case at bar it is not contended that Alberto Miranda cancelled his
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 subscription agreement, or that the corporation attempted to release him therefrom.
For the foregoing reasons, the decision appealed from is a rmed, with the costs
against the appellant.
Street, Malcolm, Ostrand and Imperial, JJ., concur.

Separate Opinions
ABAD SANTOS , J., dissenting :

The power of attorney, Exhibit B, was given for the purpose of carrying out the
subscription agreement, Exhibit A. The two documents should, therefore, be construed
together. The authority to mortgage the property described in Exhibit B was granted in
order to pay the amount or amounts that might become due and payable on the
subscription agreement. Now, under our law unpaid subscriptions to the capital stock
of a corporation do not become due and payable until so declared by the board of
directors. Section 38 of the Corporation Law provides: "The board of directors or
trustees of any stock corporation formed, organized, or existing under this Act may at
any time declare due and payable to the corporation unpaid subscriptions to the capital
stock and may collect the same with interest accrued thereon or such percentage of
said unpaid subscription as it may deem necessary.
"The order of the board of directors declaring payable any unpaid
subscription to the capital stock shall state what percentage of the unpaid
subscription is due and payable, when, where, and to whom payable, the date of
delinquency, which must be subsequent to the full terms of publication of the
notice of call for unpaid subscriptions and not less than thirty days nor more than
sixty days from the date of the order of the board calling for the payment of
unpaid subscriptions, and the date on which the delinquent stock will be sold,
which must not be less than fteen days nor more than sixty days from the date
the stock becomes delinquent."
Section 40 further provides: "Notice of call for unpaid subscriptions must be
either personally served upon each stockholder or deposited in the post-o ce,
postage prepaid, addressed to him at his place of residence, if known, and, if not
known, addressed to the place where the principal o ce of the corporations is
situated. The notice must also be published once a week for four successive weeks in
some newspaper of general circulation devoted to the publication of general news
published at the place where the principal o ce of the corporation is established or
located, and posted in some prominent place at the works of the corporation is
established or located, then such notice may be published in any newspaper of general
circulation devoted to the publication of general news in the Islands."
The provisions of law above quoted are clear and speci c, and by their very
language compliance with them is mandatory. The reasons for the enactment of such
speci c and mandatory provisions are not far to seek. They are based upon sound
considerations of public policy. They are intended to safeguard the rights of
stockholders and to subject them only to equality of assessment. As stated by the
court in Germania Iron Mining Co. vs. King (36 L. R. A., 51, 52): "The statute under
consideration recognizes the necessity of a call, and that a notice thereof is necessary.
A call without notice to the subscriber is practically no call at all. A call can not be made
so to affect a part only of the subscribers; it must be made on all alike, or it will be void.
(Pike vs. Bangor & C. Short Line R. Co., 68 Me., 445; Great Western Teleg. Co. vs.
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 Burnham, 79 Wis., 47-51.) And it seems that it has been held that a call need not
indicate when or to whom, or where payment is required to be made; that these are to
be stated in the notice. (Cook, Stock, Stockholders, & Corp. Law, secs. 114, 115.)
Unless a uniform call or notice is made or given, it is apparent that the directors may
practice favoritism and act oppressively."
Considering the reasons behind the provisions of law under consideration, which,
to my mind, account for their mandatory character, the rule followed in some
jurisdictions that no call is necessary when a subscription is payable in installments at
specified times, should not be applied here.
In the case at bar, we can not even indulge in the presumption that there was a
call for subscriptions, for it is agreed by the parties that, with the exception of Alberto
Miranda, none of the other stockholders of the defendant corporation has paid or been
required to pay on his subscription. Thus we see here practiced by the directors of the
defendant corporations the very favoritism which the statutory provisions above
mentioned seek to avert. And yet this court is going to sanction such an evil practice.
I am of the opinion that, under article 1895 of the Civil Code, the appellant is
entitled to recover of the appellee the sum of ten thousand pesos with legal interest
from September 2, 1930, the date of the filing of the complaint herein.
Villa-Real and Butte, JJ., concur in the foregoing dissenting opinion.

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