FORMATION OF CORPORATION

A. Promoters- a person who acting alone or with others, takes initiative in founding
and organizing the business or enterprise of the issuer and receives consideration therefore.
Cagayan Fishing Dev Co. vs. Sandiko Tabora owner of 4 parcels of land executed 3 mortgages. First two in favor of PNB and the third in favor of Buzon. These were registered. May 1930. Tabora executed a public document by virtue of which he sold the 4 parcels to Plaintiff Corp said to be in the process of incorporation, for 1 peso subject to the mortgages and the condition that the transfer shall be made only after fully payment to PNB. The Articles were filed with the Bureau of Commerce and Industry on Oct 1930. Oct 1931, a Board resolution authorized the Pres Ventura to sell the 4 parcels to Sandiko for 42K. Sandiko executed a 25.3K PN and obligated himself to shoulder the 3 mortgages. Sandiko executed a mortgage over the same 4 parcels to secure the PN. Sandiko failed to pay the PN. Plaintiff Corp field this action to collect the 25.3K plus interest. CFI dismissed the complaint and absolved Sandiko based on vitiation of consent. SC affirms for diff reasons. The Corp did not have juridical capacity to enter into the contract with Tabora because incorporation took place only on Oct 1930, 5 months after the sale was made. SC said that the Contract entered into was with Tabora as owner and Tabora, his wife and others as mere promoters of the Corp. As a promoter, Tabora could not have acted as agent because the Corp did not yet exist. But this is not to say that the acts of promoters may not be ratified by the Corp when organized. But here, SC did not apply ratification which would result in the commission of injustice or fraud. It appears that in 2 cases, creditors obtained writs of attachments and PNB threatened to foreclose the mortgages. Tabora thus approached Sandiko to make him assume the debt to PNB. The PN was made payable to the Corp so that it wouldnt be attached by Taboras creditors. Here, since Plaintiff Corp could not and did not acquire the lands, it thus does not have any right to dispose of them by sale to Sandiko. The Sale by Tabora to the Corp is void because at the time it was effected the Corp did not yet exist.

RIZAL LIGHT & ICE V MUNICIPALITY OF MORONG RIZAL

A franchise awarded in favor of a corporation was sought to be annulled on the ground that at the time the application was filed, the corporation was then only in the process of incorporation. In dismissing the action, the court held that although a franchise may be treated as a contract, the eventual incorporation of the applicant corporation after the grant of franchise, and its acceptance of the franchise, not only perfected a contract between the respondent municipality and Morong Electric but cured the deficiency pointed out by the petitioner in the application of Morong Electric.
CARAM, JR. VS CA

B. SUBSCRIPTION CONTRACTS- (Sec. 60. Subscription contract.) - Any contract for

the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other

contract. (Sec. 72. Rights of unpaid shares.) - Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder. TRILLAN V QUEZON

Facts: Crisostomo desired to be a subscriber of shares of stock of the Quezon College. She sent a letter to its Board of trustees subscribing to 200 shares of stock, in which she also said that payment for half of the value of the said shares was enclosed in the said letter, with the remaining amount to be paid after she is able to harvest fish. But, no such payment was therein enclosed. When Crisostomo died, the College filed its claim in the intestate proceedings of the estate of the deceased, wherein they sought payment for the 200 shares of stock. The administrator of her estate opposed such claim. The CFI dismissed such claim because it said that the subscription was neither registered nor authorized by the SEC.

Issue: Whether Quezon College has an unpaid claim against the state of Crisostomo for the value of the 200 shares of stock.

Held: No. The letter sent by Crisostomo is actually a mere offer to subscribe to the 200 shares of stock, stating therein her own manner of payment for such shares. Such manner or terms of payment needed the approval or acceptance of the Board of Trustees before it could have taken effect. Since there is no evidence that the Board accepted such offer, then the contract was not consummated. There was imperative need for the College to expressly accept the proposal, because the payment of such subscription was dependent on a condition, dependent solely upon her will. Without the Colleges acceptance, Crisostomo never became a shareholder, and thus, never became indebted to the said College. PURCHASE AGRREMENT Bayla v Silang Traffic Facts: 8 Years after the Silang Traffic Co. was organized, it entered into an agreement for the sale on installment of its shares of stock with various individuals, including the petitioners. After the latter had paid several installments for the purchase price of said shares of stock, the petitioners defaulted in the payment of the subsequent installments. Thus, the Board of directors passed a resolution authorizing for the refund of the amounts paid and the reversion of the shares of stock to the corporation. Despite the said Board resolution, the amounts paid by petitioners were not returned to them. Thus, they instituted an action in the CFI to recover the sums of money paid. The respondent corporation contends that the resolution does not apply to petitioners as at the time the resolution was passed, the shares had already automatically been reverted back to the corporation, and that the resolution was no longer effective as it was cancelled by a subsequent resolution passed by the Board. The CFI declared that the shares of stock had already been forfeited and absolved the respondent from the complaint.

Issue: Whether the contract herein involved is a subscription, and whether failure to pay any installment of the purchase price of the shares of stock would result in its automatic forfeiture in favor of the corporation. Held: The contract herein involved is one of sale and not of subscription as it is an independent agreement between the individual purchaser and corporation to buy the shares of stock at a stipulated price. It does not involve a mutual agreement of the subscribers to take and pay for the stock of the corporation. Whether a particular contract is a purchase or a subscription of shares of stock is a matter of construction and depends upon its terms and the intention of the parties. It has been held that a subscription to stock in an existing corporation is, as between the subscriber and the corporation, simply a contract of purchase and sale. As to forfeiture, the contract did not expressly provide that the failure of the purchaser to pay any installment would give rise to the forfeiture and cancellation without the necessity of any demand from the seller. However, being a contract of sale, it may be rescinded by mutual agreement of the parties. In the subsequent Board resolution, it was stated that the contracts were rescinded for the good of the corporation and in order to terminate a pending civil case involving the validity of such sales of the shares. To such rescission, petitioners apparently agreed, as shown by their demand for the refund of the amount they had already paid to the corporation.

PRE-INCORPORATION SUBSCRIPTION KINDS OS SUBSCRIPTION CONTRACTS: 1. Pre-incorporation subscription entered into before the incorporation and irrevocable for a period of six (6) months from the date of subscription unless all other subscribers consent or it the corporation failed to materialize. It cannot also be revoked after filing the Articles of Incorporation with the SEC.

2. Post-incorporation subscription entered into after incorporation.

OFFER THEORY-

CONTRACT THEORY RELEASED FROM SUBSCRIPTION Velasco v Poizat Facts: The Phil. Chemical Product Co. passed a resolution in a board meeting, wherein they released Infante, a stockholder, from his obligation of paying his unpaid subscription in the amount of P1,500. Conditioned upon his surrendering his certificates of shares of stock. In the same resolution, Poizat was required to pay the amount of his subscription valued at P1,500, and if he should refuse to make payment, judicial proceedings against him may be undertaken by the corporation through its management. The company thereafter underwent voluntary insolvency proceedings. Velasco, the assignee of the company, sought to recover the amount owed by Poizat, but the latter denied any liability to pay the amount. Poizat contended the invalidity of making the call, and he asserted that he was given the same rights

as that given to Infante. The CFI dismissed the complaint filed by Velasco against Pozat. Thus, Velasco appealed to the SC. Issue: Whether Poizat is liable upon his subscription. Held: Yes. A stock subscription is a contract between the corporation and the subscriber, and the courts will enforce it either for or against the other. The law recognizes that a stock subscription is a subsisting liability from the time the subscription is made, since it requires the subscriber to pay interest quarterly from the date of the subscription, unless he is relieved from such liability in the By-laws of the corporation. The subscriber is as much bound to pay for his subscription as he would any other debt. The law also provides 2 remedies to enforce stock subscriptions. The first consists in permitting the corporation to put up the unpaid stock for sale and dispose of it for the account of the delinquent subscriber. The other remedy is for the directors to file an action in court. An assignee of an insolvent corporation, by stepping into the shoes of the same, succeeds to all the corporate rights of action vested in the corporation prior to its insolvency, and the assignee therefore has the same freedom with respect

PNB V BITULOK