BALTAZAR V.
LINGAYEN GULF ELECTRIC POWER Ungson, Estrada, Fernandez and Yuzon, constituted the majority of the holdover
G.R. No. L-16236,7,8 /JUNE 30, 1965/ PAREDES,J./ CONSIDERATION FOR ISSUANCE OF
SHARES -Rights and Obligations of Holders of Unpaid but Non-delinquent
Stock/ECPPOTIAN
NATURE Appeal from CFI OF Pagasinan. Consolidated cases
PETITIONERS Irineo Baltazar; Marvin Rose ; Bernardo Acena
RESPONDENTS LINGAYEN GULF ELECTRIC CO., INC., DOMINADOR, C. UNGSON,
BRIGIDO G. ESTRADA, MANTEL L. FERNANDEZ, BENEDICTO C. YUSON and
BERNARDO C. ACENA
SUMMARY. Minority Stockholders (Baltazar Group) of Lingayen Gulf Electric Power
partially paid the subscription but the corporation issued them certificates
corresponding to shares covered by the partial payments. Corporation wanted to
deny voting rights to all subscribed shares until total subscription is paid. SC held
that though the partial payment of stocks does not entitle subscriber to a certificate
of stock, this doctrine is merely directory. In this case, it was the practice of the
corporation to issue certificates of stock and voting rights even to those who have
not fully paid their subscriptions. Therefore the court held that the company is
bound by its deemed agreement with the stockholder. This also applies to the
application of interest as well as payments previously made. Corporation may
choose to apply payments to subscription either as: (a) full payment for
corresponding number of stock the par value of which is covered by such payment;
or (b) as payment pro-rata to each subscribed share. The corporation chose the first
option, and, having done so, it cannot unilaterally nullify the certificates issued.
DOCTRINE. If a stockholder, in a stock corporation subscribes to a certain number
of shares of stock, and makes partial payments for which he is issued certificates of
stock, he is entitled to vote the latter, notwithstanding the fact that he has not paid
the balance of his subscription which has been called for payment or declared
delinquent.
FACTS.
Corporation: The Lingayen Gulf Electric Power Co., Inc. (doing business in the
Philippines) with principal offices at Lingayen, Pangasinan.
Authorized Capital Stock: P300.000.00 divided into 3,000 shares of voting stock
at P100.00 par value, per share.
Petitioners:
Baltazar and Rose were among the incorporators, having subscribed to 600 and
400 shares of the capital stock, or a total par value of P60,000.00 and
P40.000.00, respectively.
It is alleged that it has always been the practice and procedure of the
Corporation to issue certificates of stock to its individual subscribers for unpaid
shares of stock
o Of the 600 shares of capital stock subscribed by Baltazar, he had fully
paid 535 shares of stock, and the Corporation issued to him several fully
paid up and nonassessable certificates of stock, corresponding to the
535 shares. After having made transfers to third persons and acquired
new ones, Baltazar had to his credit, on the filing of the complaint 341
shares fully paid and nonassessable. He had also 65 shares with par
value of P6,500.00, for which no certificate was issued to him.
o Of the 400 shares of stock subscribed by Rose, he had 375 shares of fully
paid stock, duly covered by certificates of stock issued to him.
Respondents:
Ungson, Estrada, Fernandez and Yuson were small stockholders of the
Corporation, all holding a total number of fully paidup shares of stock, of not
more than 100 shares, with a par value of P10,000.00
Acena, was likewise an incorporator and stockholder, holding 600 shares of
stock, for which certificate of stock were issued to him and as such, was the
largest individual stockholder thereof.
sevenmember Board of Directors of the Corporation, in 1955,
o The two of them were elected as members of the Board in the annual
stockholders' meeting largely on the vote of their codefendant Acena,
o The other two were elected mainly on the vote of the plaintiffs and their
group of stockholders.
Conflict:
During the annual stockholders' meeting of the Corporation, there was a
realignment effected, and the fight for control of the management and property
of the corporation was close and keen. The total number of fully paid-up shares
held by stockholders of one group, was almost equal the number of fully paid-up
shares held by the other group.
The Ungson group (specially defendant Acena), which had been in complete
control of the management and property of the Corporation since January 1,
1955, in order to continue retaining such control, passed three resolutions. 1
(take note of this)
By reason of these resolutions, the Ungson group was threatening and procuring
to expel and oust the plaintiffs and their companion stockholders, in order to
deprive them of their right to vote in the said annual stockholders' meeting
scheduled for May 1, 1955.
Procedural:
Baltazar and Rose prayed that a writ of preliminary injunction to stop
implementing the resolutions and to allow them to vote in the stockholders
meeting.
TC issued Preliminary Injunction, as prayed for.
Defendants filed counterclaims and arguments:
o They allege that during the years that plaintiffs and their allies were in
control of the Corporation, no serious effort was attempted to retrieve it
from its financial collapse, caused by accumulated indebtedness and by
poor and inefficient management, resulting in losses of big sums of money
from vicious manipulation of funds, nepotism, unconscionable grant of big
salaries and allowances, illegal payments, unaccounted funds of Caltex
business and sales department store, etc.;
o They prayed that the resolutions be declared legal and valid, thus
invalidating the "watered stocks" of plaintiffs, if not paid, and disqualifying
the delinquent subscribers from voting totally or partially, their
subscriptions.
TC dismissed the counterclaims
1 Resolution No. 2 (Exh. A), declared all watered stocks issued to Acena, Baltazar, Rose and
Jubenville, "of no value and consequently cancelled from the books of the Corporation.
Resolution No. 3 (Exh. B) resolved that "... all unpaid subscriptions should bear interest
annually from the year of subscription on the basis of quarterly payment, and any or all
payments already made on said unpaid subscriptions should be credited to pay interest first,
then the capital debt after all interest is fully paid.
Resolution No. 4 (Exh. C) resolved that "any and all shares of stock of the Lingayen Gulf
Electric Power Co., Inc., issued as fully paidup to stockholders whose subscription to a number of
shares have been declared delinquent with the accrued interest on the unpaid thereof per
Resolution No. 42, S. 1954, of the Board of Directors which has been duly published in the
"Manila Chronicle," are hereby incapacitated to utilize or avail of the voting power until
such delinquency with the accrued interest is fully paid up as indicated in Resolution No.
3, S. 1955.
 Following the dismissal, the parties agreed on a tentative amicable settlement 2
which was approved by the court.
Defendants were against the settlement and claimed that the spirit and
intention of the parties to the agreement and portions of the decision, carried
"prejudicial eventualities," and asking that the same be amended in the sense
that "the payment of obligations of delinquent incorporators has been reduced
by the agreement as stated in paragraphs 3 and 5" of said agreement;
ISSUES & RATIO.
1. WON a stockholder who has only partially paid his stocks, but was issued
certificates of stock, be entitled to vote- YES
If the entire subscribed shares of stock are not paid, the paid shares of stock will not
be deprived of the right to vote. The entire subscribed shares of stock need not be
fully paid.
distinction was contained in section 36 of our Corporation Law of 1906 3,
corresponding to section 37 now.
The present law could have simply provided that no certificate of par value and no
par value stock shall be issued to a subscriber, as fully paid up, until the full
subscription has been paid by him to the corporation, if full payment of subscription
were intended is the criterion in the issuance of certificates, for both the par value
and no par value stocks.
The present law requires as a condition before a share holder can vote his shares,
that his full subscription be paid in the case of no par value stock; and in case of
stock corporation with par value, the stockholder can vote the shares fully paid by
him only, irrespective of the unpaid delinquent shares.
DECISION: Lower Court affirmed

The defendants cited Fua Cun v. Summers which held that in the absence of special
agreement to the contrary, a subscriber for a certain number of shares of stock does
not, upon payment of onehalf of the subscription price, become entitled to the
issuance of certificates for onehalf of the number of shares subscribed for; the
subscriber's right consists only in equity entitling him to a certificate for the total
number of shares subscribed for by him upon payment of the remaining portion of
the subscription price.
Court: The saving clause in the quoted pronouncement, "in the absence of special
agreement to the contrary," reveals that the doctrine is not mandatory, but merely
directory, which is not violative of law, the rigor of the pronouncement may be
relaxed.
Also, the cases at bar do not come under the aegis of the principle enunciated in the
Fua Cun v. Summers case, because it was the practice and procedure, since the
inception of the corporation, to issue certificates of stock to its individual
subscribers for unpaid shares of stock and gave voting power to shares of stock
fully paid.
Section 37 of the Corporation Law provides:
o SEC. 37. ... . No certificate of stock shall be issued to a subscriber as fully
paid up until the full par value thereof, or the full subscription in the case
of no par stock, has been paid by him to the corporation. Subscribed
shares not fully paid up may be voted provided no subscription is unpaid
and delinquent.
Section 37 makes payment of the "par value" as prerequisite for the issuance of
certificates of par value stocks, and makes payment of the "full subscription" as
prerequisite for the issuance of certificates of no par value stocks. No such
NOTES from OLD DIGEST
The second paragraph of resolution No. 3 unilaterally declared as of no value
and cancelled all capital stock shares certificates issued as fully paid up, upon
payments made by stockholders, when interests on unpaid subscription from
date of subscription were not previously and/or then and there paid.
Defendants invoked Art. 1253 NCC which provides that "if the debt produces
interest, payment of the principal shall not be deemed to have been made until
the interests have been covered," and relying on an opinion of the Securities
and Exchange Commission, claim that said unilateral nullification and/or
cancellation of previously issued capital stock shares certificates was valid.
o This provision of law only applies in the absence of verbal or written
agreement, to the contrary (8 Manresa, p. 317); it is likewise merely
directory, and not mandatory. (Art. 1252 NCC)
o This being the case, the said application of payments must be deemed to
have been agreed upon by the Corporation and the stockholders, and the
same cannot now be changed without the consent of the stockholders
concerned.
o The Corporation Law and the bylaws of the defendant Corporation do not
contain any provision, prohibiting the application of stockholders'
payments to the full par value of a corporation's capital stock, ahead of the
payment of accrued interest for unpaid subscriptions.
The Camposes are of the opinion that 64 of Corporation Code makes the
Lingayen Gulf inapplicable at present.

2 1. As to the socalled water stocks P30,000.00 each of the holders of said stock, namely, Irineo
Baltazar, Marvin Rose, and Bernardo Acena, will return to the corporation P3,500 each of said
stocks, thereby retaining P6,500 worth of stocks to be considered as valid for each under this
compromise; 32. With respect to Dr. Bernardo Acena, of the certificates of stock allegedly
representing, his profit, he will return to the corporation P3,500 of said share of stock and retain
P7,500 worth thereof ;
3. With respect to the interest on unpaid balance of subscription it is agreed that the subscribers
with unpaid subscription be given the opportunity to pay in two installments
4. All claims and counterclaims other than those covered by the preceding paragraph of
stipulation will be deemed dismissed without prejudice, in all these three cases;
5. All the resolutions of the Board and the stockholders involved in these instant cases will be
deemed modified in accordance with this agreement. 3 SEC. 36. ... . No certificate of stock shall be issued to a subscriber as fully paid up until the full
par value thereof has been paid by him to the corporation. Subscribed shares not fully paid up
may be voted provided no subscription is unpaid and delinquent.