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178 LINGAYEN GULF ELECTRIC POWER, INC.

v AUTHOR: Castro
BALTAZAR NOTES:
[No. L-4824. June 30, 1953] The corporation filed an action against Baltazar to collect
TOPIC: Court action (How payment of shares enforced) his unpaid subscription.
PONENTE: Montemayor, J. (sorry sobrang detailed talaga)
FACTS:
 Lingayen Gulf Electric Power Company is a domestic corporation with an authorized capital stock of P300,000
divided into 3,000 shares with a par value of P100 per share.

 Irineo Baltazar (defendant) appears to have subscribed for 600 shares. [Upon organization of the corporation, he
paid P15,000, and after the incorporation, he made further payments.]

 The corporation now seeks to collect from Baltazar the balance of the unpaid subscription in the amount of
P18,500.

 On July 23, 1946, a majority of the stockholders, among them was Baltazar, adopted Resolution No. 17, which
provided the following: a) it was agreed upon to call the balance of all unpaid subscribed capital stock as of July 23, 1946, the first 50
per cent payable within 60 days beginning August 1, 1946, and the remaining 50 per cent payable within 60 days beginning October 1,
1946; b) all unpaid subscription after the due dates of both calls would be subject to 12 per cent interest per annum; c) after the expiration
of 60 days' grace which would be on December 1, 1946 for the first call, and on February 1, 1947 for the second call, all subscribed stocks
remaining unpaid would revert to the corporation.

 The corporation wrote to Baltazar reminding him that the first 50% of his unpaid subscription will be due on Oct.
1, 1946.

 Baltazar wrote 2 letters: first, asking the corporation that he be allowed to pay his unpaid subscription by February
1, 1947, and that if he could not pay by that time, his unpaid subscription would be reverted to the corporation;
second, offering to withdraw completely from the corporation by selling out to the corporation all his shares of
stock in the total amount of P23,000. The offer of the defendant was left unacted upon by the corporation.

 On April 17, 1948, the Board of Directors held a meeting and adopted Resolution No. 17.
Contents of the resolution:
a) The Board set aside the stockholders’ resolution approved on July 23, on the ground that said stockholders' resolution was null and
void; and because the plaintiff corporation was not in a financial position to absorb the unpaid balance of the subscribed capital stock.
b) The directors decided to call 50 per cent of the unpaid subscription within 30 days from April 17, 1948, the call payable within 60
days from receipt of notice from the Secretary-Treasurer. (Call for Unpaid subscriptions)
c) The resolution authorized the legal counsel of the company to take all the necessary legal steps for the collection of the payment of
the call.

 The call for the payment of unpaid subscriptions was not published in a newspaper of general circulation as
required by section 40 of the Corporation Law.

 On June 10, 1949, the stockholders of the corporation held another meeting in which all stockholders were present
and adopted Resolution No. 4, where it was agreed to revalue the stocks and assets of the company so as to attract outside investors
to put in money for the rehabilitation of the company. The president was authorized to make all arrangement for such appraisal and the
Secretary to call a meeting upon completion of the reassessment.

 On September 28, 1949, the legal counsel of the corporation wrote to Baltazar, demanding the payment of the
unpaid balance of his subscription amounting to P18,500.

 Baltazar ignored the demand, hence this action.

Lower Court: the call for payment was null and void for lack of publication and the resolution was null and void in so far
as it tried to relieve the defendant from liability on his unpaid subscription, on the ground that the resolution was not
approved by all the stockholders of the corporation.
ISSUES:
1. Whether call of the Board of the Directors for payment was valid?
2. Is Baltazar released from the obligation of the unpaid balance of his subscription by virtue of stockholders’
resolutions No. 17 and 4?
HELD:
1. No. The call for payment is void for lack of publication.
2. No. The release claimed by Baltazar does not fall under the exception to the rule that a subscription may not be
cancelled so as to release a subscriber from liability.

RATIO:
1st issue (Whether the call for payment was valid - No)

The Court agrees with the lower court that the law requires that notice of any call for the payment of unpaid
subscription should be made not only personally but also by publication. Section 40 of the Corporation Law, Act No.
1459, as amended, provides:
"Notice of call for unpaid subscriptions must be either personally served upon each stockholder or deposited in the post-office, postage prepaid,
addressed to him at his place of residence, if known, and if not known, addressed to the place where the principal office of the corporation is situated.
The notice must also be published once a week for four successive weeks hi some newspaper of general circulation devoted to the publication of
general news published at the place where the principal office of the corporation is established or located, and posted in some prominent place at the
works of the corporation if any such there he if there be no newspaper published at the place where the principal office of the corporation is
established or located, then such notice may be published in any newspaper of general news in the Philippines."

Publication is mandatory not only to assure notice to all subscribers, but also to assure equality and uniformity in the
assessment on stock-holders.This rule is supported by the different authorities on Corporation law.

The case of Velasco v. Poizat does not apply. In the case of Velasco vs. Poizat, the corporation involved was insolvent, in
which case all unpaid stock subscriptions become payable on demand and are immediately recoverable in an action
instituted by the assignee. In this case, the corporation was solvent.

2nd issue (Whether Baltazar was released from the obligation to pay for his unpaid subscription - No)

In order to effect the release, there must be unanimous consent of the stockholders of the corporation.

General rule: A valid and binding subscription for stock of a corporation cannot be cancelled so as to release the
subscriber from liability without the consent of all the stockholders or subscribers. Furthermore, a subscription cannot be
cancelled by the company, even under a secret or collateral agreement for cancellation made with the subscriber at the time
of the subscription, as against persons who subsequently subscribed or purchased without notice of such agreement.

Exception: Where it is given pursuant to a bona fide compromise, or to set off a debt due from the corporation, a release,
supported by consideration, will be effectual as against dissenting stockholders and subsequent and existing creditors. A
release which might originally have been held invalid may be sustained after a considerable lapse of time.

In the present case, the release claimed by Baltazar does not fall under the exception because it was not given pursuant to a
bona fide compromise, or to set off a debt due from the corporation, and there was no consideration for it.

In addition, the release attempted in Resolution No. 17 of 1946 was not valid for lack of a unanimous vote. It found that at
least seven stockholders were absent from the meeting when the resolution was approved.

CASE LAW/ DOCTRINE:

Payment of an unpaid subscription may be enforced through a court action. As a general rule, there must be unanimous
consent of the stockholders of the corporation to release a stockholder from his stock subscription. The exception is if the
release was given pursuant to a bona fide compromise, or to set off a debt due from the corporation.

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