Garcia vs. Suarez

The prescriptive period for collecting an unpaid stock subscription runs from the date the corporation or its receiver declares the subscription due and payable or demands payment, not from the date of subscription; and a corporate officer's release of a subscriber is ineffective absent express authority or stockholder consent.

Angel Suarez subscribed to shares in Compañia Hispano-Filipina, Inc., a duly formed and organized corporation, while Gerardo Garcia later served as court-appointed receiver tasked with collecting the corporation's credits, paying its debts, and disposing of its remaining assets. The dispute turns on the Corporation Law, as amended by Act No. 3518, particularly Sections 37 and 38 governing interest on unpaid subscriptions and the board's power to declare unpaid subscriptions due and payable.

On October 4, 1924, Angel Suarez subscribed to sixteen shares of the capital stock of Compañia Hispano-Filipina, Inc., a duly formed and organized corporation, at a par value of P100 each. Of the sixteen subscribed shares, Suarez paid only P400, corresponding to the value of four shares, leaving an unpaid balance of P1,200. On June 5, 1931, Gerardo Garcia was appointed by the court as receiver of the corporation, with authority to collect all credits, pay its debts, and dispose of the remainder of its assets and properties. On June 18, 1931, Garcia, as receiver, demanded that Suarez pay the balance of his subscription, but Suarez did not pay.

On July 10, 1933, Garcia, as receiver, brought an action in the Court of First Instance of Manila to recover from Suarez and other shareholders the balance of their subscriptions. That complaint was dismissed for lack of prosecution. On October 10, 1935, a similar complaint was filed against Suarez.

Suarez defended on prescription and on an alleged release. He presented a letter allegedly signed by R. Pando, acting president of the corporation, stating that Suarez was released from all obligation with respect to the payment of his subscription in consideration of his transfer of his shares to the corporation. The record did not establish that the stockholders of the corporation had consented to the release or that Pando was expressly authorized by the stockholders or by the by-laws to release Suarez from his obligation.

• Prescription: Appellant Angel Suarez argued that the obligation to pay the subscription was demandable from the date of subscription absent stipulation to the contrary; because he subscribed on October 4, 1924 and the complaint was filed on October 10, 1935, more than ten years had elapsed and the action had prescribed. He cited Section 37 of the Corporation Law, as amended by Act No. 3518, which requires subscribers to pay quarterly interest on unpaid subscriptions from the date of subscription, and inferred that the subscriber is bound to pay the total subscription from the perfection of the contract.
• Release by Corporate Officer: Appellant maintained that he had been released from his obligation by a letter allegedly signed by R. Pando, acting president of the corporation, in consideration of his transfer of his shares to the corporation. He invoked the rule that a corporation may release a subscriber if all stockholders expressly or impliedly consent, but the cited authority also states that agents or officers have no such power unless expressly conferred by the charter, statute, by-laws, or stockholders.

• Prescription: Whether the action to collect the unpaid balance of the stock subscription had prescribed, considering that the complaint was filed more than ten years after subscription but less than ten years after the receiver's demand.
• Release of Subscriber: Whether the appellant was released from his obligation to pay the balance of his subscription by the letter allegedly signed by the corporation's acting president in consideration of the transfer of his shares to the corporation.

• Prescription: No. The prescriptive period began only on June 18, 1931, when the receiver demanded payment, because the board had not declared the subscription due and payable; the action filed on October 10, 1935 was timely.
• Release of Subscriber: No. The release was ineffective because the acting president had no express authority from the charter, statute, by-laws, or stockholders, and no stockholder consent was shown; a corporation cannot release a subscriber absent valuable consideration.

• Prescription: The appellant's premise that Section 37 fixed the maturity of the subscription was rejected. Section 37 governs the obligation to pay interest on unpaid subscriptions and when that interest is due, but it is silent as to when the principal subscription must be paid. The obligation to pay arises from the date of subscription, but the coming into being of an obligation is distinct from the time it becomes demandable, as in a loan whose obligation arises when taken but matures only later. Unless otherwise stipulated, a stock subscription is not payable at the moment of subscription but on a subsequent date that may be fixed by the corporation. Section 38 of the Corporation Law, as amended by Act No. 3518, authorizes the board of directors or trustees to declare unpaid subscriptions due and payable at any time. Because the board of Compañia Hispano-Filipina, Inc. had not declared the subscription due and payable, the prescriptive period began only on June 18, 1931, when Garcia, as receiver and in the exercise of the power conferred by Section 38, demanded payment. The action filed on October 10, 1935 was therefore timely, and the defense of prescription was without basis.
• Release of Subscriber: The alleged release by acting president R. Pando did not bind the corporation. The authorities cited by the appellant themselves state that a corporation may release a subscriber only if all stockholders expressly or impliedly consent, and that agents or officers have no such power unless it is expressly conferred by the charter or statute, or by the stockholders through a by-law or otherwise. No proof showed that the stockholders of Compañia Hispano-Filipina, Inc. consented to the release or that Pando was expressly authorized by the stockholders or the by-laws to release the appellant. Settled doctrine provides that a corporation has no legal capacity to release a subscriber from the obligation to pay for his shares, and any agreement to that effect is invalid; that a corporation has no power to release an original subscriber without valuable consideration; and that a stock subscription is a contract between the corporation and the subscriber which courts will enforce. The release was therefore ineffective, and the appellant remained liable for the unpaid balance.

• Stock subscription: obligation versus demandability — A stock subscription creates an obligation from the date of subscription, but the obligation is not necessarily demandable at that time. Unless otherwise stipulated, the subscription is not payable at the moment of subscription but on a subsequent date that may be fixed by the corporation. In this case, the board had not declared the subscription due and payable, so the obligation was not yet demandable at subscription; demand by the receiver triggered demandability.
• Prescription for collecting unpaid stock subscriptions — The prescriptive period for an action to collect unpaid stock subscriptions runs from the date the corporation or its receiver declares the subscription due and payable or makes demand, not from the date of subscription. Applied: the action filed on October 10, 1935 was timely because the receiver demanded payment on June 18, 1931.
• Corporate power to release a stock subscriber — A corporation may release a subscriber from liability on his subscription only if all stockholders expressly or impliedly consent. Agents or officers of the corporation have no such power unless expressly conferred by the charter or statute, or by the stockholders through a by-law or otherwise. Applied: no stockholder consent or authority of acting president Pando was established, so the release was invalid.
• Invalidity of release without consideration — A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares without valuable consideration, and any agreement to that effect is invalid. The Court cited this rule in rejecting the alleged release.
• Stock subscription as enforceable contract — A stock subscription is a contract between the corporation and the subscriber, and courts will enforce it for or against either. Applied: the corporation could not unilaterally release the appellant from his contractual obligation to pay the balance.

• "The premise of the argument is wrong because it confuses two distinct obligations: the obligation to pay interest and that to pay the amount of the subscription." — The Court used this to reject the appellant's reliance on Section 37, distinguishing the interest obligation from the principal subscription obligation that determines prescription.
• "Of course, the obligation to pay arises from the date of the subscription, but the coming into being of an obligation should not be confused with the time when it becomes demandable." — This is the ratio for the prescription issue: the subscription obligation existed from 1924 but became demandable only upon the board's declaration or the receiver's demand.
• "The board of directors of the Compañia Hispano-Filipino, Inc., not having declared due and payable the stock subscribed by the appellant, the prescriptive period of the action for the collection thereof only commenced to run from June 18, 1931 when the plaintiff, in his capacity as receiver and in the exercise of the power conferred upon him by the said section 38 of the Corporation Law, demanded of the appellant to pay the balance of his subscription." — This passage applies Section 38 and fixes the start of the prescriptive period, the decisive ground for affirming the trial court.
• "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." — Quoted from Velasco vs. Poizat, this is the controlling rule the Court used to reject the alleged release by the acting president.

• Velasco vs. Poizat, 37 Phil. 802 — Cited for the rule that 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 that effect is invalid; the Court used it to reject the alleged release.
• Philippine Trust Co. vs. Rivera, 44 Phil. 469 — Cited for the rule that a corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares without valuable consideration.
• Miranda vs. Tarlac Rice Mill Co., 57 Phil. 619 — Cited for the rule that a stock subscription is a contract between the corporation and the subscriber, enforceable by or against either, and that a corporation has no legal capacity to release a subscriber from the obligation to pay for his shares.
• Thomas vs. Wentworth Hotel Co., 117 Pac., 1041; Fletcher, Encyc. of Private Corporations, sec. 638 — Cited in the appellant's brief and quoted by the Court for the rule that a corporation may release a subscriber if all stockholders expressly or impliedly consent, but agents or officers have no such power unless expressly conferred by the charter, statute, by-laws, or stockholders.

• Section 37, Corporation Law, as amended by Act No. 3518 — Provides that subscribers for stock shall pay quarterly interest on all unpaid subscription from the date of subscription at 6% per annum unless otherwise provided in the by-laws. The Court held it governs the interest obligation, not the time when the principal subscription becomes payable.
• Section 38, Corporation Law, as amended by Act No. 3518 — Provides that the board of directors or trustees of any stock corporation may at any time declare due and payable to the corporation unpaid subscriptions to the capital stock. The Court held that because the board had not declared the subscription due, the prescriptive period began only when the receiver demanded payment under this section.

Avanceña, C.J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.