Miranda vs. Tarlac Rice Mill Co., Inc.

A power of attorney authorizing a corporation’s officers, as a subscriber’s attorneys-in-fact, to mortgage the subscriber’s property for an amount not exceeding P10,000 “in accordance with the subscription contract” and “for or to increase the capital” of the corporation authorizes a single mortgage for the full P10,000, not merely the installment then due; and a subscriber cannot recover subscription payments merely because the corporation ceased business or failed to collect from other stockholders.

Alberto Miranda was a subscriber to the capital stock of the Tarlac Rice Mill Co., Inc., a corporation organized to operate a rice mill in Tarlac, and Romana Miranda was the judicial administratrix of his intestate estate. The dispute concerns the scope of authority conferred by a stock subscriber on the corporation’s officers through a power of attorney and whether subscription payments may be recovered from the corporation.

Romana Miranda was the duly appointed judicial administratrix of the intestate estate of her deceased father, Alberto Miranda, in Civil No. 3090 of the Court of First Instance of Tarlac; the defendant, Tarlac Rice Mill Co., Inc., was a corporation organized under Philippine law with its legal domicile in Tarlac, Tarlac. On June 8, 1926, Alberto Miranda executed a written subscription contract, Exhibit A, subscribing for 100 shares of the capital stock of a corporation to be organized under Philippine law to operate a rice mill in Tarlac, to be known as Tarlac Rice Mill Company, Inc., with a par value of P100 per share, and obligated himself to pay the treasurer of the corporation or its assign P10,000 in installments: P1,000 on or before September 21, 1926; P2,000 on or before January 21, 1927; P2,000 on or before January 21, 1928; P2,500 on or before January 21, 1929; and P2,500 on or before January 21, 1930.

On July 10, 1926, Alberto Miranda executed a public document, Exhibit B, by which he “assigned,” mortgaged, or transferred in lieu of cash, for the benefit and credit of the Tarlac Rice Mill Company, Inc., the parcel of land described in certificate No. 751 in the land records of Tarlac. In the same document he appointed Evaristo Magbag, the elected President and Treasurer, Eusebio R. Cabrera and Marcos P. Puno, the elected Vice-Presidents, or any one of the three named elected officers, jointly with C. M. Dizon, as his attorneys-in-fact to transfer, mortgage, convey, or confirm the property to any local or foreign bank, firm, or individual in order to obtain, secure, or solicit credit against the property in an amount not exceeding P10,000, Philippine currency, “in accordance with the subscription contract” he had executed, “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.”

On February 19, 1927, the president and vice-president of the Tarlac Rice Mill Company, Inc., and C. M. Dizon, acting on behalf of the corporation and Alberto Miranda, borrowed P10,000 from Mariano Tablante. They agreed to repay the 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 if the promissory note should not be paid at maturity. Marcos Puno, Evaristo Magbag, and Dizon & Co., Inc. jointly and severally guaranteed payment, and the president and vice-president of the corporation and C. M. Dizon, as attorneys-in-fact of Alberto Miranda, mortgaged the Tarlac parcel to Mariano Tablante to secure the 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 parcel under pacto de retro to Vicente Panlilio for P10,000 and paid Mariano Tablante. The complaint alleged that Alberto Miranda died on May 24, 1930. It was agreed that the defendant corporation ceased to do business from the year 1928, that the other stockholders had not paid for their shares in accordance with their subscription agreements, and that the corporation had taken no action to require them to do so. On September 2, 1930, Romana Miranda, as judicial administratrix, filed the present action; the case was tried on the parties’ agreed statement of facts, and the only additional evidence was the testimony of Marciano David, which the SC found of no consequence.

• Violation of Power of Attorney: Petitioner argued that the corporation’s officers 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.
• No Obligation After Cessation: Petitioner maintained 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 had taken no steps to compel the other stockholders to pay for the shares for which they had subscribed.
• Cessation of Responsibility: Petitioner assigned as error the trial court’s declaration that “all responsibility originating in the execution by the officers of the defendant corporation of the mortgage contract Exhibit C has already ceased.”
• Improper Grounds and New Trial: Petitioner assigned as error the trial court’s reliance on theories neither presented by the pleadings nor deduced from the evidence, and the denial of her motion for new trial.
• Damages and Penalty: Petitioner sought P10,000 with interest at P1,200 a year from 1927, plus P1,500 paid as a penal clause for violation of the mortgage contract, legal interests, and costs.

• Authority under the Power of Attorney: Whether the corporation’s officers, acting as Alberto Miranda’s attorneys-in-fact, violated the power of attorney by mortgaging the land on February 19, 1927 for P10,000 when only P3,000 was then due and payable under the subscription agreement.
• Necessity of a Call: Whether a call by the board of directors was necessary before the subscription installments became due and payable.
• Cessation of Business and Recovery of Subscription Payments: Whether Alberto Miranda was relieved from paying the remaining subscription installments, and whether the corporation must return the subscription payments, because the corporation ceased doing business and took no steps to compel other stockholders to pay their subscriptions.

• Authority under the Power of Attorney: No. Read as a whole, the power of attorney authorized a mortgage of up to P10,000 for the subscription and to increase the corporation’s capital, not merely the P3,000 then due.
• Necessity of a Call: No. No call was necessary because the subscription was payable in installments at specified dates, and the subscriber had to pay each installment when due.
• Cessation of Business and Recovery of Subscription Payments: No. Neither the corporation’s cessation of business nor its failure to collect from other stockholders relieved Alberto Miranda of his subscription obligation or entitled his estate to recover the amounts paid.

• Authority under the Power of Attorney: The SC read Exhibit B as a whole. Although only P3,000 was due when the mortgage was executed and no call appears to have been issued, Alberto’s agreement to pay installments on fixed dates did not prevent him from authorizing the officers to pay his subscription before those dates. The phrase “in accordance with the subscription contract” was followed by “for or to increase the capital of the said Tarlac Rice Mill Company, Inc., in order to carry out the purposes for which said firm is to be organized”; it would be a strained construction to limit the mortgage to the amount then due, and it could hardly be contemplated that the property would be mortgaged three times as each installment fell due. The intention was to mortgage the property immediately for a sum not exceeding P10,000 for both the subscription and the increase of the corporation’s capital. Alberto’s subsequent conduct confirmed this: the corporation retained the full P10,000, Alberto paid Mariano Tablante, he never sought to recover any part from the corporation, and he never claimed that his attorneys-in-fact had exceeded their authority. The phrase “in accordance with the subscription contract” meant “in pursuance of the subscription agreement” and referred to the obligation, not the dates of payment. No fraud was alleged or proved.

• Necessity of a Call: Section 38 of the Corporation Law provides that the board of directors may at any time declare unpaid subscriptions due and payable and may collect them with interest or such percentage as it deems necessary. The SC noted Justice Fisher’s view that this power is absolute and cannot be limited by the subscription contract, but that the directors may rely on the subscription contract if they see fit. No call is necessary when a subscription is payable not upon call or demand but immediately, on a specified day, on or before a specified day, or in installments at specified times; in such cases the subscriber must pay as soon as due without any call or demand, and an action may be brought at any time. Since Alberto’s subscription was payable in installments on fixed dates and the last installment had already become payable when the action was filed on September 2, 1930, no call was required.

• Cessation of Business and Recovery of Subscription Payments: The SC held that neither the corporation’s cessation of business from 1928 nor the fact that the other stockholders had not been required to pay their subscriptions justified ordering the corporation to return to the plaintiff the amount paid in by Alberto Miranda. It did not appear whether the corporation had any debts. If the directors failed to perform their duty with respect to the other stockholders, the law provided a remedy. The action was not by the corporation to recover on a subscription agreement but by the administratrix of a stockholder to recover what the stockholder had paid to the corporation. Velasco vs. Poizat held that a stock subscription is a contract between the corporation and the subscriber, enforceable by or against either; 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. No cancellation or release was alleged.

• Construction of a power of attorney as a whole — A power of attorney is construed as a whole, and a phrase such as “in accordance with the subscription contract” does not limit the authority to the amount then due if the document also authorizes the mortgage to increase the corporation’s capital. The SC applied this to hold that the officers could mortgage Alberto Miranda’s land for the full P10,000, not merely the P3,000 then due.
• No call necessary for subscriptions payable at specified times — When a stock subscription is payable immediately, on a specified day, on or before a specified day, or in installments at specified times, no call or demand by the board of directors is necessary; the subscriber must pay when due, and an action may be brought upon default. The SC applied this to Alberto’s subscription, which was payable in installments on fixed dates.
• Stock subscription as an enforceable contract — A stock subscription is a contract between the corporation and the subscriber, enforceable by or against either; the 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. The SC applied this in denying recovery of subscription payments where no cancellation or release was alleged.
• Cessation of business and nonpayment by other stockholders do not justify return of subscription payments — Neither the corporation’s cessation of business nor its failure to collect from other stockholders entitles a stockholder to recover amounts paid on his subscription; if the directors fail in their duty to other stockholders, the law provides a remedy. The SC applied this to deny Romana Miranda’s claim for the P10,000 paid by Alberto.
• Directors’ power to declare unpaid subscriptions due — Under Section 38 of the Corporation Law, the board may at any time declare unpaid subscriptions due and payable and collect them; this power is absolute and cannot be limited by the subscription contract, but the directors may rely on the subscription contract if they see fit. The SC used this to explain why no call was needed where the subscription itself fixed the payment dates.
• Acquiescence in the agent’s act — A principal’s subsequent conduct may confirm the authority of his attorneys-in-fact. The SC noted that Alberto Miranda paid the loan, never sought recovery from the corporation, and never claimed that the officers exceeded their authority, which tended to show acquiescence.

• “No call is necessary when a subscription is payable, not upon call or demand by the directors or stockholders, but immediately, or on specified day, or on or before a specified day, or when it is payable in installments at specified times. In such cases it is the duty of the subscriber to pay the subscription or instalment thereof as soon as it is due, without any call or demand, and, if he fails to do so, an action may be brought at any time.” — The SC stated the rule that governed Alberto Miranda’s fixed-date subscription installments and held that no board call was required.
• “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 instalment became due.” — The SC used this to reject the argument that the officers could mortgage the land only for the amount then due.
• “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 justifies us in ordering the corporation to return to the plaintiff the amount paid in by Alberto Miranda.” — The SC denied recovery of the subscription payments despite the corporation’s cessation of business and the nonpayment of other stockholders.
• “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.” — The SC relied on Velasco vs. Poizat to treat the subscription as an enforceable contract and to reject any release or return.

• Velasco vs. Poizat, 37 Phil. 802 — Controlling precedent, followed: a stock subscription is a contract between the corporation and the subscriber; the corporation cannot release the subscriber from the obligation to pay for his shares.

• Section 38, Corporation Law — The board of directors may at any time declare unpaid subscriptions due and payable and may collect them with interest or such percentage as it deems necessary. The SC applied this by noting that the power is absolute but that directors may rely on the subscription contract; because Alberto Miranda’s subscription was payable in installments at fixed dates, no call was required.

• Abad Santos, J. (Dissenting) — The power of attorney and subscription agreement must be construed together; the authority to mortgage was granted to pay amounts that might become due under the subscription. Under Section 38 of the Corporation Law, unpaid subscriptions do not become due until declared by the board, and the notice provisions of Section 40 are mandatory and intended to protect stockholders from favoritism and oppression. The rule that no call is necessary for installments payable at specified times should not be applied in the Philippines. Since the parties agreed that no other stockholder had paid or been required to pay, the directors practiced the very favoritism the law sought to prevent. Under Article 1895 of the Civil Code, the appellant was entitled to recover P10,000 with legal interest from September 2, 1930.
• Villa-Real and Butte, JJ. (Dissenting) — Joined the dissent of Abad Santos, J.