Velasco vs. Poizat

Upon the insolvency of a corporation, all unpaid stock subscriptions become payable on demand and are immediately recoverable by the assignee or receiver without the necessity of any prior call by the board of directors.

The Philippine Chemical Product Company (Ltd.) was organized in Manila with a capital of P50,000 divided into 500 shares. Jean M. Poizat subscribed for 20 shares and paid P500, the par value of 5 shares, leaving 15 shares unpaid. Poizat was a stockholder from the beginning and acted as treasurer and manager, during which time he collected all other subscriptions except his own 15 unpaid shares and another 15 shares owned by Jose R. Infante.

On July 13, 1914, the board of directors held a meeting where they resolved to release Infante from his unpaid 15 shares upon his forfeiture of 25% already paid, and other directors subscribed to take up Infante's shares. The board also resolved to require Poizat to pay for his 15 unpaid shares, authorizing judicial proceedings if he refused. Poizat, upon receiving notification, replied on July 27, 1914, expressing surprise and stating he believed he would be released on the same terms as Infante, citing the poor business prospects and his preference to lose what he had already paid rather than invest further.

The company soon went into voluntary insolvency, and Miguel Velasco was named assignee, qualifying on November 25, 1914. Velasco, as assignee, filed an amended complaint to recover P1,500 from Poizat for the unpaid subscription. The Court of First Instance dismissed the complaint, prompting the appeal.

• Validity of the Call: The plaintiff argued that the subscription was a subsisting liability and that the assignee had the right to sue for the unpaid amount.
• Effect of Insolvency: The plaintiff contended that upon insolvency, unpaid subscriptions become due on demand without needing a prior call.

• Invalidity of the Call: The defendant argued that the call made by the board on July 13, 1914, did not comply with sections 37 and 38 of the Corporation Law, specifically that the action was instituted before the 30-day period specified in section 38.
• Release of Subscription: The defendant claimed he understood he was to be relieved from his subscription on the same terms granted to Infante.

• Enforceability of Subscription: Whether a stock subscription is a subsisting liability enforceable by the corporation or its assignee.
• Effect of Insolvency on Unpaid Subscriptions: Whether unpaid stock subscriptions become immediately due and payable upon the insolvency of the corporation without the necessity of a prior call by the board of directors.
• Validity of Release: Whether the board of directors can release a subscriber from the obligation of paying for his shares.

• Enforceability of Subscription: Yes. A stock subscription is a contract implying a promise to pay, enforceable by or against the corporation.
• Effect of Insolvency on Unpaid Subscriptions: Yes. Upon insolvency, all unpaid subscriptions become due and payable on demand without a prior call.
• Validity of Release: No. A corporation has no legal capacity to release an original subscriber from the obligation of paying for shares.

• Enforceability of Subscription: A stock subscription creates a contractual obligation, and the law implies a promise to pay. Section 36 of the Corporation Law recognizes this liability from the time of subscription by requiring interest payments. The right to demand payment is incontestable, and Section 49 allows collection by court action.
• Effect of Insolvency on Unpaid Subscriptions: When insolvency supervenes and the court assumes jurisdiction to wind up the corporation, unpaid stock subscriptions become payable on demand. The assignee succeeds to the corporate rights of action and can collect without a prior call, as the original method of making a call becomes impracticable. This prevents subscribers from escaping obligations due to the officers' failure to make a proper call.
• Validity of Release: The board of directors exceeded its powers in releasing Infante, and a corporation cannot legally release a subscriber from paying for shares. Poizat's claim that he was to be released on the same terms as Infante is without merit.

• Doctrine of Accelerated Liability Upon Insolvency — When a corporation becomes insolvent and is wound up, all unpaid stock subscriptions become immediately due and enforceable without the necessity of a prior call or assessment by the board of directors. The assignee or receiver can directly sue to collect these subscriptions.
• Nature of Stock Subscription — A stock subscription is a contract implying a promise to pay, enforceable like any other debt, with the corporation's right to demand payment being incontestable.

• "A stock subscription is a contract between the corporation on one side, and the subscriber on the other, and courts will enforce it for or against either." — Defines the nature of stock subscriptions as contractual obligations enforceable by courts.
• "when the corporation becomes insolvent, with proceedings instituted by creditors to wind up and distribute its assets, no call or assessment is necessary before the institution of suits to collect unpaid balances on subscription." — States the ratio decidendi regarding the effect of insolvency on the necessity of a prior call.

• Hatch vs. Dana, 101 U.S. 205 — Cited to support the rule that a court of equity may enforce payment of stock subscriptions even without calls by the company.
• Ross-Meehan Shoe F. Co. vs. Southern Malleable Iron Co., 72 Fed. 957 — Cited to establish that insolvency eliminates the need for a prior call or assessment before suing for unpaid subscriptions.

• Section 36, Corporation Law (Act No. 1459) — Recognizes stock subscription as a subsisting liability from the time it is made, requiring interest payments quarterly unless relieved by by-laws.
• Section 49, Corporation Law (Act No. 1459) — Allows directors to collect unpaid subscriptions by action in any court of proper jurisdiction, independent of the statutory remedy of selling delinquent stock.
• Section 32, Insolvency Law (Act No. 1956) — Vests the assignee of an insolvent corporation with all corporate rights of action prior to insolvency.

Arellano, C.J., Torres, Johnson, Carson, Araullo, Malcolm, Avanceña, and Fisher, JJ.