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

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

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.