I.B. DEXTER, respondent, vs. NATIONAL EXCHANGE CO., INC., petitioner G.R. No.

L-27872 February
25, 1928

FACTS:

The National Exchange Co., Inc., as assignee (through the Philippine National Bank) of C. S. Salmon &
Co., filed this action in the Court of First Instance of Manila to recover from I. B. Dexter a balance of
P15,000, the par value of 150 shares of C. S. Salmon & Co.'s capital stock, plus interest and costs.
Following a hearing on the case, the trial court granted the plaintiff's request for the amount
claimed, plus legal interest from January 1, 1920, and expenses. The defendant filed an appeal
against this decision. It appears that on August 10, 1919, the defendant, I. B. Dexter, signed a written
subscription to C. S. Salmon & Co. corporate stock in the following form: I hereby subscribe for three
hundred (300) shares of the capital stock of C. S. Salmon and Company, payable from the first
dividends declared on any and all shares of said company owned by me at the time dividends are
declared, until the first dividends are declared on any and all shares of said company owned by me at
the time dividend In January 1920, the subscriber received P15,000 from a dividend declared by the
corporation at the time, which was supplemented by money supplied personally by the subscriber.
Nothing has been paid on the shares since then, and the corporation has declared no more
dividends. As a result, there is still a P15,000 amount due on the subscription.

ISSUE:

Whether the stipulation in the subscription that the subscription is payable from the first dividends
declared on the shares relieves the subscriber from personal liability in an action to recover the value
of the shares has the effect of relieving the subscriber from personal liability in an action to recover
the value of the shares.

RULING:

NO.

In debating this issue, we accept as good law the following argument advanced by the appellant's
counsel and drawn from Fletcher's Cyclopedia: A corporation, in the absence of restrictions in its
character, has the power to accept subscriptions on any special terms that are not prohibited by
positive law or contrary to public policy, provided that they are not such that they require the
corporation to perform acts that are beyond the powers conferred upon it by its character, and
provided that they do not constitute fraud. Accordingly, we discover that the Philippine Commission
inserted the following provision into the Corporation Law, which was enacted on March 1, 1906: "no
corporation shall issue stock or bonds except in exchange for actual cash paid to the corporation or
for property actually received by it at a fair valuation equal to the par value of the stock or bonds so

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 issued." The prohibition on corporations issuing shares except for actual cash to the par value of the
stock to its full equivalent in property is thus enshrined in both organic and statutory law of the
Philippines; and it appears that our legislators could have chosen language more directly suited to
ensure absolute equality stockholders with respect to their liability. Presently, if it is illegal to issue
stock other than as indicated, it follows that a requirement in a stock subscription, such as the one
under discussion now, is also illegal, because it obligates the subscriber to pay nothing for the shares
save as dividends may accrue on the stock. In the event that dividends are not paid, the company has
no duty. As a result, the stipulation is unconstitutional since it favors one subscriber over another.

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