G.R. No. 19893 ; March 31, 1923
ARNALDO F. DE SILVA, plaintiff-appellant, vs. ABOITIZ & COMPANY, INC., defendant-appellee.

FACTS

Plaintiff Arnaldo F. de Silva subscribed to 650 shares of stock in defendant Aboitiz & Company, Inc., but only paid for 200 shares, leaving 450 shares unpaid with a total value of P225,000. The corporation’s board of directors passed a resolution declaring all unpaid subscriptions due and payable by May 31, 1922, and announced that any unpaid shares would be declared delinquent and sold at public auction on June 16, 1922. De Silva filed a complaint for injunction in the Court of First Instance of Cebu, arguing that the corporation’s actions violated Article 46 of its by-laws. Article 46 provided that the board of directors may, at its discretion, deduct amounts from 70% of the net profits distributable to shareholders to pay for unpaid subscriptions, and that no dividends would be paid to holders of unpaid shares until fully paid. De Silva contended this article prescribed an exclusive, operative method for paying unpaid subscriptions, and the corporation’s declaration of delinquency and threat of sale exceeded its authority. The trial court sustained the defendant’s demurrer to the complaint on the ground that it did not state a cause of action, and dismissed the case after the plaintiff failed to amend. De Silva appealed.

ISSUE

Whether Article 46 of the corporation’s by-laws prescribes the exclusive method for collecting unpaid subscriptions, thereby prohibiting the corporation from declaring the shares delinquent and selling them under the Corporation Law.

RULING

No. The Supreme Court affirmed the trial court’s orders. Article 46 of the by-laws does not prescribe an exclusive or operative method for the continuous amortization of unpaid subscriptions. The provision merely grants the board of directors discretionary authority to apply a portion of the distributable profits toward unpaid subscriptions if it deems fit. This discretionary power is incompatible with the notion of a fixed, exclusive method. The by-laws do not grant stockholders any vested right to compel the use of this profit-deduction method or to prevent the board from utilizing other remedies available under the Corporation Law, such as declaring shares delinquent and selling them. Consequently, the corporation did not violate the by-laws, exceed its authority, or disregard any right of the plaintiff. The facts alleged in the complaint did not constitute a cause of action.