G.R. No. 27850 , December 24, 1927
THE NATIONAL EXCHANGE COMPANY, LTD., plaintiff-appellant, vs. JOSE S. RAMOS, defendant-appellee.

FACTS

C.S. Salmon, president of C.S. Salmon & Company, solicited a subscription from Jose S. Ramos for 100 shares of stock in the company. Ramos signed a subscription contract on August 21, 1920, which stated the authorized capital stock was P250,000. Unbeknownst to Ramos, the stockholders had already resolved on July 14, 1920, to increase the capital stock to P500,000 and reorganize the company as Salmon, Dexter & Co., Inc. Ramos made no direct payments. Instead, C.S. Salmon, who was indebted to Ramos, made payments totaling P5,308.30 to the corporation on Ramos’s behalf, covering partial principal and interest on the subscription. Ramos was aware of and accepted these payments. Later, Salmon, Dexter & Co., Inc. assigned its assets, including the subscription account against Ramos, to the Philippine National Bank, which in turn assigned it to the National Exchange Company (appellant). The appellant sued Ramos to collect the unpaid balance on his subscription.

ISSUE

1. Whether Jose S. Ramos is liable to pay the balance of his subscription to the increased capital stock of P500,000.
2. Whether the appellant-assignee is obligated to reimburse Ramos for the partial payments he made through C.S. Salmon.

RULING

1. No, Ramos is not liable. The Supreme Court held that Ramos subscribed to shares in a company with a capital stock of P250,000, as clearly stated in the subscription contract he signed. He was not informed of the resolution to increase the capital to P500,000. The increase constituted a novation of the original subscription contract by changing its principal conditions (the object). Since Ramos did not consent to this novation, he is not bound by the new obligation, and his original obligation was extinguished. His partial payments, made without knowledge of the increase, did not constitute ratification of the new stock issue.

2. No, the appellant is not obligated to reimburse Ramos. The credit (the subscription account) assigned to the appellant was null and void because it was based on the novated contract to which Ramos did not consent. Since the assigned credit was ineffective, the assignee (appellant) did not acquire any correlative obligation to return the payments Ramos had made to the original creditor (the corporation).

DISPOSITIVE PORTION:
The appealed judgment was AFFIRMED in part and REVERSED in part. The Court affirmed the dismissal of the complaint against Ramos, absolving him from liability. It reversed the order for the appellant to reimburse Ramos the sum of P5,308.30, thereby also dismissing Ramos’s counterclaim. No costs were awarded.