G.R. No. 47972 ; June 17, 1941
A. K. SPIELBERGER, demandante y apelante, vs. L. R. NIELSON, S.F. WITTOUCK (difunto) por su albacea H. C. MORRISON, y CONSOLIDATED HOLDING & SAVING CORPORATION, LTD., demandados y apelados.

FACTS

In April 1935, the plaintiff subscribed to shares worth P22,500 in the defendant corporation, Consolidated Holding & Saving Corporation, Ltd., which was being organized to develop mines. Upon learning from the prospectus that the corporation was not domestic and its financial structure was more complicated than he believed, the plaintiff canceled his subscription. About a month later, the defendant Nielson, who was a broker and agent for both the plaintiff and the corporation, approached the plaintiff again, praised the corporation’s prospects, and induced him to subscribe for a sum of money. On May 27, 1935, before departing for Hong Kong, the plaintiff issued a postdated check for P5,000 in favor of Nielson and gave it to his secretary with instructions to deliver it to Nielson upon receiving a cable from Hong Kong. On May 31, the plaintiff cabled Nielson to collect and cash the check for the purchase of 50,000 shares of the defendant corporation. Nielson, acting as agent for the corporation, collected the check and delivered it to the corporation, which deposited it into its bank account. In June 1935, the defendant corporation notified its subscribers via the Manila Daily Bulletin that its mining properties had been purchased by a group of financiers led by Adrian Got and that they were being given an opportunity to participate in a new company named Masbate Consolidated Mining Company. All subscribers of the defendant corporation, except the plaintiff, participated in the new company by exchanging their subscriptions for shares in it. When the defendant Wittouck noticed the plaintiff’s name was not on the list of subscribers, he instructed Nielson to return the P5,000 to the plaintiff. Nielson complied by issuing his personal check to the plaintiff. This check was repeatedly returned by the parties involved until, finally, the plaintiff cashed it for fear that Nielson might be declared insolvent due to a pending lawsuit against him for half a million pesos. The plaintiff then demanded that the defendants pay him the profit he would have earned if he had been able to sell the 50,000 shares, which he fixed at P7,500 in his complaint. Upon the defendants’ refusal to pay, the plaintiff filed the lawsuit.

ISSUE

The principal issue is whether the plaintiff’s subscription for 50,000 shares, which he claims was made and accepted by the defendant corporation, is valid under the law.

RULING

The Supreme Court ruled that the subscription, made in the manner established by the facts, is valid and has produced all its legal effects. The Court held that in this jurisdiction, there is no law requiring that a subscription to shares of a mining corporation be in writing to be valid and binding upon acceptance, as occurred in this case. The relevant articles of the Corporation Law, as amended, which deal with subscriptions to shares of corporations in the process of formation or organized, do not require subscriptions to be in writing for their validity. The Court cited commentary stating that while it is usual and convenient for subscription contracts to be in writing, the weight of judicial authority indicates that in the absence of an express statutory requirement, no writing is necessary. Furthermore, an oral subscription agreement, as distinguished from a sale of existing stock, is valid and enforceable. The defendant corporation’s argument that the subscription is invalid for lack of a written form loses force because the corporation, through its officers, voluntarily accepted the plaintiff’s check and deposited it into its account. By these acts, the verbal subscription took legal effect, and the corporation cannot now validly insist that the plaintiff did not subscribe or pay.
Having concluded that the plaintiff’s subscription was accepted and is legally effective, the logical consequence is that the plaintiff is entitled to recover reasonable damages from the defendant corporation. These damages may consist of the difference between the par value of the shares and the value the plaintiff could have obtained if he had sold them on a specific date. However, the evidence presented by the plaintiff to prove the damages was deemed insufficient. The case was remanded to the court of origin for the parties to present better evidence on the damages claimed, and for that court to determine their amount.
The facts do not justify a judgment against the defendants Nielson and Wittouck. Nielson acted merely as a broker and agent for both the plaintiff and the corporation in the transaction. Wittouck intervened as president and officer of the defendant corporation, which is the only entity liable as a juridical person.
The judgment was modified, declaring the plaintiff’s subscription valid and his right to recover damages from the defendant corporation. The case was returned to the court of origin for further proceedings to determine the amount of damages. The rest of the judgment was affirmed, with costs of this instance charged to the defendant corporation.