G.R. No. L-23136, August 26, 1974
Ismael Mathay, et al., plaintiffs-appellants, vs. The Consolidated Bank and Trust Company, et al., defendants-appellees. Cipriano Azada, et al., movants-intervenors-appellants.

FACTS

The plaintiffs, stockholders of Consolidated Mines, Inc. (CMI), filed a class suit alleging that a resolution passed at a CMI stockholders’ meeting granted them a pre-emptive right to subscribe to shares of the proposed Consolidated Bank & Trust Co. in proportion to their CMI holdings. This right was to be exercised within a set period, after which it would be deemed waived in favor of the Board of Organizers, composed of CMI directors. The plaintiffs subscribed and paid via a special CMI dividend. However, the defendants, acting as the Board of Organizers, filed the Bank’s Articles of Incorporation showing subscriptions only from themselves, excluding the plaintiffs. They later issued additional shares, again only to themselves or their designees. The plaintiffs claimed this was a breach of trust and contractual agreement, constituting manipulation to gain control of the Bank to the plaintiffs’ exclusion.
The defendants moved to dismiss the complaint, arguing it failed to state a cause of action. They contended the plaintiffs’ right to subscribe was merely a personal privilege that lapsed upon their failure to subscribe within the original period set by the CMI resolution (by March 28, 1962), not the extended period offered in the “Pre-Incorporation Agreement” forms. The trial court granted the motion to dismiss, holding that the facts alleged did not constitute a valid cause of action. The plaintiffs and intervenors appealed this dismissal.

ISSUE

Whether the trial court erred in dismissing the complaint for failure to state a cause of action.

RULING

No, the Supreme Court affirmed the dismissal. The legal logic centered on the distinction between a conditional right and a mere personal privilege. The Court held that the CMI resolution of March 28, 1962, created only a personal privilege or option for CMI stockholders to subscribe to the Bank’s shares. This privilege was conditional upon the stockholders exercising it within the period fixed by the CMI Board of Directors. The complaint itself alleged this period was fixed as January 15, 1963, with the right to be exercised within thirty days thereafter. Crucially, the complaint did not allege that the plaintiffs subscribed within this specific period mandated by the originating resolution. Instead, it alleged subscription pursuant to the later “Pre-Incorporation Agreement” forms sent by the Board of Organizers. Since the complaint failed to allege subscription within the period established by the condition precedent (the CMI resolution), it did not show that the plaintiffs’ personal privilege had matured into a vested right. Without such a vested right, the defendants’ subsequent acts in subscribing to the shares themselves could not constitute a breach of a contractual or trust obligation owed to the plaintiffs. The alleged facts, even if true, established only a grievance from the non-fulfillment of a lapsed privilege, not an actionable wrong. Therefore, the complaint was correctly dismissed for failing to allege the essential elements of a cause of action.