G.R. Nos. L-24177-85 June 29, 1968
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. BITULOK SAWMILL, INC., DINGALAN LUMBER CO., INC., SIERRA MADRE LUMBER CO., INC., NASIPIT LUMBER CO., INC., WOODWORKS, INC., GONZALO PUYAT, TOMAS B. MORATO, FINDLAY MILLAR LUMBER CO., INC., INSULAR LUMBER CO., ANAKAN LUMBER CO., AND CANTILAN LUMBER CO., INC., defendants-appellees.

FACTS

The Philippine National Bank (PNB), as creditor, filed nine suits to recover the unpaid balances of stock subscriptions from various defendant lumber producers to the Philippine Lumber Distributing Agency, Inc. (PLDA). The PLDA was organized in 1947 upon the initiative of the late President Manuel Roxas to create a lumber cooperative to stabilize supply and prices. President Roxas allegedly promised and agreed that the Government would invest P9.00 for every peso subscribed by the lumber producers as an inducement. This government counterpart fund was never appropriated or provided. Instead, upon President Roxas’s instruction, the PNB, through its Board Chairman Executive Secretary Emilio Abello, granted PLDA an overdraft loan secured by chattel mortgages. PLDA failed to pay the loan. The lower court dismissed the suits, finding it “grossly unfair and unjust” for PNB to collect the subscription balances since the government’s promised counterpart investment was not fulfilled, and the defendants subscribed relying on that assurance.

ISSUE

Whether the defendant lumber producers can be legally compelled to pay the unpaid balances of their stock subscriptions to the insolvent PLDA, notwithstanding the government’s failure to fulfill its alleged promise to provide a counterpart fund, based on equitable considerations.

RULING

Yes. The Supreme Court reversed the lower court’s decision and remanded the cases. The Court held that subscriptions to the capital stock of a corporation constitute a fund for the payment of corporate debts, especially upon insolvency. Creditors have a right to look to this fund, and an assignee or creditor can maintain an action to recover unpaid subscriptions. A corporation cannot release a subscriber from this obligation without valuable consideration, and as against creditors, any reduction must strictly comply with statutory regulations. The statutory norm, as established in Velasco v. Poizat and subsequent cases, is unequivocal. The alleged promise by the President, even if made, could not suspend the operation of the law or the subscribers’ statutory liability. The Constitution mandates the President to ensure the faithful execution of laws, not to suspend them. Therefore, adherence to the rule of law requires enforcement of the subscription obligations, and equitable considerations cannot override a clear statutory command. The legal defenses raised by the defendants should be considered by the lower court upon remand.