G.R. Nos. L-48195 and
whether the contract was a subscription
48196 May 1, 1942
SOFRONIO T. BAYLA, ET AL., petitioners,
vs.
SILANG TRAFFIC CO., INC., respondent.
SILANG TRAFFIC CO., petitioner, vs.
SOFRONIO BAYLA, ET AL., respondents.
DOCTRINE
It held that the nature of the contract covering
unissued shares made after its incorporation,
the contract ws either a subscription contract
or a purchase of stock, depending upon the
terms of the agreement and the intention of the
parties.
It held that a subscription is a mutual
agreement among the subscribers to take and
pay for the stock of a corporation and therefore
it was not possible to withdraw from such
agreement without the consent of the other
subscribers, and even if the corporation should
become insolvent because of the enforcement
of the trust fund doctrine.
In contrast, the Court recognized that a
“purchase” of shares of stock is an
independent agreement between the
individual and the corporation to buy shares of
stock from it at a stipulated price, and the
insolvency of the corporation makes it
incapable of complying with its obligation,
which grants to the purchaser the right to
rescind the agreement.
FACTS
Petitioners instituted this action in the CFI of
Cavite against the respondent Silang Traffic
Co., Inc., to recover certain sums of money
which they had paid severally to the
corporation on account of shares of stock they
individually agreed to take and pay for under
certain specified terms and conditions.
Similar among them is that 5% is to be paid
upon the execution of the contract, and the
remainder in installments of 5% quarterly due
within the first month of the quarter.
Deferred payments will incur 6% interest per
annum until paid, and failure to pay any of said
installments when they are due will revert the
shares back to the seller and the payments
already made are to be forfeited in favor of the
company, without resort to court proceedings.
Petitioners have already paid sums of money
for the shares of stock they wanted to
purchase.
However, they failed to pay the installment
which fell due.
The BOD of Silang Traffic Co. released a
resolution stating a rescission was to be made
for the good of the corporation and in order to
terminate the then pending civil case involving
the validity of the sale of the shares in
question.
Those who would agree can refund the
installments already paid.
The petitioners agreed to the rescission and
demanded for the refund of the amounts they
had paid.
Silang Traffic Co. refused to refund the
petitioners’ money stating that because of
their failure to pay the installment due on or
before July 31, the clause stating that their
shares would revert back to the corporation
and their payments forfeited had taken effect,
and that there was nothing to refund.
CFI
The trial court absolved the corporation and
forfeited the petitioners’ shares and payments
to the corporation.
CA
The Court of Appeals affirmed the decision but
allowed the petitioners 30 days to pay the
arrears in their subscription. From this
decision, petitioner and respondent appealed
to the Supreme Court.
xxx
The parties litigant, the trial court, and the
Court of Appeals have interpreted or
considered the said agreement as a
contract of subscription to the capital
stock of the respondent corporation.
It should be noted, however, that said
agreement is entitled "Agreement for
Installment Sale of Shares in the Silang
Traffic Company, Inc.,"; that while the
purchaser is designated as "subscriber," the
corporation is described as "seller"; that the
agreement was entered into long after the
incorporation and organization of the
corporation; and that the price of the stock
was payable in quarterly installments spread
over a period of five years.
ISSUE
1. Whether or not the petitioners’ shares of
stock automatically forfeited in favor of Silang
Traffic Corporation upon their failure to pay
the installment due on or before July 31?
2.
contract or a purchase agreement
RULING
1. No. The Court held that for their stocks
to be forfeited to the corporation, a
demand must first be given by the
corporation for the payments due on or
before July 31.
It did not automatically revert to the
corporation.
Under Article 1100 of the Civil Code, persons
obliged to deliver or do something are not in
default until the moment the creditor demands
of them judicially or extra-judicially the
fulfillment of their obligation. The current
situation does not fall under the any of the
exceptions.
The contract itself did not expressly provide
that the failure of the purchaser to pay any
installment would give rise to forfeiture and
cancellation without the necessity of any
demand from the seller.
In fact, it states that there would be a 6%
interest on deferred payments which shows
that there was no intention of automatic
forfeiture and cancellation of contract. As
such, the Court reversed the decision of the
Court of Appeals and ordered Silang Traffic
Co. to REFUND THE PETITIONERS’
MONEY.
2. It seems clear from the terms of the
contracts in question that they are contracts
of sale and not of subscription.

The lower courts erred in overlooking the

distinction between subscription and
purchase

"A subscription, properly speaking, is the

mutual agreement of the subscribers to take
and pay for the stock of a corporation, while a
purchase is an independent agreement
between the individual and the corporation to
buy shares of stock from it at stipulated price."

In some particulars the rules governing

subscriptions and sales of shares are
different.

For instance, the provisions of our

Corporation Law regarding calls for unpaid
subscription and assessment of stock
(sections 37-50) do not apply to a purchase
of stock.

Likewise the rule that corporation has no

legal capacity to release an original
subscriber to its capital stock from the
obligation to pay for his shares, is
inapplicable to a contract of purchase of
shares.