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Corporate Law Case Digest: Bayla v. Silang Traffic Co. (1942)

G.R. Nos. L-48195 and 48196             May 1, 1942
Lessons Applicable: Purchase Agreement (Corporation Law)

  • Petitioners purchased the following:
Sofronio T. Bayla.......
Venancio Toledo........
Josefa Naval..............
  • purchase price to be paid 5% upon the execution of the contract and the remainder in installments of 5%, payable within the 1st month of each and every quarter startingJuly 1, 1935, w/ interest on deferred payments at 6%/annum until paid
  • They also agreed to forfeit in favor of seller in case of default w/o court proceedings
  • BOD resolution Aug 1, 1937: rescinding the agreement
  • Petitoners filed an action in the CFI against Silang Traffic Co. Inc to recover certain sum of money w/c they had paid severally to the corp. on account of shares of stock they indiv. agreed to take and pay for under certain conditions
  • Defenses:

  1. That the resolution is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz Toledo because on the date thereof "their subscribed shares of stock had already automatically reverted to the defendant, and the installments paid by them had already been forfeited"
  2. that said resolution of August 1, 1937, was revoked and cancelled by a subsequent resolution 

  • RTC: absolved defendant. BOD resolution cancelled
  • Petitioners appealed
  1. W/N the subsequent BOD resolution is valid
  2. W/N  under the contract between the parties the failure of the purchaser to pay any of the quarterly installments on the purchase price automatically gave rise to the forfeiture of the amounts already paid and the reversion of the shares to the corporation
HELD: NO. CA reversed.  Silang Traffic to pay petitioners
  1. NO
  • noted 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"
    • Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its terms and the intention of the parties
  • subscription - mutual agreement of the subscribers to take and pay for the stock of a corporation
  • purchase - independent agreement bet. the individual and the corp. to buy shares of stock from it at stipulated price
  • rules governing subscriptions and sales of shares are different
    • Corporation Law regarding calls for unpaid subscription and assessment of stock (sections 37-50) do not apply to a purchase of stock
    • 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.
  • The contract in question being one of purchase and not subscription as we have heretofore pointed out, we see no legal impediment to its rescission by agreement of the parties
  • We may add that there is no intimation in this case that the corporation was insolvent, or that the right of any creditor of the same was in any way prejudiced by the rescission.
  • The attempted revocation of said rescission by the resolution of August 22, 1937, was invalid, it not having been agreed to by the petitioners.
     2. NO
  • The provision regarding interest on deferred payments would not have been inserted if it had been the intention of the parties to provide for automatic forfeiture and cancelation of the contract
  • contract did not expressly provide that the failure of the purchaser to pay any installment would give rise to forfeiture and cancelation without the necessity of any demand from the seller
    • Art. 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 extrajudicially the fulfillment of their obligation, unless 
      (1) the obligation or the law expressly provides that demand shall not be necessary in order that default may arise
      (2) by reason of the nature and circumstances of the obligation it shall appear that the designation of the time at which that thing was to be delivered or the service rendered was the principal inducement to the creation of the obligation.