Corporation Law: The Revised Corporation Code of the Philippines - Secs 65 & 66

 THE REVISED CORPORATION CODE  OF THE PHILIPPINES 

Republic Act No. 11232 

TITLE VII - STOCKS AND STOCKHOLDERS

Section 65. Interest on Unpaid Subscriptions. 

Subscribers to stock shall be liable to the corporation for interest on all unpaid subscriptions from the date of subscription, if so required by and at the rate of interest fixed in the subscription contract. If no rate of interest is fixed in the subscription contract, the prevailing legal rate shall apply.


Section 66. Payment of Balance of Subscription.
Subject to the provisions of the subscription contract, the board of directors may, at any time, declare due and payable to the corporation unpaid subscription and may collect the same or such percentage thereof, in either case, with accrued interest, if any, as it may deem necessary.

Payment of unpaid subscription or any percentage thereof, together with any interest accrued, shall be made on the date specified in the subscription contract or on the date stated in the call made by the board. Failure to pay on such date shall render the entire balance due and payable and shall make the stockholder liable for interest at the legal rate on such balance, unless a different interest at the legal rate on such balance, unless a different interest rate is provided in the subscription contract. The interest shall be computed from the date specified, until full payment of the subscription. If no payment is made within thirty (30) days from the said sate, all stocks covered by the subscription shall thereupon become delinquent and shall be subject to sale as hereinafter provided, unless the board of directors orders otherwise.

1. Liability. 
  • A stock subscription is a subsisting liability from the time the subscription is made. 
  • The subscriber is as much bound to pay his subscription as he would be to pay any other debt. 
  • The right of the corporation to demand payment is no less incontestable.
  • Since stock subscriptions are considered a debt of a shareholder to the corporation, the shareholder who has not fully paid the subscription price may be subject to garnishment or may be sued for the recovery of the indebtedness to the corporation under Rule 39 of the Rules of Court. 
2. Call.
  • Section 66 of the RCCP provides that the Board of Directors of any stock corporation may at any time declare due and payable to the corporation unpaid subscriptions to the capital stock and may collect the same or such percentage thereof, in either case with accrued interest, if any, as it may deem necessary.
  • A call is therefore the resolution or formal declaration of the Board that the unpaid subscriptions are due and payable. 
    • The unpaid subscription is not due and payable without the call. 
    • A corporation cannot file an action to recover the unpaid price if the action is not preceded by a call; until a call is made, no cause of action accrues.
  • The Board's call can be for:
    • the payment of the total unpaid subscription price or 
    • payment on installment basis.
  • However, this presupposes that there is no agreement as to the time of payment in the subscription contract. 
  • If a period is specified in the subscription contract, then the Board cannot disregard the period agreed upon.
  • A call cannot be made on only some of the subscribers. 
  • It cannot likewise make some of the subscriber pay a higher rate than others because calls must operate uniformly upon all subscribers and cannot be oppressive and discriminatory. 
2.01. When Not Necessary. 
  • A call is not necessary in two cases: 
    1. when the date of payment is specified in the subscription agreement; and
    2. when the corporation becomes insolvent.
  • "No call is necessary when a subscription is payable, not upon call or demand by the directors or stockholders, but immediately, or on a specified day, or on or before a specified day, or when it is payable in installments at specified times. In such cases, it is the duty of the subscriber to pay the subscription or installment thereof as soon as it is due, without any call or demand, and, if he fails to do so, an action may be brought at any time."
  • An exception to the rule that a call is necessary to make the unpaid subscription price due and payable is in case of insolvency.  
    • When insolvency supervenes upon a corporation and the court assumes jurisdiction to wind it up, all unpaid stock subscriptions become payable on demand and are at once recoverable in an action instituted by the assignee or receiver appointed by the court.
 3. No Set-Off. 
  • A corporation cannot deduct from any amount due to an employee the latter's unpaid subscription of shares. 
    • There can be no set-off if there is no notice or call for the payment of unpaid subscription. 
    • In the absence of a notice or call for payment, the subscription price is not demandable.
  • The corporation cannot withhold cash dividends from the subscribers who have not fully paid their subscription unless:
    • the subscribers are delinquent or 
    • if the stockholders give their consent thereto. 
  • Additionally, a stockholder's indebtedness to a corporation for unpaid subscriptions cannot be compensated with the amount of his shares in the corporation (even those issued as stock dividends), there being no relation of creditor and debtor with respect to the shares.
  • This rule against non-application applies even if the shares are delinquent because the rule is that stock dividends are only withheld from the delinquent stockholder until the unpaid subscription is fully paid. 
    • "To allow the stocks issued pursuant to the declaration of stock dividends as payment to unpaid subscription would be, in effect, re-acquiring its own shares, which is not allowed under Section 41 of the Corporation Code (now Section 40 of the RCCP) which enumerates instances and conditions wherein a corporation can legally purchase or acquire its own shares."
4. When the Shares are Delinquent. 
  • Section 66 of the RCCP provides that if within 30 days from the date fixed in the subscription contract or in the call, no payment is made, all stocks covered by said subscription shall thereupon become delinquent. 
  • No further action is therefore necessary as the shares automatically become delinquent after the 30-day period. 
  • The phrase "unless the board of directors orders otherwise" in Section 66 (previously Section 67 of the Corporation Code) means that the Board may order the removal of the delinquent status of unpaid subscription. 
  • Hence, the delinquency remains unless there is an order from the Board. 

PROBLEM: 
Q: Victor was employed in MAIA Corporation. He subscribed to 1,500 shares of the corporation at Pl00.00 per share or a total of P150,000.00. He made an initial down payment of P37,5QO.OO. He was appointed President and General Manager. Because of his disagreement with the Board of Directors, he resigned and demanded payment of his unpaid salaries, his cost ofliving allowance, his bonus, and reimbursement of his gasoline and representation expenses. MAIA Corporation admits that it owed Victor P40,000.00 but told him that this will be applied to the unpaid balance of his subscription in the amount of Pl00,000.00. There was no call or notice for the payment of the unpaid subscription. Victor questioned the set-off. 

May MAIA set-off the unpaid subscription with Victor's claim for salaries?
No. MAIA cannot set-off the unpaid subscription with Victor's claim for salaries. A call is still necessary to make the unpaid subscription due and demandable. No such call was made in the present case. 
Would your answer be the same if indeed there had been a call for the unpaid subscription?
Yes. The reason is that Victor is entitled to the payment of his salaries which MAIA has no right to withhold in payment of unpaid subscription. Labor laws will be violated if the salary will be withheld for the payment of the unpaid subscription. (Apocada v. NLRC, 172 SCRA 442) (1994 Bar)


 

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