Candido Pascual v.

Eugenio Orozco 
G.R. No. L-5174, March 17, 1911

FACTS:

Plaintiff Candido Pascual, in his own right as a stockholder of Banco Español-Filipino sued on behalf of the
corporation. Such is shown by the prayer of the complaint which is that judgment be entered in favor of the
bank.

Banco Español-Filipino is a banking corporation, constituted as such by royal decree of the Crown of Spain in
the year 1854. From the first it has been a bank of issue and was regarded as a quasi-public institution. The
then-Captain-General of the Philippines was its protector and supreme head. To him belonged the power to
appoint its directors and other managing officers, remove them from office for cause, fix the rate of interest
demandable by the bank, resolve all doubts and controversies relating to its management, etc.

It is alleged in the amended complaint that the only compensation provided for the managing officers of the
bank was a certain per cent of the net profits resulting from the bank's operations. In the years 1903, 1904,
1905, and 1907 the defendants, constituting majority of the Board of Directors, without the knowledge or
consent of the stockholders, deducted their respective compensation from the gross income instead of from the
net profits of the bank, thereby defrauding the bank and its stockholders of approximately P20,000 per annum;
that though due demands has been made upon them therefor, defendants refused to refund to the bank the sums
so misappropriated.

ISSUE:

WON Pascual may, as a stockholder of the corporation, file a derivative suit.

HELD:

General rule

In suits of this character the corporation itself and not the plaintiff stockholder is the real party in interest. The
rights of the individual stockholder are merged into that of the corporation. It is a universally recognized
doctrine that a stockholder in a corporation has no title legal or equitable to the corporate property; that both of
these are in the corporation itself for the benefit of all the stockholders. Since, therefore, the stockholder has no
title, it is evident that what he does have, with respect to the corporation and his fellow stockholder, are certain
rights sui generis. The right of individual stockholders to maintain suits for and on behalf of the corporation
was denied until within a comparatively short time, but his right is now no longer doubted.

Answer: YES

Plaintiff Pascual, by reason of the fact that he is a stockholder in the bank (corporation) has a right to maintain
a suit for and on behalf of the bank, but the extent of such a right must depend upon when, how, and for what
purpose he acquired the shares which he now owns. In the determination of these questions, we cannot see
how, if it be true that the bank is a quasi-public institution, it can affect in any way the final result.

The Court also assumed, basing from the charter of the bank, that the dividends were declared to be paid at the
end of the semester (six months). Since Pascual only became a shareholder in November 1903, he was
not entitled to the dividends for the first semester (January to July 1903) but he would have been
entitled to the dividends for the second semester. Pascual was therefore a shareholder during all the time
for which he sought recovery in his first cause of action, except the first six months of the year 1903. If it was
true that the defendant directors had taken their salaries for the year 1903 at the close of the year, Pascual
would then have had an interest and could have questioned the legality of the defendant’s right to take such
salary, inasmuch as his dividends would be directly affected, at least for the second semester.

Philippine Trust Company v. Marciano Rivera

G.R. No. L-19761, January 29, 1923

FACTS:

In 1918 the Cooperativa Naval Filipina was duly incorporated under the laws of the Philippine Islands.
Among the incorporators of this company was numbered the defendant Mariano Rivera, who subscribed for
450 shares representing a value of P45,000, the remainder of the stock being taken by other persons. In the
course of time the company became insolvent and went into the hands of the Philippine Trust Company, as
assignee in bankruptcy; and by it this action was instituted by Philippine Trust Company to recover one-half of
the stock subscription of Marciano Rivera, which admittedly has never been paid.

Respondent’s Defense:

The reason given for the failure of the defendant to pay the entire subscription is, that not long after
the Cooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred, at which a
resolution was adopted to the effect that the capital should be reduced by 50 per centum and the subscribers
released from the obligation to pay any unpaid balance of their subscription in excess of 50 per centum of the
same.

As a result of this resolution, it seems to have been supposed that the subscription of the various shareholders
had been cancelled to the extent stated; and fully paid certificate were issued to each shareholders for one-half
of his subscription. It does not appear that the formalities relative to the reduction of capital stock in
corporations were observed, and in particular it does not appear that any certificate was at any time filed in the
Bureau of Commerce and Industry, showing such reduction.

ISSUE:

WON it is possible to reduce capital by 50 per centum, and to release subscribers from the obligation to pay
any unpaid balance of their subscription in excess of 50 per centum.

HELD:

It is established doctrine that subscription to the capital of a corporation constitute a find to which creditors
have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action
upon any unpaid stock subscription in order to realize assets for the payment of its debts. A corporation has no
power to release an original subscriber to its capital stock from the obligation of paying for his shares, without
a valuable consideration for such release; and as against creditors a reduction of the capital stock can take
place only in the manner an under the conditions prescribed by the statute or the charter or the articles of
incorporation. Moreover, strict compliance with the statutory regulations is necessary.

In the case before us the resolution releasing the shareholders from their obligation to pay 50 per centum of
their respective subscriptions was an attempted withdrawal of so much capital from the fund upon which the
company's creditors were entitled ultimately to rely and, having been effected without compliance with the
statutory requirements, was wholly ineffectual.