BAYLA V. SILANG TRAFFIC CO.

73 PHIL 557

Facts:

The case is about recovery by petitioners of a

certain sum of money which they had paid severally
to respondent corporation on account of shares of
stock they individually agreed to take and pay for a
certain specified terms and conditions. Respondent,
Silang Traffic Co., Inc., entered into an agreement
for the sale on installment of its shares of stock with
various individuals, including the petitioners Sofrio
Bayla. After the latter had paid several installments
for the purchase price of said shares of stock, the
petitioners defaulted in the payment of the
subsequent installments. Thus, the board of directors
passed a resolution authorizing for the refund of the
amounts paid and the reversion of the shares of stock
to the corporation. Despite the said board resolution,
the amounts paid by petitioners were not returned to
them since the board resolution was revoked and
cancelled by a subsequent resolution. Thus,
petitioners instituted an action in the Court of First
Instance of Cavite to recover the sums of money
paid. The respondent contends that the resolution
does not apply to petitioners as at the time the
resolution was passed, the shares had already
automatically been reverted back to the corporation,
and that the resolution was no longer effective as it
was cancelled by a subsequent resolution passed by
the Board. The Court of First Instance declared that
the shares of stock had already been forfeited and
absolved the respondent from the complaint.

Issues:

Whether or not, the failure to pay any

installment of the purchase price of the shares of
stock would result in its automatic forfeiture in favor
of the corporation.

Held:

The contract herein involved is one of sale and

not of subscription as it is an independent agreement
between the individual purchaser, which is the
petitioners, and respondent corporation to buy the
shares of stock at a stipulated price. It does not
involve a mutual agreement of the subscribers to
take and pay for the stock of the corporation.
Whether a particular contract is a purchase or a
subscription of shares of stock is a matter of
construction and depends upon its terms and the
intention of the parties. It has been held that a
subscription to stock in an existing corporation is, as
between the subscriber and the corporation, simply a
contract of purchase and sale.
As to forfeiture, the contract did not expressly
provide that the failure of the purchaser to pay any
installment would give rise to the forfeiture and
cancellation without the necessity of any demand
from the seller. However, being a contract of sale, it
may be rescinded by mutual agreement of the
parties. In the subsequent board resolution, it was
stated that the contracts were rescinded for the good
of the corporation and in order to terminate a
pending civil case involving the validity of such
sales of the shares. To such rescission, petitioners
apparently agreed, as shown by their demand for the
refund of the amount they had already paid to the
corporation. Moreover, provisions in the contract
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. The Civil code states that
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, 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. Wherefore, the judgment
of the court of appeals is hereby reversed and
another judgment will be entered against the
defendant Silang Traffic Co., Inc., ordering it to pay
to the petitioners Sofronio T. Bayla, Venancio
Toledo, Josefa Naval, and Paz Toledo.