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Philippine National Bank vs. Bitulok Sawmill, Inc.

No. L-24177–85. June 29, 1968

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. BITULOK

SAWMILL, INC., DINGALAN LUMBER Co., INC., SIERRA
MADRE LUMBER Co., INC., NASIPIT LUMBER Co., INC.,
WOODWORKS, INC., GONZALO PUYAT, TOMAS B.
MORATO, FlNDLAY MlLLAR LUMBER CO., INC., ET AL.,
INSULAR LUMBER Co., ANAKAN LUMBER CO., AND
CANTILAN LUMBER Co., INC., defendants-appellees.

Corporation law; Subscription; An assignee in insolvency can

maintain an action upon any unpaid stock subscription in order to realize
assets for the payment of its debts.—It is an established doctrine that
subscriptions to the capital of a corporation constitute a fund to which
creditors have a right to look

________________

3 Azotes vs. Blanco, 85 Phil. 90; Torrefranca, et al. vs. Albiso, 102 Phil. 732; Primo vs.
Fernandez, et al., G.R. No. L-18738, June 29, 1962.

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Philippine National Bank vs. Bitulok Sawmill, Inc.

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 (Phil. Trust Co. v. Rivera, 44 Phil. 469).
Same; A corporation has no power to release an original subscriber
from paying for his shares; Exception.—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
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manner and under the conditions prescribed by the statute or the charter or
the articles of incorporation (Velasco v. Poizat, 37 Phil. 802).
Constitutional law; Executive Department; A Chief Executive has na
prerogative of suspending the operation of any statute, or any of its terms.—
It is a well-settled principle that with all the vast powers lodged in the Chief
Executive, he is still devoid of the prerogative of suspending the operation
of any statute or any of its terms. The power of suspending the laws, or the
execution of the laws, ought never to be exercised but by the legislature, or
by authority derived from it, to be exercised in such particular cases only as
the legislature shall expressly provide for. Nor could it be otherwise
considering that the Constitution specifically enjoins the President to see to
it that all laws be faithfully executed.

APPEAL from a decision of the Court of First Instance of Manila.

The facts are stated in the opinion of the Court.

          Tomas Besa, Simplicio N. Angeles and Jose B. Galang for
plaintiff-appellee.
     Bausa, Ampil & Suarez for defendant-appellant Woodworks,
Inc.
     Pacifico de Ocampo for defendant-appellant Anakan Lumber
Co.
     Ross, Selph, Salcedo, Del Rosario, Bito & Misa for defendant-
appellant Insular Lumber Co.
          Garin, Boquiren & Tamesis for defendant-appellant Nasipit
Lumber Co., Inc.
          Feria, Manglapus & Associates for defendant-appellant
Gonzalo Puyat.
     Sycip, Salazar & Associates for defendant-appellant Cantilan
Lumber Co., Inc.
          Ozaeta, Gibbs & Ozaeta for defendant-appellant Findlay
Millar Lumber Co., Inc.

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1368 SUPREME COURT REPORTS ANNOTATED

Philippine National Bank vs.. Bitulok Sawmill, Inc.

     Dominador Alafriz for defendant-appellant Bitulok Sawmill, Inc.

     De la Costa & De la Costa, for defendant-appellant Tomas B.
Morato.

FERNANDO, J.:

In the face of a statutory norm, which, as interpreted in a uniform

line of decisions by this Court, speaks unequivocally and is free
from doubt, the lower court with full recognition that the case for the
plaintiff creditor, Philippine National Bank, “is meritorious strictly
1
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1
from the legal standpoint” but apparently unable to “close its eyes
2
to the equity of the case” dismissed nine (9) cases filed by it,
seeking “to recover from the defendant lumber producers [Bitulok
Sawmill, Inc.; Dingalan Lumber Co., Inc., Sierra Madre Lumber
Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks, Inc.; Gonzalo
Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; Insular
Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan Lumber
Co., Inc.] the balance of their stock subscriptions to the Philippine
3
Lumber Distributing Agency, Inc.” In essence then, the crucial
question posed by this appeal from such a decision of the lower
court is adherence to the rule of law. Otherwise stated, would non-
compliance with a plain statutory command, considering the
persuasiveness of the plea that defendants-appellees would “not
have subscribed to [the] capital stock” of the Philippine Lumber
Distributing Agency “were it not for the assurance of the [then]
President of the Republic of the Philippines that the4 Government
would back [it] up by investing P9.00 for every peso” subscribed, a
condition which was not fulfilled, such commitment not having been
complied with, be justified? The answer must be in the negative.
It cannot be otherwise even if an element of unfairness and
injustice could be predicated, as the lower court, in a rather
sympathetic mood, did find in the plaintiff bank, as creditor,
compelling defendant lumber producers under

________________

1 Decision, Record on Appeal p. 447.

2 Ibid, p. 447.
3 Ibid, p. 442.
4 Ibid, p. 447.

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Philippine National Bank vs. Bitulok Sawmill, Inc.

the above circumstances to pay the balance of their subscriptions.

For a plain and statutory command, if applicable, must be respected.
The rule of law cannot be satisfied with anything less. The appeal
must be sustained.
In these various suits decided jointly, the Philippine National
Bank, as creditor, and therefore the real party in interest, was
allowed by the lower court to substitute the receiver of the
Philippine Lumber Distributing Agency in these respective actions
for the recovery from defendant lumber producers the balance of
their stock subscriptions. The amount sought to be collected from
defendants-appellees Bitulok Sawmill, Inc., Dingalan Lumber Co.,
Inc., and Sierra Madre Lumber Co., Inc., is P5,000.00,
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defendantsappellees having made a partial payment of P15,000.00 of

their total subscription worth P20,000.00; from defendantappellee
Nasipit Lumber Co., Inc., the sum of P10,000.00, defendant-
appellee having made a partial payment of P10,-000.00 of its total
subscription worth P20,000.00; from defendant-appellee
Woodworks, Inc., the sum of P10,886.00, defendant-appellee having
made a partial payment of P9,114.00 of its total subscription worth
P20,000.00; from defendant-appellee Gonzalo Puyat the sum of
P10,000.00, defendant-appellee having made a partial payment of
P10,000.00 of his total subscription worth P20,000.00; from
defendant-appellee Tomas Morato the sum of P10,000.00,
defendant-appellee having made a partial payment of P10,000.00 of
his total subscription worth P20,000.00; from defendant-appellee
Findlay Millar Lumber Co., Inc., the sum of P10,000.00, defendant-
appellee having made a partial payment of P10,000.00 of its total
subscription worth P20,000.00; from defendant-appellee Insular
Lumber Co., Inc., the sum of P5,000.00, defendant-appellee having
made a partial payment of P15,000.00 of its total subscription worth
P20,000.00; from defendant-appellee Anakan Lumber Co., Inc., the
sum of P15,000.00, defendant-appellee having made a partial
payment of P5,000.00 of its total subscription worth P20,000.00;
and from defendant-appellee Cantilan Lumber Co., Inc., the sum of
P7,500.00, defendantappellee having made a partial payment of
P2,500.00 of its total subscription worth P10,000.00, plus interest at
the

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1370 SUPREME COURT REPORTS ANNOTATED

Philippine National Bank vs. Bitulok Sawmill, Inc.

legal rate from the filing of the suits and the costs of the suits in all
the nine (9) cases.
The Philippine Lumber Distributing Agency, Inc., according to
the lower court, “was organized sometime in the early part of 1947
upon the initiative and insistence of the late President Manuel Roxas
of the Republic of the Philippines who for the purpose, had called
several conferences between him and the subscribers and 5
organizers
of the Philippine Lumber Distributing Agency, Inc.” The purpose
was praiseworthy, to insure a steady supply of lumber, which could
be sold at reasonable prices to enable the war sufferers to rehabilitate
their devastated homes. The decision continues: “He convinced the
lumber producers to form a lumber cooperative and to pool their
resources together in order to wrest, particularly, the retail trade
from aliens who were acting as middlemen in the distribution of
lumber. At the beginning, the lumber producers were reluctant to
organize the cooperative agency as they believed that it would not be
easy to eliminate from the retail trade the alien middlemen who had
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been in this business from time immemorial, but because the late
President Roxas made it clear that such a cooperative agency would
not be successful without a substantial working capital which the
lumber producers could not entirely shoulder, and as an inducement
he promised and agreed to finance the agency by making the
Government invest P9.00 by way of counterpart
6
for every peso that
the members would invest therein, x x x.”
This was the assurance relied upon according to the decision,
which stated that the amount thus contributed by such lumber
producers was not enough for the operation of its business especially
having in mind the primary purpose of putting an end to alien
domination in the retail trade of lumber products. Nor was there any
appropriation by the legislature of the counterpart fund to be put up
by the Government, namely, P9.00 for every peso invested by
defendant lumber producers. Accordingly, “the late President Roxas
instructed the Hon. Emilio Abello,

_______________

5 Ibid, p. 442.
6 Ibid, p. 443.

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VOL. 23, JUNE 29, 1968 1371

Philippine National Bank vs. Bitulok Sawmill, Inc.

then Executive Secretary and Chairman of the Board of Directors of

the Philippine National Bank, for the latter to grant said agency an
overdraft in the original sum of P250,000.00 which was later
increased to P350,000.00, which was approved by said Board of
Directors of the Philippine National Bank on July 28, 1947, payable
on or before April 30, 1958, with interest at the rate of 6% per
annum, and secured by the chattel mortgages on the stock of lumber
7
of said agency.” The Philippine Government did not invest the
P9.00 for every peso coming from defendant lumber producers. The
loan extended to the Philippine Lumber Distributing Agency by the
Philippine National Bank was not paid. Hence, these suits.
For the lower court, the above facts sufficed for their dismissal.
To its mind “it is grossly unfair and unjust for the plaintiff bank now
to compel the lumber producers to pay the balance of their
subscriptions x x x. Indeed, when the late President Roxas made
representations to the plaintiff bank, thru the Hon. Emilio Abello,
who was then the Executive Secretary and Chairman of its Board of
Directors, to grant said overdraft to the agency, it was the only way
by which President Roxas could make good his commitment that the
Government would invest in said agency to the extent already
mentioned because, according to said late President Roxas, the
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legislature had not appropriated any amount for such counterpart.

Consequently, viewing from all considerations of equity in the case,
the Court finds that plaintiff bank should not collect any more from
the defendants the balance of their subscriptions to 8the capital stock
of the Philippine Lumber Distributing Agency, Inc.”
Even with the case for defendant lumber producers being put f
orth in its strongest possible light in the appealed decision, the
plaintiff creditor, the Philippine National Bank, should have been the
prevailing party. On the law as it stands, the judgment reached by
the lower court cannot be sustained. The appeal, as earlier made
clear, possesses merit.

________________

7 Ibid, pp. 444–445.

8 Ibid, pp. 449–450.

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Philippine National Bank vs. Bitulok Sawmill, Inc.

9
In Philippine
10
Trust Co. v. Rivera, citing the leading case of Velasco
v. Poizat, this Court held: “It is established doctrine that
subscriptions to the capital of a corporation constitute a fund 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 debt. x x x 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 and under the conditions prescribed by the statute or
the charter or the articles of incorporation. Moreover, strict
compliance with the statutory regulations is necessary
11
x x x.” The
Poizat doctrine f ound acceptance in later cases. One of the latest
12
cases, Lingayen Gulf Electric Power v. Baltazar, speaks to this
13
effect: “In the case of Velasco v. Poizat, the corporation involved
was insolvent, in which case all unpaid stock subscriptions become
payable on demand and are immediately recoverable in an action
instituted by the assignee.”
It would be unwarranted to ascribe to the late President Roxas the
view that the payment of the stock subscriptions, as thus required by
law, could be condoned in the event that the counterpart fund to be
invested by the Government would not be available. Even if such
were the case, however, and such a promise was in fact made, to
further the laudable purpose to which the proposed corporation

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would be devoted and the possibility that the lumber producers

would lose money in the process, still the plain and

_________________

9 44 Phil. 469, 470–471 (1923).

10 37 Phil. 802 (1918).
11 National Exchange Co., Inc. v. Dexter, 51 Phil. 601 (1928); Miranda v. Tarlac
Rice Mill Co., Inc., 57 Phil. 619 (1932); Lumanlan v. Cura, 59 Phil. 746 (1934);
Garcia v. Suarez, 67 Phil. 441 (1939); and Baluyut v. Bank of P.I., 72 Phil. 17 (1941).
12 93 Phil. 404, 410 (1953). Cf. 13 Fletcher, Cyclopedia of Corporations, pp. 747–
750 (1961). See also Lattin on The Law of Corporations, p. 113 (1959).
13 37 Phil. 805 (1918).

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Philippine National Bank vs. Bitulok Sawmill, Inc.

specific wording of the applicable legal provision as interpreted by

this Court must be controlling. It is a well-settled principle that with
all the vast powers lodged in the Executive, he is still devoid of the
prerogative of suspending the operation of any statute or any of its
terms.
The emphatic and categorical language of an American decision
14
cited by the late Justice Laurel, in People v. Vera, comes to mind:
“By the twentieth article of the declaration of rights in the
constitution of this commonwealth, it is declared that the power of
suspending the laws, or the execution of the laws, ought never to be
exercised but by the legislature, or by authority derived from it, to be
exercised in such particular cases only as the legislature shall
expressly provide for. x x x” Nor could it be otherwise considering
that the Constitution specifically enjoins the President to see to it
15
that all laws be faithfully executed. There may be a discretion as to
what a particular legal provision requires; there can be none
whatsoever as to the enforcement and application thereof once its
meaning has been ascertained. What it decrees must be followed;
what it commands must be obeyed.. It must be respected, the wishes
of the President, to the contrary notwithstanding, even if impelled by
the most worthy of motives and the most persuasive equitable
considerations. To repeat, such is not the case here. For at no time
did President Roxas ever give defendant lumber producers to
understand that the failure of the Government for any reason to put
up the counterpart fund could terminate their statutory liability.
Such is not the law. Unfortunately, the lower court was of a
different mind. That is not to pay homage to the rule of law. Its
decision then, one it is to be repeated influenced by what it
considered to be the “equity of the case”, is not legally impeccable.
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WHEREFORE, the decision of the lower court is reversed and

the cases remanded to the lower court for judgment according to
law, with full consideration of the legal

________________

14 65 Phil. 56, 121 (1937), citing Holden v. James, 11 Mass., 396 (1814).
15 Art. VII, Sec. 10, par. 1, Constitution of the Philippines.

1374

1374 SUPREME COURT REPORTS ANNOTATED

Pelayo, Jr. vs. Commission on Elections

defenses raised by defendants-appellees, Bitulok Sawmill, Inc.;

Dingalan Lumber Co., Inc.; Sierra Madre Lumber Co., Inc.; Nasipit
Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B.
Morato; Findlay Millar Lumber Co., Inc.; Anakan Lumber Co., Inc.;
and Cantilan Lumber Co., Inc. No pronouncement as to costs.

          Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal,

Zaldivar, Sanchez and Angeles, JJ., concur.
     Castro, J., did not take part.

Decision reversed and cases remanded to lower court for

judgment.

Notes.—The consent of all the stockholders or subscribers is

necessary to release a subscriber from the obligation of paying for
his shares (Lingayen Gulf Electric Power Co. v. Baltazar, 93 Phil.
404).
But the rule prohibiting such release without the necessary
consent is not applicable to purchasers of the corporation’s shares of
stock and a resolution passed by the board of directors authorizing
the refund of the amounts paid by such purchasers and the return of
the shares of stock to the corporation is valid, the contract of
purchase and sale not being a subscription (Bayla v. Silang Traffic
Co., 73 Phil. 557).

_______________

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