CASE DIGEST: ONG vs. TIU. G.R. No. 144476. February 01, 2002

FACTS:

The construction of Masagana Citimall in Pasay City was threatened with stoppage, when its owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became heavily indebted to the Philippine National Bank (PNB) for P190M. To save the 2 lots where the mall was being built from foreclosure, the Tius invited the Ongs, to invest in FLADC.  In the Pre-Subscription Agreement the Ongs and the Tius agreed to maintain equal shareholdings in FLADC. Ongs agreed to subscribe to 1,000,000 shares and Tius subscribe to an additional 549,800 shares in addition to their already existing subscription of 450,200 shares. They also agreed that positions of Vice-President and the Treasurer plus 5 directors will be nominated from Tius and that the President, the Secretary and 6 directors (including the chairman) to the board of directors of FLADC and right to manage and operate the mall will be nominated from Ongs.

Tius contribute to FLADC a 4-storey building P20M (for 200K shares) and 2 parcels of land P30M (for 300K shares) and P49.8M (for 49,800 shares) while Ongs paid P190M to settle the mortgage indebtedness of FLADC to PNB.

However, in 1996, Tius rescinded the Pre-Subscription Agreement and seeking confirmation from SEC of their rescission of the Pre-Subscription Agreement. They alleged that the Ongs did not provide offices for the Vice President and Treasurer and that Ongs failed to credit shares of stock in favor of the Tius for their property contributions. SEC eventually confirmed the rescission of Tius.

ISSUE:

Whether the subscription contract may be rescinded by Tius in its personal capacity.

RULING: 

NO. Under Sec. 60 of the Corporation Code, the Subscription contract involves the Corporation as one of the contracting parties because the subject matter of the transaction is the shares of stock, which is the property of the corporation. Upon investment of the Ongs, the same is now part or owned by the corporation itself. Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other contract.

Since the cash and other contributions now sought to be returned already belong to FLADC, an innocent third party said remedy may no longer be availed of under the law. It allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings, 25 and (3) dissolution and eventual liquidation of the corporation.