February 23, 1996: Tius rescinded the Pre-Subscription AgreementTius filed at the Securities and Exchange Commission (SEC) seeking confirmation of their rescis-sion of the Pre-Subscription Agreement
SEC confirmed recission of TiusOngs filed reconsideration that their P70M was not a premium on capital stock but an ad-vance loanSEC en banc affirmed it was a premium on capital stockCA said Ongs and the Tius were in pari delicto (which would not have legally entitled them torescission) but, "for practical considerations," that is, their inability to work together, it was best toseparate the two groups by rescinding the Pre-Subscription Agreement, returning the original in-vestment of the Ongs and awarding practically everything else to the Tius. ISSUE: Whether the Tius could legally rescind the Pre-Subscription Agreement.HELD: No. SC rules that they could not. FLADC was originally incorporated with an authorized capital stock of 500,000 shares with the Tiusowning 450,200 shares representing the paid-up capital. When the Tius invited the Ongs to investin FLADC as stockholders, an increase of the authorized capital stock became necessary to giveeach group equal (50-50) shareholdings as agreed upon in the Pre-Subscription Agreement. Theauthorized capital stock was thus increased from 500,000 shares to 2,000,000 shares with a parvalue of P100 each, with the Ongs subscribing to 1,000,000 shares and the Tius to 549,800 moreshares in addition to their 450,200 shares to complete 1,000,000 shares. Thus, the subject matterof the contract was the 1,000,000 unissued shares of FLADC stock allocated to the Ongs. Sincethese were unissued shares, the parties Pre-Subscription Agreement was in fact a subscriptioncontract as defined under Section 60, Title VII of the Corporation Code:Any contract for the acquisition of unissued stock in an existing corporation or a corporation still tobe formed shall be deemed a subscription within the meaning of this Title, notwithstanding the factthat the parties refer to it as a purchase or some other contract.A subscription contract necessarily involves the corporation as one of the contracting parties sincethe subject matter of the transaction is property owned by the corporation its shares of stock. Thus,the subscription contract (denominated by the parties as a Pre-Subscription Agreement) wherebythe Ongs invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law,one between the Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the
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- Decision Making, Corporation, Tius, Ongs, PreSubscription Agreement