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Bayla v Silang Traffic Co.

GR. No. L-48195-96, May 01, 1942


Ozaeta, J.:

FACTS: Sofronio Bayla, along with the other petitioners in this case, individually purchased
shares of stock of Silang Traffic Co. Each of the petitioners had different specified terms and
conditions of payment. Similar among them is that 5% is to be paid upon the execution of the
contract, and the remainder in installments of 5% quarterly due within the first month of the
quarter. Deferred payments will incur 6% interest per annum until paid, and failure to pay any of
said installments when they are due will revert the shares back to the seller and the payments
already made are to be forfeited in favor of the company, without resort to court proceedings.

Petitioners have already paid sums of money for the shares of stock they wanted to
purchase. However, they failed to pay the installment which fell due on or before July 31, 1937.
On August 1, 1937, the board of directors of Silang Traffic Co. released a resolution stating a
rescission was to be made for the good of the corporation and in order to terminate the then
pending civil case involving the validity of the sale of the shares in question. Those who would
agree can refund the installments already paid. The petitioners agreed to the rescission and
demanded for the refund of the amounts they had paid. Silang Traffic Co. refused to refund the
petitioners money stating that because of their failure to pay the installment due on or before
July 31, the clause stating that their shares would revert back to the corporation and their
payments forfeited had taken effect, and that there was nothing to refund. Moreover, a later
resolution on August 22 already cancelled the resolution of August 1.

The trial court absolved the corporation and forfeited the petitioners shares and
payments to the corporation. The Court of Appeals affirmed the decision but allowed the
petitioners 30 days to pay the arrears in their subscription. From this decision, petitioner and
respondent appealed to the Supreme Court.

ISSUE: Were the petitioners shares of stock automatically forfeited in favor of Silang Traffic
Corporation upon their failure to pay the installment due on or before July 31?

RULING: No. The Court held that for their stocks to be forfeited to the corporation, a demand
must first be given by the corporation for the payments due on or before July 31. It did not
automatically revert to the corporation. Under Article 1100 of the Civil Code, 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. The current situation does not fall
under the any of the exceptions. The contract itself did not expressly provide that the failure of
the purchaser to pay any installment would give rise to forfeiture and cancellation without the
necessity of any demand from the seller. In fact, it states that there would be a 6% interest on
deferred payments which shows that there was no intention of automatic forfeiture and
cancellation of contract. As such, the Court reversed the decision of the Court of Appeals and
ordered Silang Traffic Co. to refund the petitioners money.