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    Garcia v. Lim Chu Sing

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    Jardine Miroy
    1) Lim Chu Sing was liable as a surety for Lim Cuan Sy's debt to Mercantile Bank of China (MCB) and signed a promissory note for the remaining balance of Php9,105.17 after payments and foreclosure of mortgaged properties. 2) Lim Chu Sing also owned Php10,000 worth of shares in MCB. 3) The court held that shares of stock do not constitute a debt owed to the shareholder, so shareholders are not creditors of the corporation. Therefore, Lim Chu Sing could not use the value of his MCB shares to offset his debt to MCB.

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    Garcia v. Lim Chu Sing

    Uploaded by

    Jardine Miroy
    88 views1 page
    1) Lim Chu Sing was liable as a surety for Lim Cuan Sy's debt to Mercantile Bank of China (MCB) and signed a promissory note for the remaining balance of Php9,105.17 after payments and foreclosure of mortgaged properties. 2) Lim Chu Sing also owned Php10,000 worth of shares in MCB. 3) The court held that shares of stock do not constitute a debt owed to the shareholder, so shareholders are not creditors of the corporation. Therefore, Lim Chu Sing could not use the value of his MCB shares to offset his debt to MCB.

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    1) Lim Chu Sing was liable as a surety for Lim Cuan Sy's debt to Mercantile Bank of China (MCB) and signed a promissory note for the remaining balance of Php9,105.17 after payments and foreclosure of mortgaged properties. 2) Lim Chu Sing also owned Php10,000 worth of shares in MCB. 3) The court held that shares of stock do not constitute a debt owed to the shareholder, so shareholders are not creditors of the corporation. Therefore, Lim Chu Sing could not use the value of his MCB shares to offset his debt to MCB.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    88 views1 page

    Garcia v. Lim Chu Sing

    Uploaded by

    Jardine Miroy
    1) Lim Chu Sing was liable as a surety for Lim Cuan Sy's debt to Mercantile Bank of China (MCB) and signed a promissory note for the remaining balance of Php9,105.17 after payments and foreclosure of mortgaged properties. 2) Lim Chu Sing also owned Php10,000 worth of shares in MCB. 3) The court held that shares of stock do not constitute a debt owed to the shareholder, so shareholders are not creditors of the corporation. Therefore, Lim Chu Sing could not use the value of his MCB shares to offset his debt to MCB.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 1

    Garcia v.

    Lim Chu Sing


    February 24, 1934 | Villa-Real, J.
    Corporate Finance Overview

    Doctrine: The shares of stock of a banking corporation do not constitute an indebtedness thereof to the
    stockholder and, therefore, the latter is not a creditor of the former for such shares.

    Case Summary: Lim Chu Sing was made liable to pay the indebtedness of Lim Cuan Sy to which he
    was a surety. Since he is also a stockholder of MCB, the bank to whom he was indebted, he asked that
    there should be compensation as between the debt he owes to MCB and the value of the shares of stock
    of MCB that he owns. Court held that shares of stocks do not constitute indebtedness and therefore,
    there can be no compensation.

    Facts:
     On June 20, 1930, Lim Chu Sing delivered a promissory note (PN) to Mercantile Bank of China
    (MCB) for the sum of Php19,605.17 with interest at 6% p.a.
    o Payment is Php1,000 on July 1, 1930 then Php500 every 1st of the month thereafter.
    o If there is default in payment, unpaid balance plus interest shall become due and
    demandable.
    o Lim Chu Sing has made several payments until the balance became Php9,105.17 but failed
    to make subsequent payments.
     Lim Cuan Sy was actually the principal debtor and Lim Chu Sing only acted as surety with chattel
    mortgage. Since Lim Cuan Sy failed in his obligations, Lim Chu Sing was required to sign the
    previously described PN. MCB also foreclosed on the properties mortgaged.
     At the same time, Lim Chu Sing was also the owner of shares of stock of MCB amounting to
    P10,000. MCB is now under liquidation.
     On December 27, 1932, Lim Chu Sing filed a motion praying for the inclusion of the principal
    debtor Lim Cuan Sy as party defendant so that he could avail himself of the benefit of the
    exhaustion of the property of said Lim Cuan Sy.
    o Denied
     The proceeds of the sale of the mortgaged chattels together with other payments made were
    applied to the amount of the promissory note in question, leaving the aforementioned balance.
     CFI Manila ordered Lim Chu Sing to pay the sum of P9,105.17 with interest at 6% p.a. from
    September 1, 1932, until fully paid, plus the sum of P910.51, as attorney's fees, with the costs of
    the suit.

    Issue: WON there can be compensation. – No.

    Ruling:
     A share of stock or the certificate thereof is not an indebtedness to the owner nor evidence of
    indebtedness and, therefore, it is not a credit. Stockholders are not creditors of the corporation.
     The capital stock of a corporation is a trust fund to be used more particularly for the security of
    creditors of the corporation, who presumably deal with it on the credit of its capital stock.
     Lim Chu Sing, in as far as his being a shareholder is involved, is not a creditor of MCB but MCB
    is a creditor of Lim Chu Sing. Therefore, there can be no compensation.

    Disposition: Wherefore, with the sole modification that the costs be eliminated from the appealed
    judgment, the same is hereby affirmed, without special pronouncement as to costs of this instance.

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