LIRAG TEXTILE MILLS, INC., VS. SSS CASE DIGEST

G.R. No. L-33205 August 31, 1987
LIRAG TEXTILE MILLS, INC., and BASILIO L. LIRAG, petitioners,
vs.
SOCIAL SECURITY SYSTEM, and HON. PACIFICO DE CASTRO, respondents.

CORPORATION LAW; DEBT SECURITIES

FACTS:

• SSS and the defendants Lirag Textile Mills, Inc. and Basilio Lirag entered into a purchase agreement. It provides for the repurchase by the Lirag Textile Mills, Inc. of the shares of stock at regular intervals and to guarantee the redemption of the stocks purchased by the plaintiff, defendant Lirag signed the Purchase Agreement not only as president of the defendant corporation, but also as a surety.

• Defendant corporation failed to redeem certificates of stock nos. 128 and 139, that letters of demands have been sent by the plaintiff to the defendant to redeem the foregoing stock certificates and pay the dividends but the Lirag Textile Mills, Inc. has not made such redemption nor made such dividend payments.

• That the failure of the Lirag Textile Mills, Inc. to redeem the foregoing certificates of stock and pay dividends thereon were due to financial reverses.

• SSS filed an action for specific performance and damages before CFI

• Lirag Textile Mills, Inc. and Basilio L. Lirag moved for the dismissal of the complaint, but were denied.

• Petitioners claim that respondent SSS merely became and still is a preferred stockholder of the petitioner corporation, the redemption of the shares purchased by said respondent being dependent upon the financial ability of petitioner corporation. Petitioner corporation, thus, has no obligation to redeem the preferred stocks.

• Lower court, ruling that the purchase agreement was a debt instrument.

ISSUE:

Whether or not the Purchase Agreement entered into by petitioners and respondent SSS is a debt instrument.

HELD:

• Purchase Agreement is, indeed, a debt instrument. Its terms and conditions unmistakably show that the parties intended the repurchase of the preferred shares on the respective scheduled dates to be an absolute obligation which does not depend upon the financial ability of petitioner corporation. This absolute obligation on the part of petitioner corporation is made manifest by the fact that a surety was required to see to it that the obligation is fulfilled in the event of the principal debtor's inability to do so. The unconditional undertaking of petitioner corporation to redeem the preferred shares at the specified dates constitutes a debt which is defined "as an obligation to pay money at some fixed future time, or at a time which becomes definite and fixed by acts of either party and which they expressly or impliedly, agree to perform in the contract.

• It follows that petitioner Basilio L. Lirag cannot deny liability for petitioner corporation's default. As surety, Basilio L. Lirag is bound immediately to pay respondent SSS the amount then outstanding.

• Decision of LC affirmed.