Corp Law Full Txt Cases 1-10

8/10/2019 Corp Law Full Txt Cases 1-10

1/64

G.R. No. L-26370 July 31, 1970

PHILIPPINE FIRST INSURANCE CO PAN!, INC., plaintiff-appellant,vs.

ARIA CAR EN HARTIGAN, CGH, "#$ O. ENG%EE, defendants-appellees.

Bausa, Ampil & Suarez for plaintiff-appellant.

Nicasio E. Martin for defendants-appellees.

&ARRE'O, J.:

Appeal from the decision dated 6 October 1962 of the Court of First Instance of anila ! dismissin" the action inits Civil Case #o. $%92& ! brou"ht b' the herein plaintiff-appellant (hilippine First Insurance Co., Inc. to theCourt of Appeals )hich could, upon findin" that the said appeal raises purel' *uestions of la), declared itself )ithout +urisdiction to entertain the same and, in its resolution dated 1& ul' 1966, certified the records thereof tothis Court for proper determination.

he antecedent facts are set forth in the pertinent portions of the resolution of the Court of Appeals referred to asfollo)s

Accordin" to the complaint, plaintiff )as ori"inall' or"ani/ed as an insurance corporation under the

name of 0 he e on" 3in Fire and arine Insurance Co., 3td.0 he articles of incorporationori"inall' presented before the 4ecurit' and 5 chan"e Commissioner and ac no)led"ed before

#otar' (ublic r. 5. 7. I"nacio on une 1, 19&8 state that the name of the corporation )as 0 he e on" 3in Fire and arine Insurance Co., 3td.0 On a' 26, 1961 the articles of incorporation )ere

amended pursuant to a certificate of the oard of 7irectors dated arch %, 1961 chan"in" the nameof the corporation to 0(hilippine First Insurance Co., Inc.0.

he complaint alle"es that the plaintiff (hilippine First Insurance Co., Inc., doin" business under thename of 0 he e on" 3in Fire and arine Insurance Co., 3t.0 si"ned as co-ma er to"ether )ithdefendant aria Carmen :arti"an, C;:, a promissor' note for (&,


2/64

obli"ation )ith the China an in" Corporation based on the promissor' note still subsists, thesuret' )ho co-si"ned the promissor' note is not entitled to collect the value thereof from thedefendants other)ise the' )ill be liable for double amount of their obli"ation, there bein" noalle"ation that the suret' has paid the obli"ation to the creditor.

' )a' of special defense, defendants claim that there is no privit' of contract bet)een the plaintiff and the defendants and conse*uentl', the plaintiff has no cause of action a"ainst them, considerin"that the complaint does not alle"e that the plaintiff and the 0 e on" 3in Fire and arine InsuranceCo., 3td.0 are one and the same or that the plaintiff has ac*uired the ri"hts of the latter. he parties

after the admission of 5 hibit A )hich is the amended articles of incorporation and 5 hibit 1 )hichis a demand letter dated Au"ust 16, 1962 si"ned b' the mana"er of the loans and discountdepartment of the China an in" Corporation sho)in" that the promissor' note up to said date inthe sum of ($,&


3/64

3ast, but not least, assumin" that the said chan"e of name )as le"al and operated to dissolve theori"inal corporation, the dissolved corporation, must pursuant to 4ec. ?? of our corporation la), bedeemed as continuin" as a bod' corporate for three 8D 'ears from arch %, 1961 for the purpose of

prosecutin" and defendin" suits. It is, therefore, the e on" 3in Fire E arine Insurance Co., 3td.that is the proper part' to sue the defendants under said indemnit' a"reement up to arch %, 196$.

:avin" arrived at the fore"oin" conclusions, this Court need not s*uarel' pass upon issue bDformulated above.

B:5 5FO 5, plaintiff0s action is hereb' dismissed, )ith costs a"ainst the plaintiff.

In due time, the (hilippine First Insurance Compan', Inc. moved for reconsideration of the decision aforesaid, butsaid motion )as denied on 7ecember 8, 1962 in an order )orded thus

he motion for reconsideration, dated #ovember %, 1962, raises no ne) issue that )e failed toconsider in renderin" our decision of October 6, 1962. :o)ever, it "ives us an opportunit' toamplif' our decision as re"ards the *uestion of chan"e of name of a corporation in this +urisdiction.

Be find nothin" in our Corporation 3a) authori/in" a chan"e of name of a corporation or"ani/ed pursuant to its provisions. 4ec. 1% of the Corporation 3a) authori/es, in our opinion, amendment tothe Articles of Incorporation of a corporation onl' as to matters other than its corporate name. Oncea corporation is or"ani/ed in this +urisdiction b' the e ecution and re"istration of its Articles of

Incorporation, it shall continue to e ist under its corporate name for the lifetime of its corporatee istence fi ed in its Articles of Incorporation, unless sooner le"all' dissolved 4ec. 11, Corp. 3a)D.4i"nificantl', chan"e of name is not one of the methods of dissolution of corporations e pressl'authori/ed b' our Corporation 3a). Also si"nificant is the fact that the po)er to chan"e its corporatename is not one of the "eneral po)ers conferred on corporations in this +urisdiction 4ec. 18, Corp.3a)D. he enumeration of corporate po)ers made in our Corporation 3a) implies the e clusion of all others homas v. Best erse' . Co., 1


4/64

5 chan"e Commissioner that the name of a corporation in the (hilippines ma' be chan"ed b' mereamendment of its Articles of Incorporation as to its corporate name. A chan"e of corporate name)ould serve no useful purpose, but on the contrar' )ould most probabl' cause confusion. Onl' adubious purpose could inspire a chan"e of a corporate. name )hich, unli e a natural person0s name,)as chosen b' the incorporators themselves= and our Courts should not lend their assistance to theaccomplishment of dubious purposes.

B:5 5FO 5, )e hereb' den' plaintiff0s motion for reconsideration, dated #ovember %, 1962, for lac of merit.

In this appeal appellant contends that !

I

:5 IA3 CO 5 57 I# :O37I#; :A I# :I4 I47IC IO#, :5 5 I4 #O :I#; I# O CO (O A IO# 3AB A :O I I#; :5 C:A#;5 OF CO (O A 5 #A 5=

II

:5 IA3 CO 5 57 I# 75C3A I#; :A A C:A#;5 OF CO (O A 5 #A 5A((5A 4 O 5 A;AI#4 ( 3IC (O3IC =

III

:5 IA3 CO 5 57 I# :O37I#; :A A C:A#;5 OF CO (O A 5 #A 5 :A4:5 35;A3 5FF5C OF 7I44O3GI#; :5 O I;I#A3 CO (O A IO#

IG

:5 IA3 CO 5 57 I# :O37I#; :A :5 C:A#;5 OF #A 5 OF :5 5> O#; 3I# FI 5 E A I#5 I#4 A#C5 CO., 3 7. I4 OF 7 IO 4 GA3I7I =

G

:5 IA3 CO 5 57 I# :O37I#; :A :5 A((533A# :5 5I# I4 #O :5I;: (A I# 5 54 O 4 5 75F5#7A# 4-A((533554=

IG:5 IA3 CO FI#A33 5 57 I# 7I4 I44I#; :5 CO (3AI# .

Appellant0s (osition is correct= all the above assi"nments of error are )ell ta en. he )hole case, ho)ever,revolves around onl' one *uestion. a' a (hilippine corporation chan"e its name and still retain its ori"inal

personalit' and individualit' as suchJ

he ans)er is not difficult to find. rue, under 4ection 6 of the Corporation 3a), the first thin" re*uired to bestated in the Articles of Incorporation of an' corn corporation is its name, but it is onl' one amon" man' matterse*uall' if not more important, that must be stated therein. hus, it is also re*uired, for e ample, to state the number and names of and residences of the incorporators and the residence or location of the principal office of thecorporation, its term of e istence, the amount of its capital stoc and the number of shares into )hich it is divided,etc., etc.

On the other hand, 4ection 1% e plicitl' permits the articles of incorporation to be amended thus

4ec. 1%. ! An' corporation ma' for le"itimate corporate purpose or purposes, amend its articles of incorporation b' a ma+orit' vote of its board of directors or trustees and the vote or )ritten assent of t)o-thirds of its members, if it be a nonstoc corporation or, if it be a stoc corporation, b' the voteor )ritten assent of the stoc holders representin" at least t)o-thirds of the subscribed capital stoc of the corporation Provided , however , hat if such amendment to the articles of incorporation shouldconsist in e tendin" the corporate e istence or in an' chan"e in the ri"hts of holders of shares of an'class, or )ould authori/e shares )ith preferences in an' respect superior to those of outstandin"shares of an' class, or )ould restrict the ri"hts of an' stoc holder, then an' stoc holder )ho did not


5/64

vote for such corporate action ma', )ithin fort' da's after the date upon )hich such action )asauthori/ed, ob+ect thereto in )ritin" and demand (a'ment for his shares. If, after such a demand b'a stoc holder, the corporation and the stoc holder cannot a"ree upon the value of his share or sharesat the time such corporate action )as authori/ed, such values all be ascertained b' threedisinterested persons, one of )hom shall be named b' the stoc holder, another b' the corporation,and the third b' the t)o thus chosen. he findin"s of the appraisers shall be final, and if their a)ardis not paid b' the corporation )ithin thirt' da's after it is made, it ma' be recovered in an action b'the stoc holder a"ainst the corporation. pon pa'ment b' the corporation to the stoc holder of thea"reed or a)arded price of his share or shares, the stoc holder shall forth)ith transfer and assi"n theshare or shares held b' him as directed b' the corporation Provided , however , hat their o)n sharesof stoc purchased or other)ise ac*uired b' ban s, trust companies, and insurance companies,should be disposed of )ithin si months after ac*uirin" title thereto.

nless and until such amendment to the articles of incorporation shall have been abandoned or theaction rescinded, the stoc holder ma in" such demand in )ritin" shall cease to be a stoc holder andshall have no ri"hts )ith respect to such shares, e cept the ri"ht to receive pa'ment therefor asaforesaid.

A stoc holder shall not be entitled to pa'ment for his shares under the provisions of this sectionunless the value of the corporate assets )hich )ould remain after such pa'ment )ould be at leaste*ual to the a""re"ate amount of its debts and liabilities and the a""re"ate par value andKor issuedvalue of the remainin" subscribed capital stoc .

A cop' of the articles of incorporation as amended, dul' certified to be correct b' the president andthe secretar' of the corporation and a ma+orit' of the board of directors or trustees, shall be filed)ith the 4ecurities and 5 chan"e Commissioner, )ho shall attach the same to the ori"inal articles of incorporation, on file in his office. From the time of filin" such cop' of the amended articles of incorporation, the corporation shall have the same po)ers and it and the members and stoc holdersthereof shall thereafter be sub+ect to the same liabilities as if such amendment had been embraced inthe ori"inal articles of incorporation Provided, however , hat should the amendment consist ine tendin" the corporate life, the e tension shall not e ceed &< 'ears in an' one instance. Provided

further , hat the ori"inal articles and amended articles to"ether shall contain all provisions re*uired

b' la) to be set out in the articles of incorporation And provided, further , hat nothin" in thissection shall be construed to authori/e an' corporation to increase or diminish its capital stoc or soas to effect an' ri"hts or actions )hich accrued to others bet)een the time of filin" the ori"inalarticles of incorporation and the filin" of the amended articles.

he 4ecurities and, 5 chan"e Commissioner shall be entitled to collect and receive the sum of ten pesos for filin"said cop' of the amended articles of incorporation. Provided, however , hat )hen the amendment consists ine tendin" the term of corporate e istence, the 4ecurities and 5 chan"e Commissioner shall be entitled to collectand receive for the filin" of its amended articles of incorporation the same fees collectible under e istin" la) for the filin" of articles of incorporation. he 4ecurities E 5 chan"e Commissioner shall not hereafter file an'amendment to the articles of incorporation of an' ban , ban in" institution, or buildin" and loan association unlessaccompanied b' a certificate of the onetar' oard of the Central an D to the effect that such amendment is inaccordance )ith la). As further amended b' Act #o. 861


6/64

name of an individual desi"nates the person.L 1 4ince an individual has the ri"ht to chan"e his name under certainconditions, there is no compellin" reason )h' a corporation ma' not en+o' the same ri"ht. here is nothin"sacrosanct in a name )hen it comes to artificial bein"s. he sentimental considerations )hich individuals attach totheir names are not present in corporations and partnerships. Of course, as in the case of an individual, such chan"ema' not be made e clusivel'. b' the corporation0s o)n act. It has to follo) the procedure prescribed b' la) for the

purpose= and this is )hat is important and indispensabl' prescribed ! strict adherence to such procedure.

3ocal )ell no)n corporation la) commentators are unanimous in the vie) that a corporation ma' chan"e itsname b' merel' amendin" its charter in the manner prescribed b' la). 2 American authorities )hich have

persuasive force here in this re"ard because our corporation la) is of American ori"in, the same bein" a sort of codification of American corporate la), 3 are of the same opinion.

A "eneral po)er to alter or amend the charter of a corporation necessaril' includes the po)er to alter the name of the corporation. t. Pitt Bld!., etc., Assoc. v. Model Plan Bld!., etc., Assoc., 1&9 (a. 48


7/64

e istence. It cannot chan"e its name e cept in the manner provided b' the statute. ' that namealone is it authori/ed to transact business. he la) "ives a corporation no e press or impliedauthorit' to assume another name that is unappropriated= still less that of another corporation, )hichis e pressl' set apart for it and protected b' the la). If an' corporation could assume at pleasure asan unre"istered trade name the name of another corporation, this practice )ould result in confusionand open the door to frauds and evasions and difficulties of administration and supervision. he

polic' of the la) as e pressed our corporation statute and the Code of Commerce is clearl' a"ainstsuch a practice. Cf. 4carsdale (ub. Co. ! Colonial (ress vs. Carter, 116 #e) or 4upplement,?81= 4vens a #at. F. i. C. vs. 4)edish #at. Assn., 2'. 2&1, ?%4. B. 18%.

Mar$land. 2 Phinne$ v. Sheppard & Enoch Pratt ospital , %% d. 688, $2 Atl. &%, )rit of errodismissed, 1?? .4. 1?


8/64

(hurch v. Brownell , & :un $6$.

Penns$lvania. 2 (om. v. Pitts#ur!h , $1 (a. 4t. 2?%.

South (arolina . ! South (arolina Mut "ns. (o. v. Price 6? 4.C. 2


9/64

In conse*uence, Be hold that the lo)er court erred in dismissin" appellant0s complaint. Be ta e this opportunit',ho)ever, to e press the Court0s feelin" that it is apparent that appellee0s position is more technical than other)ise.

#o)here in the record is it seriousl' pretended that the indebtedness sued upon has alread' been paid. If appelleesentertained an' fear that the' mi"ht a"ain be made liable to e on" 3in Fire E arine Insurance Co. 3td., or tosomeone else in its behalf, a cursor' e amination of the records of the 4ecurities E 5 chan"e Commission )ouldhave sufficed to clear up the fact that e on" 3in had +ust chan"ed its name but it had not ceased to be their creditor. 5ver'one should reali/e that )hen the time of the courts is utili/ed for cases )hich do not involvesubstantial *uestions and the claim of one of the parties, therein is based on pure technicalit' that can at most dela'onl' the ultimate outcome necessaril' adverse to such part' because it has no real cause on the merits, "ravein+ustice is committed to numberless liti"ants )hose meritorious cases cannot be "iven all the needed time b' thecourts. Be address this appeal once more to all members of the bar, in particular, since it is their bounden dut' tothe profession and to our countr' and people at lar"e to help ease as fast as possible the clo""ed doc ets of thecourts. 3et us not )ait until the people resort to other means to secure speed', +ust and ine pensive determinationof their cases.

B:5 5FO 5, +ud"ment of the lo)er court is reversed, and this case is remanded to the trial court for further proceedin"s consistent here)ith Bith costs a"ainst appellees.

(oncepcion, (. ., %e$es, .B.)., izon, Ma'alintal, 5aldivar, (astro, ernando, *eehan'ee and 4illamor, .,concur.

) Foo*#o*+

1 18 Am. ur. 26%, 4ee. 181.

2 (ineda E Carlos, he 3a) on (rivate Corps. E Corp. (ractice, 196< ed.D, p, 8


10/64

G.R. No. L-2 113 " / 2 , 1969

THE UNICIPALIT! OF ALA&ANG, LANAO 'EL SUR, "#$ A ER ACAORAO &ALIN'ONG, petitioners,vs.PANGAN'APUN &ENITO, HA'JI NOPO'IN ACAPUNUNG, HA'JI HASAN ACARA PA',FRE'ERIC% . 'UJERTE ON'ACO ONTAL, ARONSONG AN'O!, ACALA&A IN'AR LAO. respondents.

). Amores and %. 1onzales for petitioners. ose 0. io'no for respondents.

CASTRO, J.:

he petitioner Amer acaorao alindon" is the ma'or of alaban", 3anao del 4ur, )hile the respondent(an"andapun onito is the ma'or, and the rest of the respondents are the councilors, of the municipalit' of

alaba"an of the same province. alaba"an )as formerl' a part of the municipalit' of alaban", havin" beencreated on arch 1&, 196


11/64

or"ani/ation of a municipalit' despite the fact that such statute is subse*uentl' declaredunconstitutional. la)phi1. et

his has been a liti"iousl' prolific *uestion, sharpl' dividin" courts in the nited 4tates. hus, some hold that ade facto corporation cannot e ist )here the statute or charter creatin" it is unconstitutional because there can be node facto corporation )here there can be no de 7ure one, %)hile others hold other)ise on the theor' that a statute is

bindin" until it is condemned as unconstitutional. 9

An earl' article in the ale 3a) ournal offers the follo)in" anal'sis

It appears that the true basis for den'in" to the corporation a de facto status la' in the absence of an'le"islative act to "ive vitalit' to its creation. An e amination of the cases holdin", some of themunreservedl', that a de facto office or municipal corporation can e ist under color of an unconstitutionalstatute )ill reveal that in no instance did the invalid act "ive life to the corporation, but that either in other valid acts or in the constitution itself the office or the corporation )as potentiall' created....

he principle that color of title under an unconstitutional statute can e ist onl' )here there is some other valid la) under )hich the or"ani/ation ma' be effected, or at least an authorit' in potentia b' the stateconstitution, has its counterpart in the ne"ative propositions that there can be no color of authorit' in anunconstitutional statute that plainl' so appears on its face or that attempts to authori/e the oustin" of a d

7ureor de facto municipal corporation upon the same territor'= in the one case the fact )ould impl' theimputation of bad faith, in the other the ne) or"ani/ation must be re"arded as a mere usurper....

As a result of this anal'sis of the cases the follo)in" principles ma' be deduced )hich seem to reconcilethe apparentl' conflictin" decisions

I. he color of authorit' re*uisite to the or"ani/ation of a de facto municipal corporation ma' be

1. A valid la) enacted b' the le"islature.

2. An unconstitutional la), valid on its face, )hich has either aD been upheld for a time b'the courts or bD not 'et been declared void= provided that a )arrant for its creation can befound in some other valid la) or in the reco"nition of its potential e istence b' the "eneralla)s or constitution of the state.

II. here can be no de facto municipal corporation unless either directl' or potentiall', such a d 7urecorporation is authori/ed b' some le"islative fiat.

III. here can be no color of authorit' in an unconstitutional statute alone, the invalidit' of )hich isapparent on its face.

IG. here can be no de facto corporation created to ta e the place of an e istin" de 7ure corporation, asuch or"ani/ation )ould clearl' be a usurper. 1alilan"an, alaba"an, Itil, ana"o, udas, I"aba',

a"olalon", 7a"oan, atimus, on"abon and 3usain.26$ O.;. $?%1 196&D.

83-19%?


15/64

99 (hil. ?89 19&6D= Fernande/ v. Cuerva E Co., 3-2111$, #ov. 2%, 196?, 21 4C A 11


16/64

G.R. No. L-249 Ju#+ 29, 1940

C. ARNOL' HALL "#$ &RA'LE! P. HALL, petitioners,vs.E' UN'O S. PICCIO, Ju$5+ o * + Cou * o F * I# *"#/+ o L+y*+, FRE' &RO N, E A &RO N,HIPOLITA CAPUCIONG, # /" "/ *y " +/+ 8+ o * + F" E" *+ # Lu :+ "#$ Co + / "l Co.,I#/., respondents.

(laro M. %ecto for petitioners. %amon io'no and ose 0. io'no for respondents.

&ENG;ON, J.

&ENG;ON, J.P., J.:

7efendant-appellee niversit' (ublishin" Co., Inc. has t)o pra'ers before us First, that said defendant-appellee be"ranted leave to present ori"inal papers not included in the records of this case because the' )ere never presentedin the trial of the case= and second, that the decision promul"ated b' this Court on anuar' 8


23/64

:o)ever, )hen the said issue )as s*uarel' presented before the court, and niversit' (ublishin" Co., Inc. chose toeep the courts in the dar b' )ithholdin" pertinent documents and papers in its possession and control, perforce

this Court had to decide the points raised accordin" to the records of the case and )hatever related mattersnecessaril' included therein. :ence, as a conse*uence of the certification of the 4ecurities and 5 chan"eCommission that its records Ldo not sho) the re"istration of niversit' (ublishin" Co., Inc., either as a corporationor partnership,L this Court concluded that b' virtue of its non-re"istration, it can not be considered a corporation.Be further said that it has therefore no personalit' separate from ose . Arue"o and that Arue"o )as in realit' theone )ho ans)ered and liti"ated throu"h his o)n la) firm counsel. 4tated other)ise, )e found that Arue"o )as infact, if not in name, the defendant. 1 Indeed, the +ud"e of the court of first instance )rote in his decision thusL7efendant Arue"o all alon" the +ud"e )ho pens this decision considered that the defendant here is the presidentof the niversit' (ublishin" Co., Inc. since it )as he )ho reall' made the contract )ith ustice AlbertD 2L And th

portion of the decision made b' the court a 6uo )as never *uestioned b' the defendant.

he above statement made b' the court a 6uo in its decision compelled this Court to carefull' e amine the factssurroundin" the dispute startin" from the time of the ne"otiation of the business proposition, follo)ed b' thesi"nin" of the contract= considered the benefits received= too into account the partial pa'ments made, the liti"ationconducted, the decisions rendered and the appeals underta en. After thus considerin" the facts and circumstances,

eepin" in mind that even )ith re"ard to corporations sho)n as dul' re"istered and e istin", )e have in man' acase pierced the veil of corporate fiction to administer the ends of +ustice, 8 )e held Arue"o personall' responsiblefor his acts on behalf of niversit' (ublishin" Co., Inc.

7efendant )ould repl' that in all those cases )here the Court pierced the veil of corporate fiction the officials heldliable )ere made part' defendants. As stated, defendant-appellee could not even pretend to possess corporatefiction ! in vie) to its non-re"istration per the evidence ! so that from the start Arue"o )as the real defendant.4ince the purpose of formall' impleadin" a part' is to assure him a da' in court, once the protective mantle of due

process of la) has in fact been accorded a liti"ant, )hatever the imperfection in form, the real liti"ant ma' be heldliable as a part'. ose . Arue"o definitel' had his da' in court, and due process of la) )as en+o'ed b' him as amatter of fact as revealed b' the records of the case. $

he dispositive portion of the decision the reconsideration of )hich is bein" sou"ht is the follo)in" L(remisesconsidered, the order appealed from is hereb' set aside and the case remanded orderin" the lo)er court to holdsupplementar' proceedin"s for the purpose of carr'in" the +ud"ment into effect a"ainst niversit' (ublishin" Co.,

Inc. andKor ose . Arue"o.LAccordin" to several cases a liti"ant is not allo)ed to speculate on the decision the court ma' render in the case.& he niversit' (ublishin" Co., Inc. speculated on a favorable decision based on the issue that ose . Arue"o,not bein" a formal part' defendant in this case, a )rit of e ecution a"ainst him )as not in order. It, therefore,

preferred to suppress vital documents under its possession and control rather than to rebut the certification issued b' the 4ecurities and 5 chan"e Commission that accordin" to its records niversit' (ublishin" Co., Inc. )as notre"istered. If the lo)er court0s order is sustained, collection of dama"es becomes problematical. If a ne) suit isfiled a"ainst Arue"o, prescription mi"ht be considered as effective defense, aside from the prospect of another ten'ears of pendin" liti"ation. 4uch are the possible reasons for adoptin" the position of speculation of our decision.Our rulin" appeared to be unfavorable to such speculation. It )as onl' after the receipt of the adverse decision

promul"ated b' this Court that niversit' (ublishin" Co., Inc., disclosed its re"istration papers. For purposes of this case onl' and accordin" to its particular facts and circumstances, )e rule that in vie) of the late disclosure of said papers b' the niversit' (ublishin" Co., Inc., the same can no lon"er considered at this sta"e of the

proceedin"s.

4pecificall' said ori"inal papers are

1. Ori"inal Certificate of e"istration of the niversit' (ublishin" Co., Inc., si"ned b' then 7irector of Commerce, Cornelio almaceda, sho)in" that said compan' )as dul' re"istered as a corporation )ith the

ercantile e"istr' of the then ureau of Commerce predecessor of the 4ecurities and 5 chan"eCommissionD as earl' as Au"ust ?, 1986=

2. Ori"inal cop' of the Articles of Incorporation of the niversit' (ublishin" Co., Inc consistin" of five &D pa"es, sho)in" that said corporation )as incorporated as earl' as Au"ust 1, 1986, anila, (hilippines, )ith


24/64

an authori/ed capital stoc of 5# :O 4A#7 (54O4 (1


25/64

Coffee Factor', Inc. vs. >aisahan n", m"a an""a"a)a sa 3a Campana 98 (hil. 16


26/64

G.R. No. L-232(1 " / 1(, 1924

HENR! FLEISCHER, plaintiff-appellee,vs.&OTICA NOLASCO CO., INC., defendant-appellant.

Antonio 1onzalez for appellant. Emilio M. avier for appellee.

JOHNSON, J.:

his action )as commenced in the Court of First Instance of the (rovince of Oriental #e"ros on the 1$th da' of Au"ust, 1928, a"ainst the board of directors of the otica #olasco, Inc., a corporation dul' or"ani/ed and e istin"under the la)s of the (hilippine Islands. he plaintiff pra'ed that said board of directors be ordered to re"ister inthe boo s of the corporation five shares of its stoc in the name of :enr' Fleischer, the plaintiff, and to pa' him thesum of (&


27/64

b' virtue of article 12 of the b'-la)s of otica #olasco, Inc., said corporation had the preferential ri"ht to bu' fromanuel ;on/ale/ said shares 5 hibit 2D= that the plaintiff refused to sell them to the defendant= that the plaintiff

re*uested 7octor iciano to re"ister said shares in his name= that 7octor iciano refused to do so, sa'in" that it)ould be in contravention of the b'-la)s of the corporation.

It also appears from the record that on the 18th da' of arch, 1928, t)o da's after the assi"nment of the shares tothe plaintiff, anuel ;on/ales made a )ritten statement to the otica #olasco, Inc., re*uestin" that the five sharesof stoc sold b' him to :enr' Fleischer be noted transferred to Fleischer0s name. :e also ac no)led"ed in said)ritten statement the preferential ri"ht of the corporation to bu' said five shares 5 hibit 8D. On une 1$, 1928,

;on/ale/ )rote a letter to the otica #olasco, )ithdra)in" and cancellin" his )ritten statement of arch 18, 19285 hibit CD, to )hich letter the otica #olasco on une 1&, 1928, replied, declarin" that his )ritten statement )as

in conformit' )ith the b'-la)s of the corporation= that his letter of une 1$th )as of no effect, and that the sharesin *uestion had been re"istered in the name of the otica #olasco, Inc., 5 hibit RD.

As indicated above, the important *uestion raised in this appeal is )hether or not article 12 of the b'-la)s of theotica #olasco, Inc., is in conflict )ith the provisions of the Corporation 3a) Act #o. 1$&9D. Appellant invo ed

said article as its "round for den'in" the re*uest of the plaintiff that the shares in *uestion be re"istered in hisplaintiff0sD name, and for claimin" that it otica #olasco, Inc.D had the preferential ri"ht to bu' said shares from

;on/ale/. Appellant no) contends that article 12 of the said b'-la)s is in conformit' )ith the provisions of Act #o. 1$&9. 4aid article is as follo)s

A . 12. 3as acciones de la Corporacion pueden ser transferidas a otra persona, pero para *ue estastransferencias ten"an valide/ le"al, deben constar en los re"istros de la Corporacion con el debido endosodel accionista a cu'o nombre se ha e pedido la accion o acciones *ue se transfieran, o un documento detransferencia. Entendiendose 6ue , nin"un accionista transferira accion al"una a otra persona sin participar antes por escrito al 4ecretario- esorero. En i!ualdad de condiciones, la sociedad tendra el derecho dead6uirir para si la accion o acciones 6ue se traten de transferir . 5 hibit 2.D

he above-*uoted article constitutes a b'-la) or re"ulation adopted b' the otica #olasco, Inc., "overnin" thetransfer of shares of stoc of said corporation. he latter part of said article creates in favor of the otica #olasco,Inc., a preferential ri"ht to bu', under the same conditions, the share or shares of stoc of a retirin" shareholder.:as said corporation an' po)er, under the Corporation 3a) Act. #o. 1$&9D, to adopt such b'-la)J

he particular provisions of the Corporation 3a) referrin" to transfer of shares of stoc are as follo)s45C. 18. 5ver' corporation has the po)er

?D*o ma'e #$-laws, not inconsistent with an$ e8istin! law , for the fi in" or chan"in" of the number of itsofficers and directors )ithin the limits prescribed b' la), and for the transferrin! of its stoc' , thadministration of its corporate affairs, etc.

45C. 8&. he capital stoc of stoc corporations shall de divided into shares for )hich certificates si"ned b'the president or the vice-president, countersi"ned b' the secretar' or cler and sealed )ith the seal of the

corporation, shall be issued in accordance )ith the b'-la)s. Shares of stoc' so issued are personal propert$and ma$ #e transferred #$ deliver$ of the certificate indorsed #$ the owner or his attorne' in fact or other person le"all' authori/ed to ma e the transfer. No transfer, however, shall #e valid, e8cept as #etween the parties, until the transfer is entered and noted upon the #oo's of the corporation so as to show the names of the parties to the transaction, that date of the transfer, the num#er of the certificate, and the num#er of

shares transferred.

#o share of stoc a"ainst )hich the corporation holds an' unpaid claim shall be transferable on the boo sof the corporation.

4ection 18, para"raph ?, above-*uoted, empo)ers a corporation to ma e #$-laws, not inconsistent with an$e8istin! law, for the transferrin! of its stoc' . It follo)s from said provision, that a b'-la) adopted b' a corporationrelatin" to transfer of stoc should be in harmon' )ith the la) on the sub+ect of transfer of stoc . he la) on this


28/64

sub+ect is found in section 8& of Act #o. 1$&9 above *uoted. 4aid section specificall' provides that the shares of stoc ?are personal propert$ and ma$ #e transferred #$ deliver$ of the certificate indorsed #$ the owner, etc.? 4asection 8& defines the nature, character and transferabilit' of shares of stoc . nder said section the' are personal

propert' and ma' be transferred as therein provided. 4aid section contemplates no restriction as to )hom the' ma' be transferred or sold. It does not su""est that an' discrimination ma' be created b' the corporation in favor or a"ainst a certain purchaser. he holder of shares, as o)ner of personal propert', is at libert', under said section, todispose of them in favor of )homsoever he pleases, )ithout an' other limitation in this respect, than the "eneral

provisions of la). herefore, a stoc corporation in adoptin" a b'-la) "overnin" transfer of shares of stoc shouldta e into consideration the specific provisions of section 8& of Act #o. 1$&9, and said b'-la) should be made toharmoni/e )ith said provisions. It should not be inconsistent there)ith.

he b'-la) no) in *uestion )as adopted under the po)er conferred upon the corporation b' section 18, para"raph?, above *uoted= but in adoptin" said b'-la) the corporation has transcended the limits fi ed b' la) in the samesection, and has not ta en into consideration the provisions of section 8& of Act #o. 1$&9.

As a "eneral rule, the b'-la)s of a corporation are valid if the' are reasonable and calculated to carr' into effect theob+ects of the corporation, and are not contradictor' to the "eneral polic' of the la)s of the land. 4upremeCommander' of the >ni"hts of the ;olden ule vs. Ains)orth, ?1 Ala., $86= $6 Am. ep., 882.D

On the other hand, it is e*uall' )ell settled that b'-la)s of a corporation must be reasonable and for a corporate purpose, and al)a's )ithin the charter limits. he' must al)a's be strictl' subordinate to the constitution and the

"eneral la)s of the land. he' must not infrin"e the polic' of the state, nor be hostile to public )elfare. $6 Am.ep., 882.D he' must not disturb vested ri"hts or impair the obli"ation of a contract, ta e a)a' or abrid"e thesubstantial ri"hts of stoc holder or member, affect ri"hts of propert' or create obli"ations un no)n to the la).

(eople0s :ome 4avin"s an vs. 4uperior Court, 1


29/64

1< C'c., p. &?%.D

he fore"oin" authorities "o farther than the stand )e are ta in" on this *uestion. he' hold that the po)er of acorporation to enact b'-la)s restrainin" the sale and transfer of shares, should not onl' be in harmon' )ith the la)or charter of the corporation, but such po)er should be e pressl' "ranted in said la) or charter.

he onl' restraint imposed b' the Corporation 3a) upon transfer of shares is found in section 8& of Act #o. 1$&9,*uoted above, as follo)s L#o transfer, ho)ever, shall be valid, e cept as bet)een the parties, until the transfer isentered and noted upon the boo s of the corporation so as to sho) the names of the parties to the transaction, thedate of the transfer, the number of the certificate, and the number of shares transferred.L his restriction isnecessar' in order that the officers of the corporation ma' no) )ho are the stoc holders, )hich is essential inconductin" elections of officers, in callin" meetin" of stoc holders, and for other purposes. but an' restriction of the nature of that imposed in the b'-la) no) in *uestion, is ultra vires , violative of the propert' ri"hts of shareholders, and in restraint of trade.

And moreover, the b'-la)s no) in *uestion cannot have an' effect on the appellee. :e had no no)led"e of such b'-la) )hen the shares )ere assi"ned to him. :e obtained them in "ood faith and for a valuable consideration. :e)as not a priv' to the contract created b' said b'-la) bet)een the shareholder anuel ;on/ale/ and the otica

#olasco, Inc. 4aid b'-la) cannot operate to defeat his ri"hts as a purchaser.

An unauthori/ed b'-la) forbiddin" a shareholder to sell his shares )ithout first offerin" them to thecorporation for a period of thirt' da's is not bindin" upon an assi"nee of the stoc as a personal contract,althou"h his assi"nor ne) of the b'-la) and too part in its adoption. 1< C'c., &?9= Ireland vs. ;lobe

illin" Co., 21 .I., 9.D

Bhen no restriction is placed b' public la) on the transfer of corporate stoc , a purchaser is not affected b'an' contractual restriction of )hich he had no notice. rin erhoff-Farris rust and 4avin"s Co. vs. :ome3umber Co., 11% o., $$?.D

he assi"nment of shares of stoc in a corporation b' one )ho has assented to an unauthori/ed b'-la) hasonl' the effect of a contract b', and enforceable a"ainst, the assi"nor= the assi"nee is not bound b' such b'-la) b' virtue of the assi"nment alone. Ireland vs. ;lobe illin" Co., 21 .I., 9.D

A b'-la) of a corporation )hich provides that transfers of stoc shall not be valid unless approved b' the board of directors, )hile it ma' be enforced as a reasonable re"ulation for the protection of the corporationa"ainst )orthless stoc holders, cannot be made available to defeat the ri"hts of third persons. Farmers0 and

erchants0 an of 3ineville vs. Basson, $% Io)a, 886.D

Counsel for defendant incidentall' ar"ues in his brief, that the plaintiff does not have an' ri"ht of action a"ainst thedefendant corporation, but a"ainst the president and secretar' thereof, inasmuch as the si"nin" and re"istration of shares is incumbent upon said officers pursuant to section 8& of the Corporation 3a). his contention cannot besustained no). he *uestion should have been raised in the lo)er court. It is too late to raise it no) in this appeal.

esides, as stated above, the corporation )as made defendant in this action upon the demurrer of the attorne' of the ori"inal defendant in the lo)er court, )ho contended that the otica #olasco, Inc., should be made the part'defendant in this action. Accordin"l', upon order of the court, the complaint )as amended and the said corporation)as made the part' defendant.

Bhenever a corporation refuses to transfer and re"ister stoc in cases li e the present, mandamus )ill lie to compelthe officers of the corporation to transfer said stoc upon the boo s of the corporation. 26 C'c. 8$?= :a"er v

r'an, 19 (hil., 18%.D

In vie) of all the fore"oin", )e are of the opinion, and so hold, that the decision of the lo)er court is in accordance)ith la) and should be and is hereb' affirmed, )ith costs. 4o ordered.

Malcolm, 4illamor, 9strand, ohns, and %omualdez, ., concur.


30/64

G.R. No. L-266(9 July 13, 1927

THE GO ERN ENT OF THE PHILIPPINE ISLAN'S ?o# +l"* o# o * + A**o #+y-G+#+ "l@, plaintiff,vs.EL HOGAR FILIPINO, defendant.

Attorne$-1eneral aranilla and Solicitor-1eneral %e$es for plaintiff. isher, e0itt, Per'ins and Brad$@ (amus, el!ado and %ecto and Antonio Sanz for defendant.0m. . %ohde as amicus curiae.

STREET, J.:his is a 6uo warranto proceedin" instituted ori"inall' in this court b' the ;overnment of the (hilippine Islands on

the relation of the Attorne'-;eneral a"ainst the buildin" and loan association no)n as 5l :o"ar Filipino, for the purpose of deprivin" it of its corporate franchise, e cludin" it from all corporate ri"hts and privile"es, and effectin"a final dissolution of said corporation. he complaint enumerates seventeen distinct causes of action, to all of )hich the defendant has ans)ered upon the merits, first admittin" the averments of the first para"raph in thestatement of the first cause of action, )herein it is alle"ed that the defendant )as or"ani/ed in the 'ear 1911 as a

buildin" and loan association under the la)s of the (hilippine Islands, and that, since its or"ani/ation, thecorporation has been doin" business in the (hilippine Islands, )ith its principal office in the Cit' of anila. Other facts alle"ed in the various causes of action in the complaint are either denied in the ans)er or controverted in le"aleffect b' other facts.

After issue had been thus +oined upon the merits, the attorne's entered into an elaborate a"reement as to the fact,thereb' removin" from the field of dispute such matters of fact as are necessar' to the solution of the controvers'.It follo)s that )e are here confronted onl' )ith the le"al *uestions arisin" upon the a"reed statement.

On arch 1, 19


31/64

pa'ments, 5l :o"ar Filipino foreclosed the mort"a"e and purchased the land at the foreclosure sale for the netamount of the indebtedness, namel', the sum of (28,?$$.1%. he auction sale of the mort"a"ed propert' too place

#ovember 1%, 192


32/64

dispose of the propert'. A fair interpretation of these provisions )ould seem to indicate that the date of thereceivin" of the title in this case )as the date )hen the respondent received the o)ner0s certificate, or a' ?, 1921,for it )as onl' after that date that the respondent had an une*uivocal and un*uestionable po)er to pass a completetitle. he failure of the respondent to receive the certificate sooner )as not due in an' )ise to its fault, but toune plained dela' on the part of the re"ister of deeds. For this dela' the respondent cannot be held accountable.

A"ain, it is ur"ed for the respondent that the period bet)een arch 2&, 1926, and April 8


33/64

alienation hampered over lon" periods of time. In the case before us the respondent corporation has in "ood faithdisposed of the piece of propert' )hich appears to have been in its hands at the e piration of the period fi ed b'la), and a fair e planation is "iven of its failure to dispose of it sooner. nder these circumstances the destructionof the corporation )ould brin" irreparable loss upon the thousand of innocent shareholders of the corporation)ithout an' correspondin" benefit to the public. he discretion permitted to this court in the application of theremed' of 6uo warranto forbids so radical a use of the remed'.

ut the case for the plaintiff supposes that the discretion of this court in matters li e that no) before us has beene pressl' ta en a)a' b' the third section of Act #o. 2?92, and that the dissolution of the corporation is obli"ator'

upon the court a mere findin" that the respondent has violated the provision of the Corporation 3a) in an' respect.his ma es necessar' to e amine the Act last above-mentioned )ith some care. pon referrin" thereto, )e find

that it consists of three sections under the follo)in" st'le

#o. 2?92. ! An Act to amend certain sections of the Corporation 3a), Act #umbered Fourteen hundredand fift'-nine, providin" for the publication of the assets and liabilities of corporations re"isterin" in the

ureau of Commerce and Industr', determinin" the liabilit' of the officers of corporations )ith re"ard tothe issuance of stoc or bonus, establishin" penalties for certain thin"s, and for other purposes.

he first t)o section contain amendments to the Corporation 3a) )ith respect to matters )ith )hich )e are nothere concurred. he third section contains ane) enactment to be inserted as section 19< AD in the corporation 3a)immediatel' follo)in" section 19


34/64

4upreme Court of (enns'lvania had under consideration a statute providin" as follo)s

It shall be the dut' of the court . . . to e amine, in*uire and ascertain )hether such corporation does in fact posses the ri"ht or franchise to do the act from )hich such alle"ed in+ur' to private ri"hts or to the ri"htsand franchises of other corporations results= and if such ri"hts or franchises have not been conferred uponsuch corporations, such courts, it e ercisin" e*uitable po)er, shall , b' in+unction, at suit of the private

parties or other corporations, restrain such in+urious acts.

In an action based on this statute the plaintiff claimed in+unctive relief as a matter of ri"ht. ut this )as denied thecourt sa'in"

#ot)ithstandin", therefore, the use of the imperative LshallL the in+unction is not to be "ranted unless a proper case for in+unction be made out, in accordance )ith the principles and practice of e*uit'. he )ordLshallL )hen used b' the le"islature to a court, is usuall' a "rant of authorit' and means Lma'L, and even if it be intended to be mandator' it must be sub+ect to the necessar' limitation that a proper case has beenmade out for the e ercise of the po)er.

Other authorities ampl' sustain this vie) (eople vs. #usebaum, 66 #. . 4upp., 129, 188= Best Bisconsin .Co.vs. Fole', 9$ . 4., 1


35/64

)hatever. #o one could tell from the title alone )hat sub+ect of le"islation )as dealt )ith in the bod' of theact= such sub+ect so far as the title of the act informs us, mi"ht have been entirel' different from an'thin" to

be found in the act itself.

Be cannot a"ree )ith the contention of some of respondent0s counsel ! apparentl' to some e tentcountenanced b' a fe) authorities ! that the provision of the constitution in *uestion can be entirel'avoided b' the simple device of puttin" into the title of an act )ords )hich denote a sub+ect LbroadL enou"hto cover ever'thin". nder that vie), the title, LAn act concernin" the la)s of the state,L )ould be "ood,and the convention and people )ho framed and adopted the constitution )ould be convicted of the foll' of

elaboratel' constructin" a "rave constitutional limitation of le"islative po)er upon a most importantsub+ect, )hich the le"islature could at once circumvent b' a mere verbal tric . he )ord Lsub+ectL is used inthe constitution embrace but Lone sub+ectL it necessaril' implies ! )hat ever'bod' no)s ! that there arenumerous sub+ects of the le"islation, and declares that onl' one of these sub+ects shall embraced in an' oneact. All sub+ects cannot be con+ured into one sub+ect b' the mere ma"ic of a )ord in a title.

In %ader vs. *ownship of nion 89 #. . 3., &


36/64

restriction is apparent, the court has no alternative but to declare the le"islation affected thereb' to be invalid.

Second cause of action . ! he second cause of action is based upon a char"e that the respondent is o)nin" andholdin" a business lot, )ith the structure thereon, in the financial district of the Cit' of anila is e cess of itsreasonable re*uirements and in contravention of subsection & of section 18 of the corporation 3a). he facts on)hich this char"e is based appear to be these

On Au"ust 2%, 1918, the respondent purchased 1,$18 s*uare meters of land at the corner of uan 3una 4treet andthe uelle de la Industria, in the Cit' of anila, immediatel' ad+acent to the buildin" then occupied b' the:on" on" and 4han"hai an in" Corporation. At the time the respondent ac*uired this lot there stood upon it a

buildin", then nearl' fift' 'ears old, )hich )as occupied in part b' the offices of an importin" firm and in part b')arehouses of the same firm. he material used in the construction )as ;uadalupe stone and he)n timber, and the

buildin" contained none of the facilities usuall' found in a modern office buildin".

In purchase of a desi"n )hich had been formed prior to the purchase of the propert', the directors of the 5l :o"ar Filipino caused the old buildin" to be demolished= and the' erected thereon a modern reinforced concrete office

buildin". As at first constructed the ne) buildin" )as three stories hi"h in the main, but in 192


37/64

hus in People vs. Pullman+s Palace-(ar (o. 1?& Ill., 12&= 6$ 3. . A., 866D, it appeared that the respondencorporation o)ned and controlled a lar"e ten-stor' business bloc in the Cit' of Chica"o, )orth S2,'., ?&$D, one of the *uestions before the court )as precisel' the same as that no) before us. pon this the 4upreme Court of >entuc ' said

he third *uestion is, has the association the ri"ht to erect, remodel, or o)n a buildin" of more thansufficient capacit' to accommodate its o)n business and to rent out the e cessJ here is nothin" in theConstitution, charter of the association, or statutes placin" an' limitation upon the character of a buildin")hich a corporation ma' erect as a home in )hich to conduct its business. A corporation conductin" a

business of the character of that in )hich appellant is en"a"ed naturall' e pects its business to "ro) ande pand from time to time, and, in buildin" a home it )ould be e ercisin" but a short-si"hted +ud"ment if itdid not ma e provision for the future b' buildin" a home lar"e enou"h to ta e care of its e pandin"

business, and hence, even if it should build a house lar"er and roomier than its present needs or interestsre*uire, it )ould be actin" clearl' )ith the e ercise of its corporate ri"ht and po)er. he limitation )hichthe statute imposes is that proper conduct of its business, but it does not attempt to place an' restriction or limitation upon the ri"ht of the corporation or association as to the character of buildin" it shall erect onsaid real estate= and, )hile the Constitution and the statutes provide that no corporation shall en"a"e in an'

business other than that e pressl' authori/ed b' its charter, )e are of opinion that, in rentin" out theunoccupied and unused portions of the buildin" so erected, the association could not be said to en"a"ed inan' other business than that authori/ed b' its charter. he rentin" of the unused portions of the buildin" is amere incident in the conduct of its real business. Be )ould not sa' that a buildin" association mi"ht embar in the business of buildin" houses and rentin" or leasin" them, but there is *uite a difference in buildin" or rentin" a house in )hich to conduct its o)n business and leasin" the unused portion thereof for the time

bein", or until such time as the' ma' be needed b' the association, and in buildin" houses for the purposeof rentin" or leasin" them. he one mi"ht properl' be said to be the proper e ercise of a po)er incident to


38/64

the conduct of its le"itimate business, )hereas the other )ould be a clear violation of that provision of thestatute )hich denies to an' corporation the ri"ht to conduct an' business other than that authori/ed b' itscharter. o hold other)ise )ould be to char"e most of the ban in" institutions, trust companies and other corporations, such as title "uarant' companies, etc., doin" )ith violatin" the la)= for it is no)n that thereare fe) of such institutions that do not, at times, rent out or lease the unneeded portions of the buildin"occupied b' them as homes. Be do not thin that in so doin" the' are violatin" an' provisions of the la),

but that the rentin" out of the unused or unoccupied portions of their buildin"s is but an incident in theconduct of their business.

In 0in!ert vs. irst National Ban' of a!erstown, Md. 1?& Fed., ?89, ?$1D, a stoc holder sou"ht to en+oin th ban from buildin" a si -stor' buildin" o)ned b' the ban in the commercial district of :a"ersto)n of )hich onl'the first stor' )as to be used b' the ban , the remainin" stories to be rented out for offices and places of business,on the theor' that such action )as ultra vires and in violation of the provisions of the national ban in" actconfinin" such corporations to the holdin", onl', of such real estate Las shall be necessar' for its immediateaccommodation in the transaction of its business.L

he in+unction )as denied, the court adoptin" the opinion of the lo)er court in )hich the follo)in" )as said

0 he other "round ur"ed b' the complainant is that the proposed action is violative of the restriction )hich permits a national ban to hold onl' such real estate as shall be necessar' for its immediate accommodationin the transaction of its business, and that, therefore, the erection of a buildin" )hich )ill contain offices not

necessar' for the business of the ban is not permitted b' the la), althou"h that method of improvin" the lotma' be the most beneficial use that can be made of it. It is matter of common no)led"e that the actual practice of national ban s is to the contrar'. Bhere "round is valuable, it ma' probabl' be trul' said that thema+orit' of national ban buildin"s are built )ith accommodations in e cess of the needs of the ban for the

purpose of lessenin" the ban 0s e pense b' rentin" out the unused portion. If that )ere not allo)able, man'smaller ban s in cities )ould be driven to become tenants as the "reat cost of the lot )ould be prohibitive of usin" it e clusivel' for the ban in" accommodation of a sin"le ban . As indicative of the interpretation of the la) commonl' received and acted upon, reference ma' be made to the repl' of the Comptroller of theCurrenc' to the in+ur' b' the ban in this case as in" )hether the la) forbids the ban constructin" such a

buildin" as )as contemplated.

0 he repl' )as follo)s L our letter of the 9th instant received, statin" that the directors contemplatema in" improvements in the ban buildin" and in*uirin" if there is an'thin" in the national ban in" la)s

prohibitin" the construction of a buildin" )hich )ill contain floors for offices to be rented out b' the ban as )ell as the ban in" room. our attention is called to the case of Brown vs. Schleier , 11% Fed., 9%1 M&C. A, $?&N, in )hich the court held that 0If the land )hich a national ban purchases or leases for theaccommodation of its business is ver' valuable it ma' e ercise the same ri"hts that belon" to other lando)ners of improvin" it in a )a' that )ill 'ield the lar"est income, lessen its o)n rent, and render that

part of its funds )hich are invested in realt' most productive.0L his seems to be the common senseinterpretation of the act of Con"ress and is the one )hich prevails.0

It )ould seem to be unnecessar' to e tend the opinion b' len"th' citations upon the point under consideration, but Brown vs. Schleier 11% Fed., 9%1D, ma' be cited as bein" in harmon' )ith the fore"oin" authorities. In dealin")ith the po)ers of a national ban the court, in this case, said

Bhen an occasion arises for an investment in real propert' for either of the purposes specified in the statutethe national ban act permits ban in" associations to act as an' prudent person )ould act in ma in" aninvestment in real estate, and to e ercise the same measure of +ud"ment and discretion. he act ou"ht not to

be construed in such as )a' as to compel a national ban , )hen it ac*uires real propert' for a le"itimate purpose, to deal )ith it other)ise than a prudent land o)ner )ould ordinaril' deal )ith such propert'.

In the brief of the Attorne'-;eneral reliance is place almost entirel' upon t)o Illinois cases, namel' African ome Purchase and )oan Association vs. (arroll 26? Ill., 8%


39/64

respondent in e cess of its po)ers that )e refrain from commentin" at an' len"th upon said cases. he "roundstated in the second cause of action is in our opinion )ithout merit.

*hird cause of action . ! nder the third cause of action the respondent is char"ed )ith en"a"in" in activitiesforei"n to the purposes for )hich the corporation )as created and not reasonable necessar' to its le"itimate ends.

he specifications under this cause of action relate to three different sorts of activities. he first consist of theadministration of the offices in the 5l :o"ar buildin" not used b' the respondent itself and the rentin" of suchoffices to the public. As stated in the discussion connected )ith the second cause of action, the respondent usesonl' about ten per cent of the office space in the 5l :o"ar buildin" for its o)n purposes, and it leases the remainder

to stran"ers. In the 'ears 192$ and 192& the respondent received as rent for the leased portions of the buildin" thesums of (?&,89&.


40/64

he )or of mana"in" real estate belon"in" to non-borro)in" shareholders administered b' 5l :o"ar Filipino is carried on b' the same members of the staff )ho attend to the details of the mana"ement of

properties administered b' the mana"er of 5l :o"ar Filipino under the provisions of para"raph % of thestandard mort"a"e form, and of properties bou"ht in on foreclosure of mort"a"e.

he practice described in the passa"e above *uoted from the a"reed facts is in our opinion unauthori/ed b' la).4uch )as the vie) ta en b' the ban e aminer of the reasur' ureau in his report to the Insular reasurer on7ecember 21, 192&, )herein the practice in *uestion )as critici/ed. he administration of propert' in the manner described is more befittin" to the business of a real estate a"ent or trust compan' than to the business of a buildin"

and loan association. he practice to )hich this criticism is directed relates of course solel' to the mana"ement andadministration of properties )hich are not mort"a"ed to the association. he circumstance that the o)ner of the

propert' ma' have been re*uired to subscribe to one or more shares of the association )ith a vie) to *ualif'in"him to receive this service is of no si"nificance. It is a "eneral rule of la) that corporations possess onl' suche press po)ers. he mana"ement and administration of the propert' of the shareholders of the corporation is note pressl' authori/ed b' la), and )e are unable to see that, upon an' fair construction of the la), these activities arenecessar' to the e ercise of an' of the "ranted po)ers. he corporation, upon the point no) under the criticism,has clearl' e tended itself be'ond the le"itimate ran"e of its po)ers. ut it does not result that the dissolution of the corporation is in order, and it )ill merel' be en+oined from further activities of this sort.

ourth cause of action . ! It appears that amon" the b' la)s of the association there is an article #o. 1


41/64

meetin"s= and )ith the e ception of the annual meetin" held in 191?, )hen a ne) directorate )as elected, themeetin"s have failed for lac of *uorum. It has been foreseen b' the officials in char"e of the respondent that thiscondition of affairs )ould lead to embarrassment, and a special effort )as made b' the mana"ement to induce asufficient number of shareholders to attend the annual meetin" for Februar', 1928. In addition to the publication ofnotices in the ne)spapers, as re*uired b' the b'-la)s, a letter of notification )as sent to ever' shareholder at hislast no)n address, to"ether )ith a blan form of pro ' to be used in the event the shareholder could not

personall' attend the meetin". #ot)ithstandin" these special efforts the meetin" )as attended onl' b'shareholders, in person and b' pro ', representin" 8,%%9 shares, out of a total of 1


42/64

sheet is distributed to the directors in proportion to their attendance at meetin"s of the board. he compensation paid to the directors from time to time since the or"ani/ation )as or"ani/ed in 191< to the end of the 'ear 192&,to"ether )ith the number of meetin"s of the board held each 'ear, is e hibited in the follo)in" table

3ear

(ompensation

paid directorsas a whole

Num#er of

meetin!sheld

%ate permeetin!

as a whole

1911 .................................. ( $,16?.96 2& ( 166.?1

1912 .................................. 1


43/64

attendance )as seven. It is insisted in the brief for the Attorne'-;eneral that the pa'ment of the compensationindicated is e cessive and pre+udicial to he interests of the shareholders at lar"e. For the respondent, attention isdirected to the fact that the liberal polic' adopted b' the association )ith respect to the compensation of thedirectors has had hi"hl' beneficial results, not onl' in securin" a constant attendance on the part of themembership, but in obtainin" their intelli"ent attention to the affairs of the association. Certainl', in thisconnection, the follo)in" )ords from the report of the "overnment e aminers for 191% to the Insular reasurer contain matter )orth' of consideration

he mana"ement of the association is entrusted to men of reco"ni/ed abilit' in financial affairs and it is believed

that the' have lon" foreseen all possible future contin"encies and that under such men the interests of thestoc holders are dul' protected. he steps ta en b' the directorate to curtail the influ of unnecessar' capital intothe association0s coffers, as mentioned above, reveals ho) the men at "rasp the situation and to appl' the necessar'remed' as the circumstances )ere found in the same e cellent condition as in the previous e amination.

In so far as this court is concerned the *uestion here before us is not one concernin" the propriet' and )isdom of the measure of compensation adopted b' the respondent but rather the *uestion of the validit' of the measure.

pon this point there can, it seems to us, be no difference of intelli"ent opinion. he Corporation 3a) does notunderta e to prescribe the rate of compensation for the directors of corporations. he po)er to fi ed thecompensation the' shall receive, if an', is left to the corporation, to be determined in its b'-la)s Act #o. 1$&9,sec. 21D. (ursuant to this authorit' the compensation for the directors of 5l :o"ar Filipino has been fi ed in section92 of its b'-la)s, as alread' stated. he +ustice and propert' of this provision )as a proper matter for theshareholders )hen the b'-la)s )ere framed= and the circumstance that, )ith the "ro)th of the corporation, theamount paid as compensation to the directors has increased be'ond )hat )ould probabl' be necessar' to secureade*uate service from them is matter that cannot be corrected in this action= nor can it properl' be made a basis for deprivin" the respondent of its franchise, or even for en+oinin" it from compliance )ith the provisions of its o)n

b'-la)s. If a mista e has been made, or the rule adopted in the b'-la)s meetin" to chan"e the rule. he remed', if an', seems to lie rather in publicit' and competition, rather than in a court proceedin". he si th cause of action isin our opinion )ithout merit.

Seventh cause of action . ! It appears that the promoter and or"ani/er of 5l :o"ar Filipino )as r. Antonioelian, and in the earl' sta"es of the or"ani/ation of the association the board of directors authori/ed the

association to ma e a contract )ith him )ith re"ard to the services him therefor. (ursuant to this authorit' the

president of the corporation, on anuar' 11, 1911, entered into a )ritten a"reement )ith r. elian, )hich isreproduced in the a"reed statement of facts and of )hich the important clauses are these

1. he corporation L5l :o"ar Filipino 4ociedad utua de Construccion ' (restamos,L and on its behalf its president, 7on Antonio . o as, hereb' confers on 7on Antonio elian the office of mana"er of saidassociation for the period of one 'ear from the date of this contract.

2. 7on Antonio elian accepts said office and underta es to render the services thereto correspondin" for the period of one 'ear, as prescribed b' the b'-la)s of the corporation, )ithout salar'.

8. 7on Antonio elian furthermore underta es to pa' for his o)n account, all the e penses incurred in theor"ani/ation of the corporation.

$. 7on Antonio elian further underta es to lend to the corporation, )ithout interest the sum of sithousand pesos (6,


44/64

Construccion ' (restamos0 hereb' "rants him five per centum &@D of the net profits to be earned b' it ineach 'ear durin" the period fi ed for the duration of the association b' its articles of incorporation=

Provided , that this participation in the profits shall be transmitted to the heirs of 4e or elian in the eventof his death= And provided further , that the performance of all the obli"ations assumed b' 4e or elian infavor of the association, in accordance )ith this contract, shall and does constitute a condition precedent tothe ac*uisition b' 4e or elian of the ri"ht to the said participation in the profits of the association, unlessthe non-performance of such obli"ations shall be due to a fortuitous event or force ma7eure .

In conformit' )ith this a"reement there )as inserted in section 92 of the b'-la)s of the association a provision

reco"ni/in" the ri"hts of elian, as founder, to & per centum of the net profits sho)n b' the annual balance sheet, pa'ment of the same to be made to him or his heirs durin" the life of the association. It is declared in said articlethat this portion of the earnin"s of the association is conceded to him in compensation for the studies, )or andcontributions made b' him for the or"ani/ation of 5l :o"ar Filipino and the performance on his part of the contractof anuar' 11, 1911, above *uoted. 7urin" the )hole life of the association, thus far, it has complied )ith theobli"ations assumed b' it in the contract above- mentioned= and durin" the 'ears 1911 to 192&, inclusive, it paid tohim as founder0s ro'alt' the sum of ($&9,


45/64

end to the corporate life of the respondent is found in the presence of other articles in the b'-la)s, namel', articles?< and ?6, )hich are alle"ed to be unla)ful but )hich, as )ill presentl' be seen, are entirel' valid. Article ?< of the b'-la)s in effect re*uires that persons elected to the board of directors must be holders of shares of the paid upvalue of (&,


46/64

4pecial shares ..................................... 2


47/64

:o"ar Filipino, prior to the end of the 'ear 192&, had made 1,8?8 loans to its shareholders secured b' firstmort"a"es on real estate as )ell as b' the pled"e of the shares of the borro)ers. In the same period the associationhas purchased at foreclosure sales the real estate constitutin" the securit' for &$ of the aforesaid loans. In ma in"these purchases the association has al)a's bid the full amount due to it from the debtor, after deductin" the)ithdra)al value of the shares pled"ed as collateral, )ith the result that in no case has the shareholder been calledupon to pa' a deficienc' +ud"ement on foreclosure.

5l :o"ar Filipino places real estate so purchased in its inventor' at actual cost, as determined b' the amount bid onforeclosure sale= and thereafter until sold the boo value of such real estate is depreciated at the rate fi ed b' the

directors in accordance )ith their +ud"ment as to each parcel, the annual avera"e depreciation havin" varied fromnothin" to a ma imum of 1$.18% per cent. he sales thereof, but sales are made for the best prices obtainable,)hether "reater or less than the boo value.

It is alle"ed in the complaint that depreciation is char"ed b' the association at the rate of 1< per centum per annum.he a"reed statement of facts on this point sho)s that the annual avera"e varies from nothin" to a ma imum of

somethin" over 1$ per centum. Be are thus left in the dar as to the precise depreciation allo)ed from 'ear to 'ear.It is not claimed for the ;overnment that the association is )ithout po)er to allo) some depreciation= and it is*uite clear that the board of directors possesses a discretion in this matter. here is no positive provision of la)

prohibitin" the association from )ritin" off a reasonable amount for depreciation on its assets for the purpose of determinin" its real profits= and article ?$ of its b'-la)s e pressl' authori/es the board of directors to determineeach 'ear the amount to be )ritten do)n upon the e penses of installation and the propert' of the corporation.

here can be no *uestion that the po)er to adopt such a b'-la) is embraced )ithin the po)er to ma e b'-la)s for the administration of the corporate affairs of the association and for the mana"ement of its business, as )ell as thecare, control and disposition of its propert' Act #o. 1$&9, sec. 18 M?ND. ut the Attorne'-;eneral *uestions thee ercise of the direction confided to the board= and it is insisted that the e cessive depreciation of the propert' of the association is ob+ectionable in several respects, but mainl' because it tends to increase undul' the reserves of the association, thereb' frustratin" the ri"ht of the shareholders to participate annuall' and e*uall' in the earnin"sof the association.

his count for the complaint proceeds, in our opinion, upon an erroneous notion as to )hat a court ma' do indeterminin" the internal polic' of a business corporation. If the criticism contained in the brief of the Attorne'-;eneral upon the practice of the respondent association )ith respect to depreciation be )ell founded, the

3e"islature should suppl' the remed' b' definin" the e tent to )hich depreciation ma' be allo)ed b' buildin" andloan associations. Certainl' this court cannot underta e to control the discretion of the board of directors of theassociation about an administrative matter as to )hich the' have le"itimate po)er of action. he tenth cause of action is therefore not )ell founded.

Eleventh and twelfth causes of action . ! he same comment is appropriate )ith respect to the eleventh and t)elfthcauses of action, )hich are treated to"ether in the briefs, and )ill be here combined. he specification in theeleventh cause of action is that the respondent maintains e cessive reserve funds, and in the t)elfth cause of actionthat the board of directors has settled upon the unla)ful polic' of pa'in" a strai"ht annual dividend of 1< per centum, re"ardless of losses suffered and profits made b' the corporation and in contravention of the re*uirementsof section 1%% of the Corporation 3a). he facts relatin" to these t)o counts in the complaint, as set forth in thestipulation, are these

In article 92 of the b'-la)s of 5l :o"ar Filipino it is provided that & per centum of the net profits earned each 'ear,as sho)n b' the annual balance sheet shall be carried to a reserve fund. he fund so created is called the ;eneral

eserve. Article 98 of the b'-la)s authori/es the directors to carr' funds to a special reserve, )henever in their +ud"ment it is advisable to do so, provided that the annual dividend in the 'ear in )hich funds are carried to specialreserve e ceeds % per centum. It appears to have been the polic' of the board of directors for several 'ears past to

place in the special reserve an' balance in the profit and loss account after the satisfaction of preferential char"esand the pa'ment of a dividend of 1< per centum to all special and ordinar' shares )ith accumulated dividendsD. Asthin"s stood in 1926 the "eneral reserve contained an amount e*uivalent to about & per centum of the paid-in valueof shared. his fund has never been dra)n upon for the purpose of maintainin" the re"ular annual dividend= butrecourse has been had to the special reserve on three different occasions to ma e "ood the amount necessar' to pa'dividends. It appears that in the last five 'ears the reserves have declined from somethin" over 9 per cent to


48/64

somethin" over ?.

It is insisted in the brief of the Attorne'-;eneral that the maintenance of reserve funds is unnecessar' in the case of buildin" and loan associations, and at an' rate the eepin" of reserves is inconsistent )ith section 1%% of theCorporation 3a). oreover, it is said that the practice of the association in declarin" re"ularl' a 1< per centdividend is in effect a "uarant' b' the association of a fi ed dividend )hich is contrar' to the intention of thestatute.

pon careful consideration of the *uestions involved )e find no reason to doubt the ri"ht of the respondent tomaintain these reserves. It is true that the corporation la) does not e pressl' "rant this po)er, but )e thin it is to

be implied. It is a fact of common observation that all commercial enterprises encounter periods )hen earnin"s fall belo) the avera"e, and the prudent mana"er ma es provision for such contin"encies. o re"ard all surplus as profitis to ne"lect one of the primar' canons of "ood business practice. uildin" and loan associations, thou"h amon"the most solid of financial institutions, are nevertheless sub+ect to vicissitudes. Fluctuations in the dividend rate arehi"hl' detrimental to an' fiscal institutions, )hile uniformit' in the pa'ments of dividends, continued over lon"

periods, supplies the surest foundations of public confidence.

he *uestion no) under consideration is not ne) in +urisprudence, for the American courts have been called uponmore than once to consider the le"alit' of the maintenance of reserves b' institutions of this or similar character.

In 1reeff vs. E6uita#le )ife Assurance Societ$ , the court had under consideration a charter provision of a lifeinsurance compan', or"ani/ed on the mutual plan, in its relation to the po)er of the compan' to provide reserves.

here the statute provided that Lthe officers of the compan', )ithin si t' da's from the e piration of the first five'ears, from 7ecember 81, 1%&9, and )ithin the first si t' da's of ever' subse*uent period of five 'ears, shall causea balance to be struc of the affairs of the compan', )hich shall e hibit its assets and liabilities, both present andcontin"ent, and also the net surplus, after deductin" a sufficient amount to cover all outstandin" ris s and other obli"ations. 5ach polic' holder shall be credited )ith an e*uitable share of the said surplus.L

he court said

#o prudent person )ould be inclined to ta e a polic' in a compan' )hich had so improvidentl' conductedits affairs that it onl' retained a fund barel' sufficient to pa' its present liabilities, and, therefore, )as in acondition )here an' chan"e b' the reduction of interest upon, or depreciation in, the value of its securities,or an' increase of mortalit', )ould render it insolvent and sub+ect to be placed in the hands of a receiver.

he evident purpose of the provisions of the defendant0s charter and polic' relatin" to this sub+ect )as tovest in the directors of the corporation a discretion to determine the proportion of its surplus )hich should

be dividend each 'ear.

In a friendl' suit tried in a circuit court of Bisconsin in 1916, entitled Boheman Bld!. and )oan Association vs. /nolt , the court, in commentin" on the nature of these reserves, said

he apparent function of this fund is to insure the stoc holders a"ainst losses. Its purpose is not unli e thatof the various forms of insurance no) in such common use. his contribution is as le"itimate an item of e pense as are the premiums paid on an' insurance polic'. See Clar s and Chase, uildin" and 3oanAssociation, footnote, pa"e 8$$.D

In commentin" on the necessit' of such funds, 4undheim sa's

It is optional )ith the association )hether to maintain such a fund or not, but +ustice and "ood business polic' seem to re*uire it. he retirin" stoc holder must be paid the value of his stoc in cash and leave for those remainin" a lar"e number of securities and perhaps some real estate purchased to protect theassociations interest. :o) much )ill be reali/ed on these securities, or real estate, no human foresi"ht cantell. Further, the reali/in" on these securities ma' entail considerable liti"ation and e pense. here are man'other contin"encies )hich mi"ht cause a shrin a"e in the association0s assets, such as defective titles,undisclosed defalcations on the part of an officer, a miscalculation of assets and liabilities, and man' other errors and omissions )hich must al)a's be rec oned )ithin the conduct of human affairs.

he contin"ent fund is merel' insurance a"ainst possible loss. hat losses ma' occur from time to timeseems almost inevitable and it is, therefore, ine*uitable that the remainin" stoc holders should be


49/64

compelled to accept all securities at par, so, to sa' the least, the maintenance of this fund is +ustified. heassociation teaches the dut' of providin" for the proverbial rain' da'. Bh' should it not provide for thehour of adversit'J he reserve fund has protected the maturin" or )ithdra)in" member durin" the period of his membership. In case of loss it has or )ould have reimbursed him and, at all times, it has protected himand "iven stren"th and standin" to the association. 3osses ma' occur, after his membership ceases, thatarose from some mista e or mismana"ement committed durin" the period of his membership, and infairness and e*uit' the remainin" members should have some protection a"ainst this. 4undheim, 3a) of

uildin" and 3oan Association, sec. &8.D

he "overnment insists, )e thin", upon an interpretation of section 1%% of the Corporation 3a) that is alto"ether too strict and literal. From the fact that the statute provides that profits and losses shall be annuall' apportionedamon" the shareholders it is ar"ued that all earnin"s should be distributed )ithout carr'in" an'thin" to the reserve.

ut it )ill be noted that it is provided in the same section that the profits and losses shall be determined b' the board of directors and this means that the' shall e ercise the usual discretion of "ood businessmen in allocatin" a portion of the annual profits to purposes needful to the )elfare of the association. he la) contemplates thedistribution of earnin"s and losses after other le"itimate obli"ations have been met.

Our conclusion is that the respondent has the po)er to maintain the reserves critici/ed in the eleventh and t)elfthcounts of the complaint= and at an' rate, if it be supposed that the reserves referred to have become e cessive, theremed' is in the hands of the 3e"islature. It is no proper function of the court to arro"ate to itself the control of administrative matters )hich have been confided to the discretion of the board of directors. he causes of actionunder discussion must be pronounced to be )ithout merit.

*hirteenth cause of action . ! he specification under this head is, in effect, that the respondent association hasmade loans )hich, to the no)led"e of the associations officers )ere intended to be used b' the borro)ers for other purposes than the buildin" of homes. In this connection it appears that, thou"h loans have been made b' theassociation e clusivel' to its shareholders, no attempt has been made b' it to control the borro)ers )ith respect tothe use made of the borro)ed funds, the association bein" content to see that the securit' "iven for the loan in eachcase is sufficient. On 7ecember 81, 192&, the respondent had five hundred fort'-four loans outstandin" secured b'mort"a"es upon real estate and b' the pled"e of the borro)ers0 shares in an amount sufficient at maturit' toamorti/e the loans. Bith respect to the nature of the real estate upon )hich these loans )ere made it appears thatthree hundred fift'-one loans )ere secured b' mort"a"es upon cit' residences, seven b' mort"a"es upon

commercial buildin" in cities, and three mort"a"es upon unimproved cit' lots. At the same time one hundredei"ht'-three of the loans )ere secured b' mort"a"es upon "roves, su"ar land, and rice land, )ith a total area of about ?,&&% hectares. From information "athered b' the association from voluntar' statements of borro)ers "ivenat the time of application )ith respect to the use intended to be made of the borro)ed funds, it appears that theamount of (698,2


50/64

held that the plaintiff could onl' recover the amount actuall' advanced b' it )ith la)ful interest and fines, )ithout premium= and +ud"ment )as "iven accordin"l'. he su""estion in that case that the result )ould have been thesame even in the absence of statute )as mere dictum and is not supported b' respectable authorit'.

eliance is also placed in the plaintiff0s brief upon Mc(aule$ vs. Buildin! & Savin! Association . he statute iforce in the 4tate of ennessee at the time this action arose provided that all loans should be made to the membersof the association at open stated meetin"s and that the mone' should be lent to the hi"hest bidder. Inconsistentl')ith this provision, there )as inserted in the b'-la)s of the association a provision to the effect that no loan should

be made at a "reater premium than 8< per cent, nor at a less premium than 29 ?K% per cent. It )as held that this b'-

la) made free and open competition impossible and that it in effect established a fi ed premium. It )asaccordin"l' held, in the case cited, that an association could not recover such part of the loan as had been applied

b' it to the satisfaction of a premium of 8< per centum.

Be have no criticism to ma e upon the result reached in either of the t)o decisions cited, but it is apparent thatmuch of the discussion contained in the opinions in those cases does not reflect the doctrine no) prevailin" in the

nited 4tates= and much less are those decisions applicable in this +urisdiction. here is no statute here e pressl'declarin" that loans ma' be made b' these associations solel$ for the purpose of buildin" homes. On the contrar',the buildin" of homes is mentioned in section 1?1 of the Corporation 3a) as onl' one amon" several ends )hich

buildin" and loan associations are desi"ned to promote. Furthermore, section 1%1 of the Corporation 3a) e pressl'authorities the oard of directors of the association from time to time to fi the premium to be char"ed.

In the brief of the plaintiff a number of e cerpts from te tboo s and decisions have been collated in )hich the ideais developed that the primar' desi"n of buildin" and loan associations should be to help poor people to procurehomes of their o)n. his beneficent end is undoubtedl' served b' these associations, and it is not to be denied thatthe' have been "enerall' fostered )ith this end in vie). ut in this +urisdiction at least the la)ma er has ta en carenot to limit the activities of buildin" and loan associations in an e clusive manner, and the e ercise of the broader

po)ers must in the end approve itself to the business communit'. ud"in" from the past histor' of these institutionsit can be trul' said that the' have done more to encoura"e thrift, econom' and savin" amon" the people at lar"ethan an' other institution of modern times, not e ceptin" even the savin" ban s. In this connection r. 4undheim,in a late treatise upon the sub+ect of the la) of buildin" and loan associations, ma es the follo)in" comment

he' have "ro)n to such an e tent in recent 'ears that the' no lon"er restrict their mone' to the home bu'er, but loan their mone' to the mere investor or dealer in real estate. he' are the holder of lar"emort"a"es secured upon farms, factories and other business properties and ro)s of stores and d)ellin"s.

his is not an abuse of their po)ers or departure from their main purposes, but onl' a natural and proper e pansion alon" health' and le"itimate lines. 4undheim, uildin" and 3oan Associations, sec. ?.D

4pea in" of the purpose for )hich loans ma' be made, the same author adds

3oans are made for the purpose of purchasin" a homestead, or other real estate, or for an' la)ful purpose or business, but there is no dut' or obli"ation of the association to in*uire for )hat purpose the loan isobtained, or to re*uire an' stipulation from the borro)er as to )hat use he )ill ma e of the mone', or inan' manner to supervise or control its disbursement. 4undheim, uildin" and 3oan Association, sec. 111.D

In )opez and avelona vs. El o!ar ilipino and %e!istrar of eeds of 9ccidental Ne!ros , this court had before itthe *uestion )hether a loan made b' the respondent association upon the securit' of a mort"a"e upon a"riculturalland, ! )here the loan )as doubtless used for a"ricultural purposes, ! )as usurious or not= and the case turnedupon the point )hether, in ma in" such loans, the association had violated the la) and departed from itsfundamental purposes. he conclusion of the court )as that the loan )as valid and could be la)full' enforced b' anon+udicial foreclosure in conformit' )ith the terms of the contract bet)een the association and the borro)in"member. Be no) find no reason to depart from the conclusion reached in that case, and it is unnecessar' to repeat)hat )as then said. he thirteenth cause of action must therefore be pronounced unfounded.

ourteenth cause of action . ! he specification under this head is that the loans made b' the defendant for purposes other than buildin" or ac*uirin" homes have been e tended in e tremel' lar"e amounts and to )ealth' persons and lar"e companies. In this connection attention is directed to ei"ht loans made at different times in thelast several 'ears to different persons or entities, ran"in" in amounts from (12


51/64

loans made to the o as 5state and to the (acific Barehouse Compan' in the amounts of (1,122,


52/64

franchise on this "round be +ustified. here is no merit in the fifteenth cause of action.

Si8teenth cause of action . ! his part of the complaint assi"ns as cause of action that various loans no)outstandin" have been made b' the respondent to corporations and partnerships, and that these entities have insome instances subscribed to shares in the respondent for the sole purpose of obtainin" such loans. In thisconnection it appears from the stipulation of facts that of the &,%26 shareholders of 5l :o"ar Filipino, )hichcomposed its membership on 7ecember 81, 192&, t)ent'-ei"ht are +uridical entities, comprisin" si teencorporations and fourteen partnerships= )hile of the five hundred fort'-four loans of the association outstandin" onthe same date, nine had been made to corporations an five to partnerships. It is also admitted that some of these

+uridical entities became shareholders merel' for the purpose of *ualif'in" themselves to ta e loans from theassociation, and the same is said )ith respect to man' natural persons )ho have ta en shares in the association.

#othin" is said in the a"reed statement of facts on the point )hether the corporations and partnerships that haveta en loans from the respondent are *ualified b' la) "overnin" their o)n or"ani/ation to enter into these contracts)ith the respondent.

In section 1?8 of the Corporation 3a) it is declared that Lan' personL ma' become a stoc holder in buildin" andloan associations. he )ord LpersonL appears to be here used in its "eneral sense, and there is nothin" in theconte t to indicate that the e pression is used in the restricted sense of both natural and artificial persons, asindicated in section 2 of the Administrative Code. Be )ould not sa' that the )ord LpersonL or persons,L is to beta en in this broad sense in ever' part of the Corporation 3a). For instance, it )ould seem reasonable to sa' thatthe incorporators of a corporation ou"ht to be natural persons, althou"h in section 6 it is said that five or moreLpersonsL, althou"h in section 6 it is said that five or more Lpersons,L not e ceedin" fifteen, ma' form a

Corp Law Full Txt Cases 1-10

Documents

Transcript of Corp Law Full Txt Cases 1-10