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BARRETO et al V.

LA PREVISORA FILIPINA/1932 FACTS: La Previsora is a mutual building & loan association, being sued in this action by Barreto et al who were directors since its incorporation up to 1929. By virtue of an amendment to the associations by-laws, the directors were to each receive 1% of the net profits of the association as annual gratuity as long as they lived, upon ceasing to be its directors. Per Google Translate: In consideration of the valuable services for several years so far have been providing free favor of the Company, Messrs. Alberto Barretto, Ariston de Guzman, Miguel Romualdez, Pedro Mata, Vicente L. Legarda, Alexander Bachrach, Jose M. of Amusategui and Jose A. Barreto and Moratinos, agrees and hereby grants to each and every one of these gentlemen, an amount equal to one percent (1%) of all net profits of the Company in the year and years in which they stop be a director of it. Provided, however, that this special remuneration remain for as long such director alive, and ceased during the time when the said gentleman again be director of the Company. It is stated by this, that this article of this Constitution is a formal contract between the Company and each of the above directors gentlemen, and this agreement may not be modified or amended, but by agreement between the parties. ISSUE: WON said by-law provision is valid HELD/RATIO: The assailed by-law provision was beyond the lawful powers of the B&L association and, thus, does not create an obligation owing to the plaintiffs of a life gratuity or pension out of the associations profits. The authority conferred upon corporations under the Corporation Law refers only to providing compensation for the future services of directors, officers, and employees after the adoption of the by-law or other provisions in relation thereto, and cannot in any sense be held to authorize the giving of continuous compensation to particular directors after their employment has terminated for past services rendered gratuitously by them to the corporation. The underlying principle of the founding of B&L associations is the equal participation of its members in its profits (and the losses). The use/diversion of funds which are foreign to its purpose therefore is violative of its character of mutuality and equality. Moreover, if such obligation be alleged to be based on contract, still it is shown that no mutual consent by the parties was had and that no valid consideration for the same was made. The Court debunked the contention of plaintiffs who relied in the ruling of Govt v El Hogar, saying the facts were different and did not apply squarely to this case. Complaint dismissed.

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