CORPORATE POWERS #57: Republic of the Philippines vs. Acoje Minin Co. !.R. "o. #$%&'()* +eb,u-,.

)&/ %0(1 FACTS: Acoje Mining requested to the Director of Posts for opening of a post, telegraph and money order offices at its mining camp at Sta Cru!, "am#ales, to ser$ice its employees and their families that %ere li$ing in said camp The latter signified its %illingness #ut requested that a #oard resolution #e passed upon regarding assumption of direct responsi#ility in case of pecuniary loss The #oard resolution %as appro$ed and thereafter a post office #ranch %as opened A postmaster %as hired to conduct the operations of post office The postmaster that %as hired %ent on a lea$e #ut ne$er returned The company immediately informed the officials of the Manila Post &ffice and the pro$incial auditor of "am#ales of postmaster's disappearance %ith the result that the accounts of the postmaster %ere chec(ed and a shortage %as found Se$eral demands %ere made upon the company for the payment of the shortage, ha$ing failed) the petitioner commenced the present action The company in its ans%er denied lia#ility contending that the resolution of the #oard of directors %herein it assumed responsi#ility for the act of the postmaster is ultra $ires, and in any e$ent its lia#ility under said resolution is only that of a guarantor %ho ans%ers only after the e*haustion of the properties of the principal, aside from the fact that the loss claimed #y the plaintiff is not supported #y the office record +SS,-: +s the #oard resolution for the appro$al of post office #ranch ultra $ires. /-0D: 1& The resolution adopted #y the company to open a post office #ranch at the mining camp and to assume sole and direct responsi#ility for any dishonest, careless or negligent act of its appointed postmaster is 1&T ,0T2A 3+2-S #ecause the act co$ers a su#ject %hich concerns the #enefit, con$enience, and %elfare of the company's employees and their families 4hile as a rule an ultra $ires act is one committed outside the o#ject for %hich a corporation is created as defined #y the la% of its organi!ation and therefore #eyond the po%ers conferred upon it #y la%, there are ho%e$er certain corporate acts that may #e performed outside of the scope of the po%ers e*pressly conferred if they are necessary to promote the interest or %elfare of the corporation -$en assuming arguendo that the resolution in question constitutes an ultra vires act, the same ho%e$er is not $oid for it %as appro$ed not in contra$ention of la%, customs, pu#lic order or pu#lic policy The term ultra vires should #e distinguished from an illegal act for the former is merely $oida#le %hich may #e enforced #y performance, ratification, or estoppel, %hile the latter is $oid and cannot #e $alidated 5 +t #eing merely $oida#le, an ultra $ires act can #e enforced or $alidated if there are equita#le grounds for ta(ing such action /ere it is fair that the resolution #e upheld at least on the ground of estoppel 678: "APOCOR vs. 2ERA !.R. "o. &155& +eb,u-,. )7/ %0&0 FACTS: The instant petition arose from a complaint for prohi#ition and mandamus %ith damages filed #y pri$ate respondent against 1PC and Philippine Ports Authority 9PPA:, %herein pri$ate respondent alleged that 1PC had acted in #ad faith and %ith gra$e a#use of discretion in not rene%ing its Contract for Ste$edoring Ser$ices for Coal;/andling &perations at 1PC<s plant, and in ta(ing o$er its ste$edoring ser$ices Soon after the filing of pri$ate respondent<s complaint, respondent judge issued a restraining order against 1PC enjoining the latter from underta(ing ste$edoring ser$ices at its pier Consequently, 1PC filed an =,rgent Motion= to dissol$e the restraining order, asserting, inter alia: 9>: that #y $irtue of Presidential Decree 1o >8>8, respondent judge had no jurisdiction to issue the order) and 95: that pri$ate respondent, %hose contract %ith 1PC had e*pired prior to the commencement of the suit, failed to esta#lish a cause of action for a %rit of preliminary injunction 2espondent judge issued the assailed &rder denying 1PC<s motion and issuing a %rit of preliminary injunction, after finding that 1PC %as not empo%ered #y its Charter, 2epu#lic Act 1o ?@A7, as amended, to engage in ste$edoring and arrastre ser$ices /ence, the instant petition +SS,-: 4hether or not 1PC %as empo%ered #y its Charter to engage in ste$edoring and arrastre ser$ices. 2uling: Bes Moreo$er, respondent judge<s finding that 1PC is not empo%ered #y its Charter to underta(e ste$edoring ser$ices in its pier is erroneous To carry out the national policy of total electrification of the country, specifically the de$elopment of hydroelectric generation of po%er and the production of electricity from nuclear, geothermal and other sources to meet the needs of industrial de$elopment and dispersal and the needs of rural electrification CSecs > and 5, 2ep Act 1o ?@A7, as amendedD, the 1PC %as created and empo%ered not only to construct, operate and maintain po%er plants, reser$oirs, transmission lines, and other %or(s, #ut also: *** *** *** To e*ercise such po%ers and do such things as may #e reasona#ly necessary to carry out the #usiness and purposes for %hich it %as organi!ed, or %hich, from time to time, may #e declared #y the Eoard to #e necessary, useful, incidental or au*iliary to

accomplish said purpose,

CSec @ 9>: of 2ep Act 1o ?@A7, as amended D

+n determining %hether or not an 1PC act falls %ithin the pur$ie% of the a#o$e pro$ision, the Court must decide %hether or not a logical and necessary relation e*ists #et%een the act questioned and the corporate purpose e*pressed in the 1PC charter For if that act is one %hich is la%ful in itself and not other%ise prohi#ited, and is done for the purpose of ser$ing corporate ends, and reasona#ly contri#utes to the promotion of those ends in a su#stantial and not in a remote and fanciful sense, it may #e fairly considered %ithin the corporation<s charter po%ers CMonteli#ano $ Eacolod;Murcia Milling Co , +nc , F 2 1o 0;>7GA5, May >8, >A?5, 7 SC2A @? D

+n the instant case, it is an undisputed fact that the pier located at Calaca, Eatangas, %hich is o%ned #y 1PC, recei$es the $arious shipments of coal %hich is used e*clusi$ely to fuel the Eatangas Coal;Fired Thermal Po%er Plant of the 1PC for the generation of electric po%er The ste$edoring ser$ices %hich in$ol$e the unloading of the coal shipments into the 1PC pier for its e$entual con$eyance to the po%er plant are incidental and indispensa#le to the operation of the plant The Court holds that 1PC is empo%ered under its Charter to underta(e such ser$ices, it #eing reasona#ly necessary to the operation and maintenance of the po%er plant 650: T3E !O2ER"ME"T O+ T3E P34#4PP4"E 4S#A"5S 6on ,el-tion of the Atto,ne.$!ene,-l7/ pl-intiff/ vs. E# 3O!AR +4#4P4"O/ 8efen8-nt. !.R. "o. #$)((90 :ul. %1/ %0)7 STREET/ J.: This is a quo warranto proceeding instituted originally in this court #y the Fo$ernment of the Philippine +slands on the relation of the Attorney; Feneral against the #uilding and loan association (no%n as -l /ogar Filipino, for the purpose of depri$ing it of its corporate franchise, e*cluding it from all corporate rights and pri$ileges, and effecting its final dissolution, due to alleged $iolations committed #y said corporation +SS,-: 4&1 the corporation must #e dissol$ed on the grounds enumerated #y the Fo$ernment First cause of action: alleged illegal holding #y the respondent of the title to real property for a period in e*cess of fi$e years after the property had #een #ought in #y the respondent at one of its o%n foreclosure sales +n >A5G, respondent -l /ogar Filipino %as the holder of a recorded mortgage upon a tract of land in the San Clemente, Tarlac, as security for a loan to its shareholders %ho %ere the o%ners of said property The #orro%ers ha$ing defaulted in their payments, respondent foreclosed the mortgage and purchased the land at the foreclosure sale on 1o$em#er >8, >A5G, and the deed con$eying the property to respondent %as e*ecuted and deli$ered Decem#er 55, >A5G 2espondent sent the deed to the register of deeds of the Pro$ince of Tarlac, %ith the request that the certificate of title then standing in the name of the former o%ners #e cancelled and that a ne% certificate of title #e issued in its name The certificate of title to the land %as issued on May H, >A5> +n >A5>, -l /ogar Filipino authori!ed agents to find a #uyer of the said land #ut since they did not succeed in finding one, the land %as ad$ertised for sale The first offer %as made #y one Alcantara and the #oard accepted the offer in >A5? ,pon Alcantara's failure to pay, ho%e$er, respondent treated the contract %ith him rescinded +t %as only on Iuly @G, >A5?, %hen the property %as finally sold to Felipa Al#erto /-0D: The Attorney;Feneral points out that the respondent acquired title on Decem#er 55, >A5G, %hen the deed %as e*ecuted and deli$ered, #y %hich the property %as con$eyed to it as purchaser at its foreclosure sale, and this title remained in it until Iuly @G, >A5?, %hen the property %as finally sold to Felipa Al#erto The inter$al #et%een these t%o con$eyances is thus more than fi$e years +t has #een held #y this court that a purchaser of land registered under the Torrens system cannot acquire the status of an innocent purchaser for $alue unless his $endor is a#le to place in his hands an o%ner<s duplicate sho%ing the title of such land to #e in the $endor +t results that prior to May H, >A5>, -l /ogar Filipino %as not really in a position to pass an indefeasi#le title to any purchaser +n this connection it %ill #e noted that section H7 of the Act of Congress of Iuly >, >AG5, and the similar pro$ision in section >@ of the Corporation 0a%, allo% the corporation =fi$e years after recei$ing the title,= %ithin %hich to dispose of the property A fair interpretation of these pro$isions %ould seem to indicate that the date of the recei$ing of the title in this case %as the date %hen the respondent recei$ed the o%ner<s certificate, or May H, >A5>, for it %as only after that date that the respondent had an unequi$ocal and unquestiona#le po%er to pass a complete title The failure of the respondent to recei$e the certificate sooner %as not due in any %ise to its fault, #ut to une*plained delay on the part of the register of deeds For this delay the respondent cannot #e held accounta#le +t is urged for the respondent that the period #et%een March 57, >A5?, and April @G, >A5?, should not #e counted as part of the fi$e;year period This %as the period during %hich the respondent %as under o#ligation to sell the property to Alcantara, prior to the rescission of the contract #y reason of Alcantara<s failure to ma(e the stipulated first payment ,pon this point the contention of the respondent is, in our opinion, %ell founded The acceptance #y it of Alcantara<s offer o#ligated the respondent to Alcantara) and if it had not #een for the default of Alcantara, the effecti$e sale of the property %ould ha$e resulted The e$ident purpose #ehind the la% restricting the rights of corporations %ith respect to the tenure of land %as to pre$ent the re$i$al of the entail 9mayorazgo: or other similar institution #y %hich land could #e fettered and its alienation hampered o$er long periods of time +n the case #efore us the ,espon8ent co,po,-tion h-s in oo8 f-ith 8ispose8 of the piece of p,ope,t. ;hich -ppe-,s to h-ve been in its h-n8s -t the e<pi,-tion of the pe,io8 fi<e8 b. l-;/ -n8 - f-i, e<pl-n-tion is iven of its f-ilu,e to 8ispose of it soone, ,nder these circumstances the destruction of the corporation %ould #ring irrepara#le loss upon the thousands of innocent shareholders of the corporation %ithout any corresponding #enefit to the pu#lic The discretion permitted to this court in the application of the remedy of quo warranto for#ids so radical a use of the remedy Second cause of action: the respondent o%ns and holds a #usiness lot, %ith the structure thereon, in the financial district of Manila in e*cess of its reasona#le requirements and in contra$ention of su#section 7 of section >@ of the corporation 0a% 9Contention: that the construction of the ne%

office #uilding and the su#sequent renting of the same in great part to third persons are ultra $ires acts on the part of the corporation: The respondent purchased >,J>@ sq m of land at the corner of Iuan 0una St and the Muelle de la +ndustria, in Manila At the time the respondent acquired this lot there stood upon it a #uilding, then nearly 7G yrs old, made of Fuadalupe stone and he%n tim#er The directors of the -l /ogar caused the old #uilding to #e demolished and erected thereon a modern reinforced concrete office #uilding As at first constructed the ne% #uilding %as three stories high, #ut in >A5G, to o#tain greater ad$antage from the use of the land, an additional story %as added to the #uilding, ma(ing a structure of four stories e*cept in one corner %here an additional story %as placed, ma(ing it fi$e stories high Since the ne% #uilding %as completed the respondent has used a#out @5J sq m of floor space for its o%n offices and has rented the remainder of the office space in said #uilding, consisting of a#out @,>H7 sq m, to other persons and entities /-0D: ,nder su#section 7 of section >@ of the Corporation 0a%, e$ery corporation has the po%er to purchase, hold and lease such real property as the transaction of the la%ful #usiness of the corporation may reasona#ly and necessarily require 4hen this property %as acquired in >A>?, the #usiness of -l /ogar Filipino had de$eloped to such an e*tent, and its prospects for the future %ere such as to justify its directors in acquiring a lot in the financial district of Manila and in constructing thereon a suita#le #uilding as the site of its offices) and it cannot #e fairly said that the area of the lot K >,J>@ sq m K %as in e*cess of its reasona#le requirements The l-; e<p,essl. 8ecl-,es th-t co,po,-tions =-. -c>ui,e such ,e-l est-te -s is ,e-son-bl. necess-,. to en-ble the= to c-,,. out the pu,poses fo, ;hich the. ;e,e c,e-te8* -n8 ;e -,e of the opinion th-t the o;nin of business lot upon ;hich to const,uct -n8 =-int-in its offices is ,e-son-bl. necess-,. to - buil8in -n8 lo-n -ssoci-tion such -s the ,espon8ent ;-s -t the ti=e this p,ope,t. ;-s -c>ui,e8. A 8iffe,ent ,ulin on this point ;oul8 co=pel i=po,t-nt ente,p,ises to con8uct thei, business e<clusivel. in le-se8 offices ? - ,esult ;hich coul8 se,ve no useful en8 but ;oul8 ,et-,8 in8ust,i-l ,o;th -n8 be ini=ic-l to the best inte,ests of societ.. 4e are furthermore of the opinion that, inasmuch as the lot referred to %as la%fully acquired #y the respondent, it is entitled to the full #eneficial use thereof 1o legitimate principle can disco$ered %hich %ould deny to one o%ner the right to enjoy his 9or its: property to the same e*tent that is conceded to any other o%ner) and an intention to discriminate #et%een o%ners in this respect is not lightly to #e imputed to the 0egislature Third cause of action: respondent is charged %ith engaging in acti$ities foreign to the purposes for %hich the corporation %as created and not reasona#le necessary to its legitimate ends The specifications under this cause of action relate to three different sorts of acti$ities: The first consist of the administration of the offices in the -l /ogar #uilding not used #y the respondent itself and the renting of such offices to the pu#lic As stated in the discussion connected %ith the second cause of action, the respondent uses only a#out ten per cent of the office space in the -l /ogar #uilding for its o%n purposes, and it leases the remainder to strangers +n the years >A5J and >A57 the respondent recei$ed as rent for the leased portions of the #uilding the sums of PH7,@A7 G? and P78,57A 5H, respecti$ely The acti$ities here critici!ed clearly fall %ithin the legitimate po%ers of the respondent, as sho%n in %hat %e ha$e said a#o$e relati$e to the second cause of action This matter %ill therefore no longer detain us 4f the ,espon8ent h-8 the po;e, to -c>ui,e the lot/ const,uct the e8ifice -n8 hol8 it benefici-ll./ -s the,e 8eci8e8/ the benefici-l -8=inist,-tion b. it of such p-,ts of the buil8in -s -,e let to othe,s =ust necess-,il. be l-;ful. The second specification has reference to the administration and management of properties #elonging to delinquent shareholders of the association +t appears that in case of delinquency on the part of its shareholders in the payment of interest, premium, and dues, the association has #een accustomed 9pursuant to clause 8 of its standard mortgage: to ta(e o$er and manage the mortgaged property for the purpose of applying the income to the o#ligations of the de#tor party For these ser$ices the respondent charges a commission at the rate of 5L per centum on sums collected The case for the go$ernment supposes that the only remedy %hich the respondent has in case of default on the part of its shareholders is to proceed to enforce collection of the %hole loan in the manner contemplated in section >87 of the Corporation 0a% +t %ill #e noted, ho%e$er, that, according to said section, the association may treat the %hole inde#tedness as due, =at the option of the #oard of directors,= and this remedy is not made e*clusi$e We see no ,e-son to 8oubt the v-li8it. of the cl-use ivin the -ssoci-tion the ,i ht to t-@e ove, the p,ope,t. ;hich constitutes the secu,it. fo, the 8elin>uent 8ebt -n8 to =-n- e it ;ith - vie; to the s-tisf-ction of the obli -tions 8ue to the 8ebto, th-n the i==e8i-te enfo,ce=ent of the enti,e obli -tion/ -n8 the v-li8it. of the cl-use -llo;in this cou,se to be t-@en -ppe-,s to us to be not open to 8oubt. The third specification under this cause of action relates to certain acti$ities, such that: -l /ogar Filipino has underta(en the management of some parcels of impro$ed real estate situated in Manila not under mortgage to it, #ut o%ned #y shareholders This ser$ice is limited to shareholders) #ut some of the persons %hose properties are so managed for them #ecame shareholders only to ena#le them to ta(e ad$antage thereof The ser$ices rendered in the management of such impro$ed real estate #y -l /ogar Filipino consist in the renting of the same, the payment of real estate ta*es and insurance for the account of the o%ner, causing the necessary repairs for up(eep to #e made, and collecting rents due from tenants For its ser$ices, -l /ogar Filipino recei$es compensation in the form of commissions upon the gross receipts from such properties This practice is in our opinion unauthori!ed #y la% The administration of property in the manner descri#ed is more #efitting to the #usiness of a real estate agent or trust company than to the #usiness of a #uilding and loan association The practice to %hich this criticism is directed relates of course solely to the management and administration of properties %hich are not mortgaged to the association The circumstance that the o%ner of the property may ha$e #een required to su#scri#e to one or more shares of the association %ith a $ie% to qualifying him to recei$e this ser$ice is of no significance 4t is - ene,-l ,ule of l-; th-t co,po,-tions possess onl. such e<p,ess po;e,s. The =-n- e=ent -n8 -8=inist,-tion of the p,ope,t. of the sh-,ehol8e,s of the co,po,-tion is not e<p,essl. -utho,iAe8 b. l-;/ -n8 ;e -,e un-ble to see th-t/ upon -n. f-i, const,uction of the l-;/ these -ctivities -,e necess-,. to the e<e,cise of -n. of the ,-nte8 po;e,s. The co,po,-tion/ upon the point no; un8e, the c,iticis=/ h-s cle-,l. e<ten8e8 itself be.on8 the le iti=-te ,-n e of its po;e,s. But it 8oes not ,esult th-t the 8issolution of the co,po,-tion is in o,8e,/ -n8 it ;ill =e,el. be enjoine8 f,o= fu,the, -ctivities of this so,t. Fourth cause of action: Article >G of its #y;la%s empo%ers the #oard of directors #y majority $ote to cancel shares and to return to the o%ner thereof the #alance resulting from the liquidation thereof %hene$er, #y reason of their conduct, or for any other moti$e, the continuation as mem#ers of the o%ners of such shares is not desira#le The pro$ision is a patent nullity, since it is in direct conflict %ith the latter part of section >8H of the Corporation 0a%, %hich e*pressly declares that the #oard of directors shall not ha$e the po%er to force the surrender and %ithdra%al of unmatured stoc( e*cept in case of liquidation of the

corporation or of forfeiture of the stoc( for delinquency /o%e$er, there is no pro$ision of la% ma(ing it a misdemeanor to incorporate an in$alid pro$ision in the #y;la%s of a corporation) and if there %ere such, the ha!ards incident to corporate effort %ould certainly #e largely increased Fifth cause of action: the failure of the corporation to hold annual meetings for election of directors in the manner prescri#ed #y la% &%ing to the failure of a quorum at most of the general meetings since the respondent has #een in e*istence, it has #een the practice of the directors to fill $acancies in the directorate #y choosing suita#le persons from among the stoc(holders This custom finds its sanction in article H> of the #y; la%s The person thus chosen to fill $acancies in the directorate ha$e, it is admitted, uniformly #een e*perienced and successful #usiness and professional men of means, #elonging to prominent Filipino families, and more or less related to each other #y #lood or marriage +n this connection it is charged that the #oard of directors of the respondent has #ecome a permanent and self;perpetuating #ody composed of %ealthy men instead of %age earners and persons of moderate means 1o fault can #e imputed to the corporation on account of the failure of the shareholders to attend the annual meetings) and their non;attendance at such meetings is dou#tless to #e interpreted in part as e*pressing their satisfaction of the %ay in %hich things ha$e #een conducted ,pon failure of a quorum at any annual meeting the directorate naturally holds o$er and continues to function until another directorate is chosen and qualified Si*th cause of action: the directors of -l /ogar Filipino, instead of ser$ing %ithout pay, or recei$ing nominal pay or a fi*ed salary, ha$e #een recei$ing large compensation, $arying in amount from time to time, out of the profits of the respondent ,nder section A5 of the #y;la%s of -l /ogar Filipino 7 per centum of the net profit sho%n #y the annual #alance sheet is distri#uted to the directors in proportion to their attendance at meetings of the #oard The Corporation 0a% does not underta(e to prescri#e the rate of compensation for the directors of corporations The po%er to fi* the compensation they shall recei$e, if any, is left to the corporation, to #e determined in its #y;la%s 9Act 1o >J7A, sec 5>: Pursuant to this authority the compensation for the directors of -l /ogar Filipino has #een fi*ed in section A5 of its #y;la%s, as already stated The justice and property of this pro$ision %as a proper matter for the shareholders %hen the #y;la%s %ere framed) and the circumstance that, %ith the gro%th of the corporation, the amount paid as compensation to the directors has increased #eyond %hat %ould pro#a#ly #e necessary to secure adequate ser$ice from them is matter that cannot #e corrected in this action) nor can it properly #e made a #asis for depri$ing the respondent of its franchise, or e$en for enjoining it from compliance %ith the pro$isions of its o%n #y;la%s +f a mista(e has #een made, or the rule adopted in the #y;la%s meeting to change the rule Se$enth cause of action: the %ritten agreement of the corporation %ith Mr Antonio Melian, the corporation's the promoter and organi!er, %hich grants him fi$e per centum 97M: of the net profits to #e earned #y it in each year during the period fi*ed for the duration of the association #y its articles of incorporation, transmissi#le to his heirs upon his death, as compensation of the studies made, ser$ices rendered and e*penses incurred #y him, and the loan he e*tended to the corporation 9inserted in Art A5 of the #y;la%s: 1o possi#le dou#t e*ists as to the po%er of a corporation to contract for ser$ices rendered and to #e rendered #y a promoter in connection %ith organi!ing and maintaining the corporation *** +f the Melian contract had #een clearly ultra vires K %hich is not charged and is certainly untrue K its continued performance might concei$a#ly #e enjoined in such a proceeding as this) #ut if the defect from %hich it suffers is mere matter for an action #ecause Melian is not a party +t is rudimentary in la% that an action to annul a contract cannot #e maintained %ithout joining #oth the contracting parties as defendants Moreo$er, the proper party to #ring such an action is either the corporation itself, or some shareholder %ho has an interest to protect The mere fact that the compensation paid under this contract is in e*cess of %hat, in the full light of history, may #e considered appropriate is not a proper consideration for this court, and supplies no ground for interfering %ith its performance -ighth cause of action: Article HG of the #y;la%s in effect requires that persons elected to the #oard of directors must #e holders of shares of the paid up $alue of P7,GGG %hich shall #e held as security may #e put up in the #ehalf of any director #y some other holder of shares in the amount stated Article H? of the #y;la%s declares that the directors %ai$e their right as shareholders to recei$e loans from the association +t is asserted that article HG is o#jectiona#le in that, under the requirement for security, a poor mem#er, or %age;earner, cannot ser$e as director, irrespecti$e of other qualifications and that as a matter of fact only men of means actually sit on the #oard Article H? is critici!ed on the ground that the pro$ision requiring directors to renounce their right to loans unreasona#ly limits their rights and pri$ileges as mem#ers There is nothing of $alue in either of these suggestions Section 5> of the Corporation 0a% e*pressly gi$es the po%er to the corporation to pro$ide in its #y;la%s for the qualifications of directors) and the requirement of security from them for the proper discharge of the duties of their office, in the manner prescri#ed in article HG, is highly prudent and in conformity %ith good practice Article H?, prohi#iting directors from ma(ing loans to themsel$es, is of course designed to pre$ent the possi#ility of the looting of the corporation #y unscrupulous directors 1inth cause of action: the respondent has a#used its franchise in issuing =special= shares ,pon e*amination of the nature of the special shares in the light of American usage, it %ill #e found that said shares are precisely the same (ind of shares that, in some American jurisdictions, are generally (no%n as ad$ance payment shares) and if close attention #e paid to the language used in the last sentence of section >H8 of the Corporation 0a%, it %ill #e found that special shares %here e$idently created for the purpose of meeting the condition caused #y the prepayment of dues that is there permitted The language of this pro$ision is as follo% =payment of dues or interest may #e made in ad$ance, #ut the corporation shall not allo% interest on such ad$ance payment at a greater rate than si* per centum per annum nor for a longer period than one year = Tenth cause of action: that the defendant is pursuing a policy of depreciating, at the rate of >G per centum per annum, the $alue of the real properties acquired #y it at its sales) and it is alleged that this rate is e*cessi$e There is no positi$e pro$ision of la% prohi#iting the association from %riting off a reasona#le amount for depreciation on its assets for the purpose of determining its real profits) and article HJ of its #y;la%s e*pressly authori!es the #oard of directors to determine each year the amount to #e %ritten do%n upon the e*penses of installation and the property of the corporation There can #e no question that the po%er to adopt such a #y;la% is

em#raced %ithin the po%er to ma(e #y;la%s for the administration of the corporate affairs of the association and for the management of its #usiness, as %ell as the care, control and disposition of its property 9Act 1o >J7A, sec >@ CHD: The Attorney;Feneral questions the e*ercise of the direction confided to the #oard) and it is insisted that the e*cessi$e depreciation of the property of the association is o#jectiona#le in se$eral respects, #ut mainly #ecause it tends to increase unduly the reser$es of the association, there#y frustrating the right of the shareholders to participate annually and equally in the earnings of the association +f the criticism contained in the #rief of the Attorney;Feneral upon the practice of the respondent association %ith respect to depreciation #e %ell founded, the 0egislature should supply the remedy #y defining the e*tent to %hich depreciation may #e allo%ed #y #uilding and loan associations Certainly this court cannot underta(e to control the discretion of the #oard of directors of the association a#out an administrati$e matter as to %hich they ha$e legitimate po%er of action -le$enth and t%elfth causes of action: The specification in the ele$enth cause of action is that the respondent maintains e*cessi$e reser$e funds 97M of the net profits each year:, and in the t%elfth cause of action that the #oard of directors has settled upon the unla%ful policy of paying a straight annual di$idend of >G per centum, regardless of losses suffered and profits made #y the corporation and in contra$ention of the requirements of section >88 of the Corporation 0a% +t is true that the corporation la% does not e*pressly grant this po%er, #ut %e thin( it is to #e implied +t is a fact of common o#ser$ation that all commercial enterprises encounter periods %hen earnings fall #elo% the a$erage, and the prudent manager ma(es pro$ision for such contingencies To regard all surplus as profit is to neglect one of the primary canons of good #usiness practice Euilding and loan associations, though among the most solid of financial institutions, are ne$ertheless su#ject to $icissitudes Fluctuations in the di$idend rate are highly detrimental to any fiscal institutions, %hile uniformity in the payments of di$idends, continued o$er long periods, supplies the surest foundations of pu#lic confidence *** &ur conclusion is that the respondent has the po%er to maintain the reser$es critici!ed in the ele$enth and t%elfth counts of the complaint) and at any rate, if it #e supposed that the reser$es referred to ha$e #ecome e*cessi$e, the remedy is in the hands of the 0egislature +t is no proper function of the court to arrogate to itself the control of administrati$e matters %hich ha$e #een confided to the discretion of the #oard of directors Thirteenth cause of action: that the respondent association has made loans %hich, to the (no%ledge of the associations officers %ere intended to #e used #y the #orro%ers for other purposes than the #uilding of homes There is no statute here e*pressly declaring that loans may #e made #y these associations solely for the purpose of #uilding homes &n the contrary, the #uilding of homes is mentioned in section >H> of the Corporation 0a% as only one among se$eral ends %hich #uilding and loan associations are designed to promote Furthermore, section >8> of the Corporation 0a% e*pressly authorities the Eoard of directors of the association from time to time to fi* the premium to #e charged Fourteenth cause of action: that the loans made #y the defendant for purposes other than #uilding or acquiring homes ha$e #een e*tended in e*tremely large amounts and to %ealthy persons and large companies The la% states no limit %ith respect to the si!e of the loans to #e made #y the association That matter is confided to the discretion of the #oard of directors) and this court cannot arrogate to itself a control o$er the discretion of the chosen officials of the company +f it should #e thought %ise in the future to put a limit upon the amount of loans to #e made to a single person or entity, resort should #e had to the 0egislature) it is not a matter amena#le to judicial control Fifteenth cause of action: that upon the e*piration of the franchise of the association through the efflu*ion of time, or earlier liquidation of its #usiness, the accumulated reser$es and other properties %ill accrue to the founder, or his heirs, and the then directors of the corporation and to those persons %ho may at that time to #e holders of the ordinary and special shares of the corporation This cause of action is not directed to any positi$e misdemeanor supposed to ha$e #een committed #y the association +t has e*clusi$e relation to %hat may happen some thirty;fi$e years hence %hen the franchise e*pires, supposing of course that the corporation should not #e reorgani!ed and continued after that date +t seems to us that this is matter that may #e left to the pre$ision of the directors or to legislati$e action if it should #e deemed e*pedient to require the gradual suppression of the reser$e funds as the time for dissolution approaches +t is no matter for judicial interference, and much less could the resumption of the franchise on this ground #e justified Si*teenth cause of action: that $arious loans no% outstanding ha$e #een made #y the respondent to corporations and partnerships, and that these entities ha$e in some instances su#scri#ed to shares in the respondent for the sole purpose of o#taining such loans +n section >H@ of the Corporation 0a% it is declared that =any person= may #ecome a stoc(holder in #uilding and loan associations The %ord =person= appears to #e here used in its general sense, and there is nothing in the conte*t to indicate that the e*pression is used in the restricted sense of #oth natural and artificial persons, as indicated in section 5 of the Administrati$e Code 4e %ould not say that the %ord =person= or persons,= is to #e ta(en in this #road sense in e$ery part of the Corporation 0a% Se$enteenth cause of action: that in disposing of real estates purchased #y it in the collection of its loans, the defendant has in $arious occasions sold some of the said real estate on credit, transferring the title thereto to the purchaser) that the properties sold are then mortgaged to the defendant to secure the payment of the purchase price, said amount #eing considered as a loan, and carried as such in the #oo(s of the defendant, and that se$eral such o#ligations are still outstanding +t is further charged that the persons and entities to %hich said properties are sold under the condition charged are not mem#ers or shareholders nor are they made mem#ers or shareholders of the defendant This part of the complaint is #ased upon a mere technicality of #oo((eeping The central idea in$ol$ed in the discussion is the pro$ision of the Corporation 0a% requiring loans to #e stoc(holders only and on the security of real estate and shares in the corporation, or of shares alone +t seems to #e supposed that, %hen the respondent sells property acquired at its o%n foreclosure sales and ta(es a mortgage to secure the deferred payments, the o#ligation of the purchaser is a true loan, and hence prohi#ited Eut in requiring the respondent to sell real estate %hich it acquires in connection

%ith the collection of its loans %ithin fi$e years after recei$ing title to the same, the la% does not prescri#e that the property must #e sold for cash or that the purchaser shall #e a shareholder in the corporation In conclusion, the respondent is enjoined in the future from administering real property not owned by itself, except as may be permitted to it by contract when a borrowing shareholder defaults in his obligation. In all other respects the complaint is dismissed 6?G: Pi,ov-n- et -l. vs. The 5e #- R-=- Ste-=ship Co. 6%0597 0( Phil 115 Facts: Plaintiff herein are the minor children of the late -nrico Piro$ano represented #y their mother and judicial guardian -stefania 2 Piro$ano They see( to enforce certain resolutions adopted #y the Eoard of Directors and stoc(holders of the defendant company gi$ing to said minor children of the proceeds of the insurance policies ta(en on the life of their deceased father -nrico Piro$ano %ith the company as #eneficiary Defendant<s main defense is: that said resolutions and the contract e*ecuted pursuant thereto are ultra $ires, and, if $alid, the o#ligation to pay the amount gi$en is not yet due and demanda#le Defendant is a corporation duly organi!ed in accordance %ith la% %ith an authori!ed capital of P7GG,GGG, di$ided into 7,GGG shares, %ith a par $alue of P>GG each share The stoc(holders %ere: -ste#an de la 2ama, >,8GG shares, 0eonor de la 2ama, >GG shares, -stefania de la 2ama, >GG shares, and -liseo /er$as, Tomas Concepcion, Antonio F Iuanco, and Faudencio 3olasote %ith 7 shares each 0eonor and -stefania are daughters of Don -ste#an, %hile the rest his employees -stefania de la 2ama %as married to the late -nrico Piro$ano and to them four children %ere #orn %ho are the plaintiffs in this case -nrico Piro$ano #ecame the president of the defendant company and under his management the company gre% and progressed until it #ecame a multi;million corporation #y the time Piro$ano %as e*ecuted #y the Iapanese during the occupation &n May >@, >AJ>, the capital stoc( of the corporation %as increased to P5,GGG,GGG, after %hich a >GG per cent stoc( di$idend %as declared Su#sequently, or #efore the out#rea( of the %ar , ne% stoc( di$idends of 5GG per cent and @@ >N@ per cent %ere again declared &n Decem#er J, >AJ>, the capital stoc( %as once more increased to P7,GGG,GGG ,nder Piro$ano<s management, the assets of the company gre% and increased from an original paid up capital of around P5JG,GGG to P>7,7@8,G5J @H #y Septem#er @G, >AJ> Don -ste#an de la 2ama, %ho practically o%ned and controlled the stoc( of the defendant corporation, distri#uted his shareholding among his fi$e daughters, namely, 0eonor, -stefania, 0ourdes, 0olita and Conchita and his %ife 1ati$idad Aguilar so that, at that time, or on Iuly >G, >AJ?, the stoc(holding of the corporation stood as follo%s: -ste#an de la 2ama, 8?A shares, 0eonor de la 2ama, @,@H7 shares, -stefania de la 2ama, @,@?8 shares, 0ourdes de la 2ama, @,@?8 shares, 0olita de la 2ama, @,@?8 shares, Conchita de la 2ama, @,@H? shares, and 1ati$idad Aguilar, 5,>@? shares The other stoc(holders , namely, -liseo /er$as, Tomas Concepcion, Antonio Iuanco, and Iose Aguilar, %ho %ere merely employees of Don -ste#an, %ere gi$en JG shares each, %hile Pio Pedrosa, Marcial P 0ichauco and 2afael 2oces, one share each, #ecause they merely represented the 1ational De$elopment Company This Company %as gi$en representation in the Eoard of Directors of the corporation #ecause at that time the latter had an outstanding #onded inde#tedness to the 1ational De$elopment Company This #onded inde#tedness %as incurred on Fe#ruary 5?, >AJG and %as in the amount of PH,7GG GG The #ond held #y the 1ational De$elopment Company %as redeema#le %ithin a period of 5G years from March >, >AJG, #earing interest at the rate of 7 per cent per annum To secure said #onded inde#tedness, all the assets of the De la 2ama Steamship Co , +nc , and properties of Don -ste#an de la 2ama, as %ell as those of the /ijos de la 2ama and Co , +nc , a sister corporation o%ned #y Don -ste#an and his family, %ere mortgaged to the 1ational De$elopment Company Payments made #y the corporation under the management of Piro$ano reduced this #onded inde#tedness to P@,5?G,877 HH ,pon arrangement made %ith the 1ational De$elopment Company, the outstanding #onded inde#tedness %as con$erted into non;$oting preferred shares of stoc( of the De la 2ama company under the e*press condition that they %ould #ear affi*ed cumulati$e di$idend of ? per cent per annum and %ould #e redeema#le %ithin >7 years This con$ersion %as carried out on Septem#er 5@, >AJA, %hen the 1ational De$elopment Company e*ecuted a =Deed of Termination of Trust and 2elease of Mortgage= in fa$or of the De la 2ama company The immediate effect of this con$ersion %as the released from incum#rance of all the properties &f Don -ste#an and of the /ijos de + de la 2ama and Co , +nc , %hich %as apparently fa$ora#le to the interests of the De la 2ama company, #ut, on the other hand, it resulted in the incon$enience that, as holder of the preferred stoc(, the 1ational De$elopment Company, %as gi$en to the right to JG per cent of the mem#ership of the Eoard of Directors of the De la 2ama company, %hich meant an increase in the representation of the 1ational De$elopment Company from 5 to J of the A mem#ers of said Eoard of Directors The first resolution granting to the Piro$ano children the proceeds of the insurance policies ta(en on his life #y the defendant company %as adopted #y the Eoard of Directors at a meeting held on Iuly >G, >AJ? This grant %as called in the resolution as =Special Payment to Minor /eirs of the late -nrico Piro$ano= The Eoard of Directors of the De la 2ama company, as a consequence of the change of attitude of Don -ste#an 92eason: if the Piro$ano children %ould gi$en shares of stoc( in lieu of the amount to #e donated, the $oting strength of the fi$e daughters of Don -ste#an in the company %ould #e ad$ersely affected in the sense that Mrs Piro$ano %ould #e ad$ersely affected in the sense that Mrs Piro$ano %ould ha$e a $oting po%er t%ice as much as that of her sisters: , adopted a resolution changing the form of the donation to the Piro$ano children from a donation of J,GGG shares of stoc( as originally planned into a renunciation in fa$or of the children of all the company<s =right, title, and interest as #eneficiary in and to the proceeds of the a#o$ementioned life insurance policies=, su#ject to the e*press condition that said proceeds should #e retained #y the company as a loan dra%ing interest at the rate of 7 per cent per annum and paya#le to the Piro$ano children after the company =shall ha$e first settled in full the #alance of its present remaining #onded inde#tedness in the sum of appro*imately P7,GGG,GGG This resolution %as concurred in #y the representati$es of the 1ational De$elopment Company

The Eoard of Directors appro$ed a resolution pro$iding therein that instead of the interest on the loan #eing paya#le, together %ith the principal, only after the company shall ha$e first settled in full its #onded inde#tedness, said interest may #e paid to the Piro$ano children =%hene$er the company is in a position to met said o#ligation=, and on Fe#ruary 5?, >AJ8, Mrs Piro$ano e*ecuted a pu#lic document in %hich she formally accepted the donation The Dela 2ama company too( =official notice= of this formal acceptance at a meeting held #y its Eoard of Directors on Fe#ruary 5?, >AJ8 +n connection %ith the a#o$e negotiations, the Eoard of Directors too( up at its meeting on Iuly 57, >AJA, the proposition of Mrs Piro$ano to #uy the house at 1e% 2ochelle, 1e% Bor(, o%ned #y the Dem%ood 2ealty, a su#sidiary of the De la 2ama company at its original costs of OH7,GGG, %hich %ould #e paid from the funds held in trust #elonging to her minor children After a #rief discussion relati$e to the matter, the proposition %as appro$ed in a resolution adopted on the same date The President of the corporation, Sergio &smePa, Ir , addressed an inquiry to the Securities and -*change Commission as(ing for opinion regarding the $alidity of the donation of the proceeds of the insurance policies to the Piro$ano children &n Iune 5G, >A7G that office rendered its opinion that the donation %as $oid #ecause the corporation could not dispose of its assets #y gift and therefore the corporation acted #eyond the scope of its corporate po%ers +ssues: > +s the grant of the proceeds of the insurance policies ta(en on the life of the late -nrico Piro$ano as em#odied in the resolution of the Eoard of Directors of defendant corporation adopted on Ianuary ?, >AJH and Iune 5J, >AJH a remunerati$e donation as found #y the lo%er court. 5 +n the affirmati$e case, has that donation #een perfected #efore its rescission or nullification #y the stoc(holders of the corporation on March 8, >A7>. @ Can defendant corporation gi$e #y %ay of donation the proceeds of said insurance policies to the minor children of the late -nrico Piro$ano under the la% or its articles of corporation, or is that donation an ultra $ires act. J /as the defendant corporation, #y the acts it performed su#sequent to the granting of the donation, deli#erately pre$ented the fulfillment of the condition precedent to the payment of said donation such that it can #e said it has forfeited its right to demand its fulfillment and has made the donation entirely due and demanda#le. /eld: > B-S From the mass of e$idence on hand, such a donation has #een gi$en the full indorsement and encouraging support #y Don -ste#an de la 2ama %ho %as practically the o%ner of the corporation The corporation thought of gi$ing the donation to the children of the late -nrico Piro$ano #ecause he =%as to a large e*tent responsi#le for the rapid and $ery successful de$elopment and e*pansion of the acti$ities of this company=) and also #ecause he =left practically nothing to his heirs and it is #ut fit and proper that this company %hich o%es so much to the deceased should ma(e some pro$ision to his children=, and so, the donation %as gi$en =out of gratitude to the late -nrico Piro$ano = The SC need not stretch their imagination to see that a grant or donation gi$en under these circumstances is remunerati$e in nature in contemplation of la%: ; That %hich is made to a person in consideration of his merits or for ser$ices rendered to the donor, pro$ided they do not constitute reco$era#le de#ts, or that in %hich a #urden less than the $alue of the thing gi$en is imposed upon the donee, is also a donation = 9Art ?>A, old Ci$il Code : ; +n donations made to a person for ser$ices rendered to the donor, the donor<s %ill is mo$ed #y acts %hich directly #enefit him The moti$ating cause is gratitude, ac(no%ledgment of a fa$or, a desire to compensate A donation made to one %ho sa$ed the donor<s life, or a la%yer %ho renounced his fees for ser$ices rendered to the donor, %ould fall under this class of donations These donations are called remunerati$e donations 5 B-S There can #e no dou#t from the foregoing relation of facts the donation %as a corporate act carried out #y the corporation not only %ith the sanction of its Eoard of Directors #ut also of its stoc(holders +t is e$ident that the donation has reached the stage of perfection %hich is $alid and #inding upon the corporation and as such cannot #e rescinded unless there is e*ists legal grounds for doing so +n this case, the SC sa% none The t%o reasons gi$en for the rescission of said donation in the resolution of the corporation adopted on March 8, >A7>, to %it: ; That the corporation failed to comply %ith the conditions to %hich the a#o$e donation %as made su#ject, and ; That in the opinion of the Securities and -*change Commission said donation is ultra $ires, are not, in our opinion, $alid and legal as to justify the rescission of a perfected donation These reasons cannot #e in$o(ed #y the corporation to rescind or set at naught the donation, and the only %ay #y %hich this can #e done is to sho% that the donee has #een in default, or that the donation has not #een $alidly e*ecuted, or is illegal or ultra $ires, and such is not the case as %e %ill see hereafter The SC therefore declared that the resolution appro$ed #y the stoc(holders of the defendant corporation on March 8, >A7> did not and cannot ha$e the effect of nullifying the donation in question @ Such donation is an ultra $ires act Q After e*amining the company's articles of incorporation, the SC found that the corporation %as gi$en #road and almost unlimited po%ers to carry out the purposes for %hich it %as organi!ed among them, 9>: =To in$est and deal %ith the moneys of the company not immediately required, in such manner as from time to time may #e determined= and, 95: =to aid in any other manner any person, association, or corporation of %hich any o#ligation or in %hich any interest is held #y this corporation or in the affairs or prosperity of %hich this corporation has a la%ful interest = The %orld deal is #road enough to include any manner of disposition, and refers to moneys not immediately required #y the corporation, and such disposition may #e made in such manner as from time to time may #e determined #y the corporations The

donation in question undou#tedly comes %ithin the scope of this #road po%er for it is a fact appearing in the e$idence that the insurance proceeds %ere not immediately required %hen they %ere gi$en a%ay ,nder the second #road po%er %hich is, to aid in any other manner any person in the affairs and prosperity of %hom the corporation has a la%ful interest, the record of this case is replete %ith instances %hich clearly sho% that the corporation (ne% %ell its scope and meaning so much so that, %ith the e*ception of the instant case, no one has lifted a finger to dispute their $alidity Franting arguendo that the donation gi$en #y Piro$ano children is outside the scope of the po%ers of the defendant corporation, or the scope of the po%ers that it may e*ercise under the la%, or it is an ultra $ires act, still it may said that the same cannot #e in$alidated, or declared legally ineffecti$e for the reason alone, it appearing that the donation represents not only the act of the Eoard of Directors #ut of the stoc(holders themsel$es as sho%n #y the fact that the same has #een e*pressly ratified in a resolution duly appro$ed #y the latter Ey this ratification, the infirmity of the corporate act, it may has #een o#literated there#y ma(ing the cat perfectly $alid and enforcea#le This is specially so if the donation is not merely e*ecutory #ut e*ecuted and consummated and no creditors are prejudice, or if there are creditors affected, the latter has e*pressly gi$en their confirmity A distinction should #e made #et%een corporate acts or contracts %hich are illegal and those %hich are merely ultra $ires The former contemplates the doing of an act %hich is contrary to la%, morals, or pu#lic policy or pu#lic duty, and are, li(e similar transactions #et%een the indi$iduals $oid They cannot ser$e as #asis of a court action, nor require $alidity An ultra $ires acts on the other hand, or those %hich are not illegal and $oid a# initio, #ut are merely %ithin are not illegal and $oid a# initio, #ut are not merely %ithin the scope of the articles of incorporation, are merely $oida#le and may #ecome #inding and enforcea#le %hen ratified #y the stoc(holders Since it is not contended that the donation under consideration is illegal, or contrary to any of the e*press pro$ision of the articles of incorporation, nor prejudicial to the creditors of the defendant corporation, the SC cannot #ut logically conclude, e$en if the donation is ultra $ires, is not $oid, and if $oida#le its infirmity has #een cured #y ratification and su#sequent acts of the defendant corporation The defendant corporation, therefore, is no% pre$ented or estopped from contesting the $alidity of the donation J 1& The SC is of the opinion that the finding of the lo%er court that the failure of the defendant corporation to comply %ith the condition of the donation is merely due to its desistance from o#eying the mandate of the majority of the stoc(holders and not to lac( of funds, or to lac( of authority, has no foundation in la% or in fact, and, therefore, its conclusion that #ecause of such desistance that condition should #e deemed as fulfilled and the payment of the donation due and demanda#le, is not justified +n this respect, the SC re$ersed the decision of the lo%er court 1ote: Factors that the SC considered %hy the failure to immediately redeem the preferred shares issued to the 1ational De$elopment Company as desired #y the minor children of the late -nrico Piro$ano cannot or should not #e attri#uted to a mere desire on the part of the corporation to delay the redemption, or to prejudice the interest of the minors, #ut rather to protect the interest of the corporation itself : >: The te*t of the $ery resolution appro$ed #y the 1ational De$elopment Company on Fe#ruary >8, >AJA %hich prescri#ed the terms and conditions under %hich it e*pressed its conformity to the con$ersion of the #onded inde#tedness into preferred shares of stoc( 5: The =desire of the president of the corporation to preser$e and continue the go$ernment participation in the company= %hich e$en the lo%er court found it to #e meritorious, %hich is one %ay #y %hich it could continue recei$ing the patronage and protection of the go$ernment @: The redemption of the shares does not depend on the %ill of the corporation alone #ut to a great e*tent on the %ill of a third party, the 1ational De$elopment Company

#(%: !.R. "o. #$1711%

M-,ch %&/ %011

+RE5 M. 3AR5E"/ et -l vs. BE"!CET CO"SO#45ATE5 M4"4"! COMPA"D/ et -l. STREET/ :.:

FACTS: The principal purpose of the original action %as to annul a certificate co$ering ?GG,GGG shares of the stoc( of the Ealatoc Mining Co , %hich ha$e #een issued to the Eenguet Consolidated Mining Co , and to secure to the Ealatoc Mining Co , the restoration of a large sum of money alleged to ha$e #een unla%fully collected #y the Eenguet Consolidated Mining Co , %ith legal interest, after deduction therefrom of the amount e*pended #y the latter company under a contract #et%een the t%o companies, #earing date of March A, >A5H

The complaint %as after%ards amended so as to include a prayer for the annulment of this contract Shortly prior to the institution of this la%suit, the Eenguet Consolidated Mining Co , transferred to / - 2en!, as trustee, the certificate for ?GG,GGG shares of the Ealatoc Mining Co %hich constitute the principal su#ject matter of the action This %as done apparently to facilitate the splitting up to the shares in the course of the sale or distri#ution To pre$ent this the plaintiffs, upon filing their original complaint, procured a preliminary injunction restraining the defendants, their agents and ser$ants, from selling, assigning or transferring the ?GG,GGG shares of the Ealatoc Mining Co , or any part thereof, and from remo$ing said shares from the Philippine +slands

+SS,-: 4hether or not /arden's suit should prosper

2,0+1F: Eriefly, the legal point upon %hich the action is planted is that it is unla%ful for the Eenguet Company to hold any interest in a mining corporation and that the contract #y %hich the interest here in question %as acquired must #e annulled, %ith the consequent o#literation of the certificate issued to the Eenguet Company and the corresponding enrichment of the shareholders of the Ealatoc Company 4hen the Philippine +slands passed to the so$ereignty of the ,nited States, in the attention of the Philippine Commission %as early dra%n to the fact that there is no entity in Spanish la% e*actly corresponding to the notion of the corporation in -nglish and American la%) and in the Philippine Eill, appro$ed Iuly >, >AG5, the Congress of the ,nited States inserted certain pro$isions, under the head of Franchises, %hich %ere intended to control the la%ma(ing po%er in the Philippine +slands in the matter of granting of franchises, pri$ileges and concessions The e$ident purpose of the commission %as to introduce the American corporation into the Philippine +slands as the standard commercial entity and to hasten the day %hen the sociedad anonima of the Spanish la% %ould #e o#solete That statute is a sort of codification of American corporate la% For the purposes of general description only, it may #e stated that the sociedad anonima is something $ery much li(e the -nglish joint stoc( company, %ith features resem#ling those of #oth the partnership is sho%n in the fact that sociedad, the generic component of its name in Spanish, is the same %ord that is used in that language to designate other forms of partnership, and in its organi!ation it is constructed along the same general lines as the ordinary partnership +t is therefore not surprising that for purposes of loose translation the e*pression sociedad anonima has not infrequently the other hand, the affinity of this entity to the American corporation has not escaped notice, and the e*pression sociedad anonima is no% generally translated #y the %ord corporation Eut %hen the %ord corporation is used in the sense of sociedad anonima and close discrimination is necessary, it should #e associated %ith the Spanish e*pression sociedad anonima either in a parenthesis or connected #y the %ord RorS This latter de$ice %as adopted in Sections H7 and >A> of the Corporation 0a% As it %as the intention of our la%ma(ers to stimulate the introduction of the American Corporation into Philippine la% in the place of the sociedad anonima, it %as necessary to ma(e certain adjustments resulting from the continued co;e*istence, for a time, of the t%o forms of commercial entities Accordingly, in Section H7 of the Corporation 0a%, a pro$ision is found ma(ing the sociedad anonima su#ject to the pro$isions of the Corporation 0a% Rso far as such pro$isions may #e applica#leS, and gi$ing to the sociedades anonimas pre$iously created in the +slands the option to continue #usiness as such or to reform and organi!e under the pro$isions of the Corporation 0a% Again, in Section >A> of the Corporation 0a%, the Code of Commerce is repealed in so far as it relates to sociedades anonimas Thus, the inhi#ition contained in the original pro$ision against mem#ers of a corporation engaged in agriculture or mining from #eing interested in other corporations engaged in agriculture or in mining %as so modified as merely to prohi#it any such mem#er from holding more than fifteen per centum of the outstanding capital stoc( of another such corporation Moreo$er, the e*plicit prohi#ition against the holding #y any corporation 9e*cept for irrigation: of an interest in any other corporation engaged in agriculture or in mining %as so modified as to limit the restriction to corporations organi!ed for the purpose of engaging in agriculture or in mining

The defendant Eenguet Company has committed no ci$il %rong against the plaintiffs, and if a pu#lic %rong has #een committed, the directors of the Ealatoc Company, and the plaintiff /arden himself, %ere the acti$e inducers of the commission of that %rong The contract, supposing it to ha$e #een unla%ful in fact, has #een performed on #oth sides, #y the #uilding of the Ealatoc plant #y the Eenguet Company and the deli$ery to the latter of the certificate of ?GG,GGG shares of the Ealatoc Company There is no possi#ility of really undoing %hat has #een done 1o#ody %ould suggest the demolition of the mill The Ealatoc Company is secure in the possession of that impro$ement, and tal( a#out putting the parties in status quo ante #y restoring the consideration %ith interest, %hile the Ealatoc Company remains in possession of %hat it o#tained #y the use of that money, does not quite meet the case Also, to mulct the Eenguet Company in many millions of dollars in fa$or of indi$iduals %ho ha$e not the slightest equita#le right to that money in a proposition to %hich no court can gi$e a ready assent The most plausi#le presentation of the case of the plaintiffs proceeds on the assumption that only one of the contracting parties has #een guilty of a misdemeanor, namely, the Eenguet Company, and that the other party, the Ealatoc Company, is %holly innocent to participation in that %rong Thus it may #e seen that a corporation limited #y the la% or #y its charter has until the State acts e$ery po%er and capacity that any other indi$idual capa#le of acquiring lands, possesses The corporation may e*ercise e$ery act of o%nership o$er such lands) it may sue in ejectment or unla%ful detainer and it may demand specific performance +t has an a#solute title against all the %orld e*cept the State after a proper proceeding is #egun in a court of la%

#(): Bissell vs. Michi -n Southe,n )) "D )5&* %&(' FACTS: T%o railroad corporations contend that they transcended their o%n po%ers and $iolated their o%n organic la%s /ence, they should not #e held lia#le for the injury of the plaintiff %ho %as a passenger in one of their trains

+SS,-: 4&1 the contract made #et%een the t%o railroad corporations is $alid and as such can #e use a defense to e$ade the lia#ility against the passenger

/-0D: 1& The contract #et%een the t%o corporations %as an ultra $ires act /o%e$er, it is not one tainted %ith illegality, therefore, the accompanying rights and o#ligations #ased on the contract of carriage #et%een them and the plaintiff cannot #e a$oided #y raising such a defense