G.R. No.

L-37331
Fred M. HARDEN, J.D. HIGHSMITH, and JOHN C. HART, in their own behalf and in that all other stockholders of the
Balatoc Mining Company,
vs.
BENGUET CONSOLIDATED MINING COMPANY, BALATOC MINING COMPANY, H. E. RENZ, JOHN W. JAUSSERMANN, and
A. W. BEAM
March 18, 1933

Facts: The Benguet Consolidated Mining Co. was organized in June, 1903, as a sociedad anonima under the Spanish law;
while the Balatoc Mining Co. was organized in December 1925, as a corporation under the Corporation Law (Act No.
1459). Both entities were organized for the purpose of engaging in the mining of gold in the Philippine Islands.

The properties acquired by Balatoc Mining Co. were largely undeveloped and the original stockholders were unable to
supply the means needed for profitable operation. Balatoc entered into a contract with Benguet on March 9, 1927, to
secure the capital necessary to the development of the Balatoc property. Under the contract Benguet was to proceed
with the development and construct a milling plant for the Balatoc mine, erect an appropriate power plant, aerial
tramlines and other surface buildings as might be needed to operate the mine. In return for this it was agreed that the
Benguet should receive shares of Balatoc.

Benguet had spent P1,417,952.15 for the development of Balatoc. In compensation for this work a certificate for 600k
shares of the stock of Balatoc with a par value of P600,000 has been delivered to the Benguet, and the excess value of
the work in the amount of P817,952.15 has been returned to the Benguet in cash.

Due to the improvements made on the company’s property, the value of the shares of Balatoc increased in the market
(from P1.00 to P11.00) and the dividends of the company enriched its stockholders. As soon as the success of the
company became apparent, Harden (owner of thousands of shares of Balatoc) questioned the transfer of 600,000
shares to Benguet. Harden seeks to annul the certificate covering the 600,000 shares of stock transferred to Benguet.

Harden contends that it is unlawful for Benguet to hold any interest in a mining corporation because in the former
Corporation Law (Act of Congress 1916) there is a provision which states that it is unlawful for a corporation engaged in
mining to be in any wise interested in any other corporation engaged in mining.

Issues: 1) WON the plaintiffs can maintain an action based upon the violation of law supposedly committed by the
Benguet Company.
2) If yes, is Benguet Company organized as a sociedad anonima, is a corporation within the meaning of the
language used by the Congress of the United States, and later by the Philippine Legislature.

Held:

1) No. The penalties imposed for the violation of the prohibition in question are of such nature that they can be
enforced only by a criminal prosecution or by an action of quo warranto. But these proceedings can be
maintained only by the Attorney-General in representation of the Government.

Company has committed no civil wrong against the plaintiffs, and if a public wrong has been committed, the
directors of the Balatoc Company, and the plaintiff Harden himself, were the active inducers of the commission
of that wrong. The contract, supposing it to have been unlawful in fact, has been performed on both sides.

2) Since the plaintiffs in this case have no right of action against the Benguet Company SC decided to forego any
discussion of whether a sociedad anonima created under Spanish law, such as the Benguet Company, is a
corporation within the meaning of the prohibitory provision. That important question should, in the Court’s
opinion, be left until it is raised in an action brought by the Government.
 Court Discussion:

Sociedad anonima is something very much like the English joint stock company, with features resembling
those a partnership.

Since the legislature intended to introduce the American Corporation into Philippine law in the place of the
sociedad anonima, they made necessary adjustments resulting from the continued co-existence, of the two
forms of commercial entities. Section 75 of the Corporation Law made the sociedad anonima subject to the
provisions of the Corporation Law in "so far as such provisions may be applicable", and giving to the
sociedades anonimas previously created the option to continue business as such or to reform and organize
under the provisions of the Corporation Law.

Section 191 of the Corporation Law repealed the Code of Commerce in so far as it relates to sociedades
anonimas in order to compel commercial entities thereafter organized to incorporate under the Corporation
Law. Another provision was added to the effect that existing sociedades anonimas, which elected to continue
their business as such, instead of reforming and reorganizing under the Corporation Law, should continue to be
governed by the laws that were in force prior to the passage of this Act "in relation to their organization and
method of transacting business and to the rights of members thereof as between themselves, but their
relations to the public and public officials shall be governed by the provisions of this Act."

Section 75 of the Act Congress of July 1, 1902 (Philippine Bill), generally prohibiting corporations engaged in
mining and members of such from being interested in any other corporation engaged in mining, was amended
by section 7 of Act No. 3518 of the Philippine Legislature, approved by Congress March 1, 1929. Provision was
modified to prohibit members of mentioned corporation from holding more than fifteen per centum of the
outstanding capital stock of another such corporation. Moreover, the explicit prohibition against the holding by
any corporation (except for irrigation) of an interest in any other corporation engaged in agriculture or in mining
was so modified as to limit the restriction to corporations organized for the purpose of engaging in agriculture or
in mining.

Corporation Law (Act No. 1459) did not contain any appropriate clause directly penalizing the act of a
corporation, a member of a corporation , in acquiring an interest contrary to paragraph (5) of section 13 of the
Act. The Philippine Legislature undertook to remedy this situation in section 3 of Act No. 2792 of the Philippine
Legislature, approved on February 18, 1919, but this provision was declared invalid by this court in Government
of the Philippine Islands vs. El Hogar Filipino (50 Phil., 399), for lack of an adequate title to the Act. Subsequently
the Legislature re-enacted substantially the same penal provision in section 21 of Act No. 3518, under a title
sufficiently broad to comprehend the subject matter. This part of Act No. 3518 became effective upon approval
by the Governor-General, on December 3, 1928, and it was therefore in full force when the contract now in
question was made.

This provision was inserted as a new section in the Corporation Law, forming section 1990 (A) of said Act as it now
stands. Omitting the proviso, which seems not to be pertinent to the present controversy, said provision reads as
follows:

SEC. 190 (A). Penalties. — The violation of any of the provisions of this Act and its amendments not otherwise penalized
therein, shall be punished by a fine of not more than five thousand pesos and by imprisonment for not more than five
years, in the discretion of the court. If the violation is committed by a corporation, the same shall, upon such violation being
proved, be dissolved by quo warranto proceedings instituted by the Attorney-General or by any provincial fiscal by order of
said Attorney-General: . . . .

Court of First Instance of the City of Manila dismissed the complaint. SC affirmed the CFI’s decision.