Carlos Vs Mindoro Sugar

G.R. No.
L-36207 October 26, 1932

IRINEO G. CARLOS, plaintiff-appellant,
vs.
MINDORO SUGAR CO., ET AL., defendants-appellees.
Facts: The Mindoro Sugar Company is a corporation constituted in accordance with
the laws of the country and registered on July 30, 1917. The Philippine Trust
Company is another domestic corporation, registered on October 21, 1917. In its
articles of incorporation, some of its purposes are expressed thus: "To acquire by
purchase, subscription, or otherwise, and to invest in, hold, sell, or otherwise
dispose of stocks, bonds, mortgages, and other securities, or any interest in either,
or any obligations or evidences of indebtedness, of any other corporation or
corporations, domestic or foreign.
On November 17, 1917, the board of directors of the Philippine Trust Company,
adopted a resolution authorizing its president, among other things, to purchase at
par bonds in the value of P3,000,000 that the Mindoro Sugar Company was about to
issue, and to resell them, with or without the guarantee of said trust corporation, at
a price not less than par, and to guarantee to the Philippine National Bank the
payment of the indebtedness to said bank by the Mindoro Sugar Company up to
P2,000,000.
In pursuance of this resolution, on December 21, 1917, the Mindoro Sugar Company
executed in favor of the Philippine Trust Company the deed of trust transferring all
of its property to it in consideration of the bonds it had issued to the value of
P3,000,000. In consequence of this transaction, the bonds, with their coupons were
placed on the market and sold by the Philippine Trust Company. The Philippine Trust
Company paid the appellant, upon presentation of the coupons, the stipulated
interest from the date of their maturity until the 1st of July, 1928, when it stopped
payments; and thenceforth it alleged that it did not deem itself bound to pay such
interest or to redeem the obligation because the guarantee given for the bonds was
illegal and void.
Issue: Whether the Philippine Trust Company acquired the four bonds in question,
and whether as such it bound itself legally and acted within its corporate powers in
guaranteeing them.
Ruling: This question was answered in the affirmative. It is not ultra vires for a
corporation to enter into contracts of guaranty or suretyship where it does so in the
legitimate furtherance of its purposes and business. And it is well settled that where
a corporation acquires commercial paper or bonds in the legitimate transaction of
its business it may sell them, and in furtherance of such a sale it may, in order to
make them the more readily marketable, indorse or guarantee their payment.
"Whenever a corporation has the power to take and dispose of the securities of
another corporation, of whatsoever kind, it may, for the purpose of giving them a
marketable quality, guarantee their payment, even though the amount involved in
the guaranty may subject the corporation to liabilities in excess of the limit of
indebtedness which it is authorized to incur. A corporation which has power by its
charter to issue its own bonds has power to guarantee the bonds of another
corporation, which has been taken in payment of a debt due to it, and which it sells
or transfers in payment of its own debt, the guaranty being given to enable it to
dispose of the bond to better advantage. And so guaranties of payment of bonds
taken by a loan and trust company in the ordinary course of its business, made in
connection with their sale, are not ultra vires, and are binding."
When a contract is not on its face necessarily beyond the scope of the power of the
corporation by which it was made, it will, in the absence of proof to the contrary, be
presumed to be valid. Corporations are presumed to contract within their powers.
The doctrine of ultra vires, when invoked for or against a corporation, should not be
allowed to prevail where it would defeat the ends of justice or work a legal wrong. It
has been intimated according to section 121 of the Corporation Law, the Philippine
Trust Company, as a banking institution, could not guarantee the bonds to the value
of P3,000,000 because this amount far exceeds its capital of P1,000,000 of which
only one-half has been subscribed and paid.
This difficulty is easily obviated by bearing in mind that the banking operations are
not
the primary aim of said corporation, which is engaged essentially in the trust
business, and that the prohibition of the law is not applicable to the Philippine Trust
Company, for the evidence shows that Mindoro Sugar Company transferred all its
real property, with the improvements, to it, and the value of both, which surely
could not be less than the value of the obligation guaranteed, became a part of its
capital and assets; in other words, with the value of the real property transferred to
it, the Philippine Trust Company had enough capital and assets to meet the amount
of the bonds guaranteed with interest thereon.

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G.R. No.

L-36207 October 26, 1932

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