Govt. of the Philippine Islands v El Hogar

Government of the Philippine Islands v. El Hogar ,)H*R : Magsino, Patricia Marie C. G.R. No. L-26649 !"l# $%& $92'(  NOTES: 17 causes of action, tae note of nos. !,",#, an$ %  & a'out '( la)s )*PI+: Internal organization of corporation P*NEN)E: Street, J. ,+)/0 Original *ction *ction in t+e Supree Court • -uo )arranto procee$ing '( o/t. of t+e P+ilippine Islan$s against El 0ogar ilipino & purpose is to $epri/e it of its • corpor corporate ate franc+ franc+ise ise,, e2clu$ e2clu$ee it fro fro all corpor corporate ate rig+ts rig+ts,, an$ pri/il pri/ilege eges, s, an$ effect effect a final final $issol $issoluti ution on of t+e corporation El 0ogar organize$ un$er Sec. 1713145 *ct No. 1!"4, $e/ote$ to t+e su'6ect of 'uil$ing an$ loan associations, t+eir  • organization an$ a$inistration. a$inistration. T+e capital of t+e corporation )as not peritte$ to e2cee$ PM, 'ut *ct No. 8548 aen$e$ t+e statute, peritting • capitalization to t+e aount of ten illions. El 0ogar aen$e$ its *OI stating t+at t+e aount of capital ust not e2cee$ )+at +as 'een state$ in *ct No. 8548 • T+is resulte$ to El 0ogar El 0ogar +a/ing ",%8# s+are+ol$ers, 18",7"5 s+ares )it+ pai$3up /alue of P%.7M, t+e • corporation pai$ P7.1#M to its )it+$ra)ing stoc+ol$ers T+e o/ernent of t+e P+ilippine Islan$s file$ an action against El 0ogar $ue to t+e allege$ illegal +ol$ing title to • real propert( for a perio$ e2cee$ing fi/e 9" (ears after t+e sae )as 'oug+t in a foreclosure sale. Sec. 19" of t+e Corporation ;a) states t+at corporations ust $ispose of real estate o'taine$ )it+in " (ears fro recei/ing t+e title T+e P+ilippine o/ernent no) )ants t+at El 0ogar 'e e2clu$e$ fro all corporate rig+ts an$ pri/ileges an$ effect a • final $issolution of sai$ corporation  BACKGROUND  BACKGROUND OF RECORDED RECORDED MORTGAGE: MORTGAGE: • 

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 El Hogar was the holder of a recorded recorded mortgage on a San Clemente land as security for a P24K loan to El Hogar., Hogar., but shareholders and borrowers defaulted in payment so El Hogar foreclosed the mortgage and purchased the land  during the auction sale.   deed of con!eyance in fa!or of El Hogar was e"ecuted and sent to the #egister of $eeds of %arlac with a re&uest  that the certificate of title be cancelled and a new one be issued in fa!or of El Hogar from the #egister of $eeds of  %arlac.  'o reply was recei!ed so El Hogar filed a complaint with the Chief of the (eneral )and #egistration *ffice. %he certificate of title to the San Clemente land was recei!ed by El Hogar and a board resolution authori+ing en+on to  find a buyer was issued  issued   lcantara, the buyer of the land, was gi!en e"tension of time to ma-e payment but defaulted so the contract treated  rescinded. rescinded. Efforts were made to find another buyer. El Hogar ac&uired title in $ecember /20 until the property property was  finally sold to 1elipa 1elipa lberto in uly /23  %he inter!al e"ceeded  years but the period did not commence to run until 5ay 6, /2 when the register of deeds deli!ered deli!ered the new certificate of title.

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of 0l >> which shall be held as security is ob4ectionable since a poor member or wage earner  cannot serve as a director irrespective of other ualifications ' C(*T +,.! ( /0*,T Corporation &aw expressly gives the power to the corporation to provide in its by-laws for the ualification of its directors and the reuirement of security from them for the proper discharge of the duties of their office in the manner prescribed in Art" 7> is highly prudent and in conformity with good practice" @) That respondent abused its franchise in issuing 3special5 shares alleged to be illegal and inconsistent with the plan and purposes of building and loan associations ' C(*T +,.! ( /0*,T The said special shares are generally 8nown as advance payment shares which were evidently created for the purpose of meeting the condition caused by the prepayment of dues that is permitted" !ec" 176 of Corpo &aw

allows payment of dues or interest to be paid in advance but the corporation shall not allow interest on advance payment grater than ; per annum nor for a period longer than one year" The amount is satisfied by applying a portion of the shareholder’s participation in the annual earnings" The mission of special shares does not involve any violation of the principle that the shares must be sold at par" 1>) That in ma8ing purchases at foreclosure sales constituting as security for % of the loans 0l percent per annum the value of the real properties it acuired and that this rate is excessive ' C(*T +,.! ( /0*,T The board of directors possesses discretion in this matter" There is no provision of law prohibiting the association from writing off a reasonable amount for depreciation on its assets for the purpose of determining its real profits"  Art" 7 of its by-laws expressly authori:es the board of directors to determine each year the amount to be written down upon the expenses for the installation and the property of the corporation" The court cannot control the discretion of the board of directors about an administrative matter as to which they have no legitimate power of  action" 11) That respondent maintains excessive reserve funds ' C(*T +,.! ( /0*,T The function of this fund is to insure stoc8holders against losses" =hen the reserves become excessive the remedy is in the hands of the &egislature" o prudent person would be inclined to ta8e a policy in a company which had conducted its affairs poorly that it only retained a fund barely sufficient to pay its present liabilities and was in a condition where any change by the reduction of interest upon or depreciation in the value of securities or  increase of mortality would render it insolvent and sub4ect to be placed in the hands of a receiver" 12) That the board of directors has settled upon the unlawful policy of paying a straight annual dividend of 1> percent per centum regardless of losses suffered and profits made by the corporation in contravention with the reuirements of !ec" 166 of the Corporation law ' C(*T +,.! ( /0*,T  As provided in the previous cause of action the board of directors shall determine the profits and losses and this means that they shall exercise the usual discretion of good businessmen in allocating a portion of the annual profits to purposes needful of the welfare of the association" The law contemplates distribution of earnings and losses after legitimate obligations have been met" 1#) That 0l