Carlos V Mindoro Sugar

IRINEO G.
CARLOS, plaintiff-appellant,
vs.
MINDORO SUGAR CO., ET AL.,
G.R. No. L-36207 October 26, 1932
FACTS: The plaintiff brought this action to recover from the defendants the value of four bonds, Nos.
1219, 1220, 1221, and 1222, with due and unpaid interest thereon, issued by the Mindoro Sugar
Company and placed in trust with the Philippine Trust Company which, in turn, guaranteed them for
value received. Said plaintiff appealed from the judgment rendered by the Court of First Instance of
Manila absolving the defendants from the complaint, excepting the Mindoro Sugar Company, which was
sentenced to pay the value of the four bonds with interest at 8 per cent per annum, plus costs.
Mindoro Sugar Company is a corporation constituted in accordance with the laws of the country.
According to its articles of incorporation one of its principal purposes was to acquire and exercise the
franchise granted by Act No. 2720 to George H. Fairchild, to substitute the organized corporation.
Philippine Trust Company is another domestic corporation its principal purpose, then, as its name
indicates, is to engage in the trust business.
The board of directors of the Philippine Trust Company, adopted a resolution authorizing its president,
among other things, to purchase the bonds in the Mindoro Sugar Company that 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.
Pursuance of this resolution, 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. Philippine Trust Company sold thirteen bonds, to Ramon Diaz. The Philippine Trust Company
paid the appellant, upon presentation of the coupons, the stipulated interest from the date of their
maturity then 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: WON PTC has the power to guarantee and does this act constitute an ultra vires act?
HELD: No. It is not, however, 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.
Ruling of the SC: Wherefore, the decision appealed from is reversed and the Philippine Trust Company
is sentenced to pay to the appellant the sum of four thousand dollars ($4,000) with interest at eight per
cent (8%) per annum from July 1, 1928 until fully paid, and the costs of both instances.

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IRINEO G.

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