Corporation Law Digest Sumaway, Christine Joyce L (2B) Carlos V Mindoro Sugar Co Facts

Corporation Law Digest
Sumaway, Christine Joyce L (2B)
Carlos v Mindoro Sugar Co
Facts:
The Philippine Trust Company is another domestic corporation. It is primarily organized

as a trust corporation, but is secondarily engaged in banking. In its articles of incorporation,
Exhibit A, some of its purposes are expressed thus: “Without in any particular limiting any of the
powers of the corporation, it is hereby expressly declared that the corporation shall have power
to make any guaranty respecting the dividends, interest, stock, bonds, mortgages, notes, contracts
or other obligations of any corporation, so far as the same may be permitted by the laws of the
Philippine Islands now or hereafter in force.”
The board of directors of the Philippine Trust Company adopted a resolution authorizing
its president, among other things, to purchase at par and in the name and for the use of the trust
corporation all or such part as he may deem expedient, of the 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 or
Charles J. Welch and Horace Havemeyer, up to P2,000,000.
In pursuance of this resolution, the Mindoro Sugar Company executed in favor of the
Philippine Trust Company the deed of trust, Exhibit 6, transferring all of its property to it in
consideration of the bonds it had issued to the value of P3,000,000.
The Philippine Trust Company paid the appellant, upon presentation of the coupons, the
stipulated interest from the date of their maturity. 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.
Issues:
1)Did the Philippine Trust Company have the power to guaranty the payment of the
bonds in question? YES
Ruling:
Did the Philippine Trust Company have the power to guaranty the payment of the
bonds in question? YES
The Philippine Trust Company, although secondarily engaged in banking, was primarily
organized as a trust corporation with full power to acquire personal property such as the bonds in
question, according to both section 13 (par. 5) of the Corporation Law and its duly registered by-
laws and articles of incorporation; secondly, that being thus authorized to acquire the bonds, it
was given implied power to guarantee them in order to place them upon the market under better,
more advantageous conditions, and thereby secure the profit derived from their sale.
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.
The court cites:
"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." (Coleman vs.
Hotel de France Co., 29 Phil., 323.)
"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." (Broadway Nat. Bank vs. Baker, 57 N.E., p. 603.)
It has been intimated that 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, as we stated above, 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.
Critic:
The prevailing doctrines in this case are still relevant. The Revised Corporation Code
expressly provides for the mandatory inclusion of how annual and special stockholder’s meetings
shall be conducted by the Corporation.
Thus, meetings must be held pursuant to the mandate of the bylaws. Otherwise,
resolutions resulting from the meeting will be deemed void.

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Corporation Law Digest Sumaway, Christine Joyce L (2B) Carlos V Mindoro Sugar Co Facts

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Corporation Law Digest

Sumaway, Christine Joyce L (2B)

Carlos v Mindoro Sugar Co

The Philippine Trust Company is another domestic corporation. It is primarily organized

The court cites:

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