FRED M. HARDEN, J. D. HIGHSMITH, AND JOHN C. HART, IN THEIR OWN BEHALF AND IN THAT OF ALL OTHER STOCKHOLDERS OF THE BALATOC MINING COMPANY, ETC., PLAINTIFFS AND APPELLANTS, VS. …

This action was originally instituted in the Court of First Instance of
the City of Manila by F. M. Harden, acting in his own behalf and that
of all other stockholders of the Balatoc Mining Co. who might join in
the action and contribute to the expense of the suit. With the
plaintiff Harden two others, J. D. Highsmith and John C. Hart,
subsequently associated themselves. The defendants are the Benguet
Consolidated Mining Co., the Balatoc Mining Co., H. E. Renz, John W.
Haussermann, and A. W. Beam. The principal purpose of the original
action was to annul a certificate covering 600,000 shares of the stock
of the Balatoc Mining Co., which had been issued to the Benguet
Consolidated Mining Co., and to secure to the Balatoc Mining Co. the
restoration of a large sum of money alleged to have been unlawfully
collected by the Benguet Consolidated Mining Co., with legal interest,
after deduction therefrom of the amount expended by the latter company
under a contract between the two companies, bearing date of March 9,
1927. The complaint was afterwards amended so as to include a prayer
for the annulment of this contract. Shortly prior to the institution of
this lawsuit, the Benguet Consolidated Mining Co. transferred to H. E.
Renz, as trustee, the certificate for 600,000 shares of the Balatoc
Mining Co. which constitute the principal subject matter of the action.
This was done apparently to facilitate the splitting up of the shares
in the course of sale or distribution. To prevent this, the plaintiffs,
upon filing their original complaint, procured a preliminary injunction
restraining the defendants, their agents and servants, from selling,
assigning or transferring the 600,000 shares of the Balatoc Mining Co.,
or any part thereof, and from removing said shares from the Philippine
Islands. This explains the connection of Renz with the case. The other
individual defendants are made such merely as officials of the Benguet
Consolidated Mining Co. Upon hearing the cause the trial court
dismissed the complaint and dissolved the preliminary injunction, with
costs against the plaintiffs. From this judgment the plaintiffs
appealed.

The facts which have given rise to this lawsuit
are simple, as the financial interests involved are immense. Briefly
told these facts are as follows: The Benguet Consolidated Mining Co.
was organized in June, 1903, as a sociedad anonima in
conformity with the provisions of Spanish law; while the Balatoc Mining
Co. was organized in December, 1925, as a corporation, in conformity
with the provisions of the Corporation Law (Act No. 1459). Both
entities were organized for the purpose of engaging in the mining of
gold in the Philippine Islands, and their respective properties are
located only a few miles apart in the subprovince of Benguet. The
capital stock of the Balatoc Mining Co. consists of one million shares
of the par value of one peso (P1) each.

When the Balatoc
Mining Co. was first organized the properties acquired by it were
largely undeveloped; and the original stockholders were unable to
supply the means needed for profitable operation. For this reason, the
board of directors of the corporation ordered a suspension of all work,
effective July 31, 1926. In November of the same year a general meeting
of the company’s stockholders appointed a committee for the purpose of
interesting outside capital in the mine. Under the authority of this
resolution the committee approached A. W. Beam, then president and
general manager of the Benguet Company, to secure the capital necessary
to the development of the Balatoc property. As a result of the
negotiations thus begun, a contract, formally authorized by the
management of both companies, was executed on March 9, 1927, the
principal features of which were that the Benguet Company was to
proceed with the development and construct a milling plant for the
Balatoc mine, of a capacity of 100 tons of ore per day, and with an
extraction of at least 85 per cent of the gold content. The Benguet
Company also agreed to erect an appropriate power plant, with the
aerial tramlines and such other surface buildings as might be needed to
operate the mine. In return for this it was agreed that the Benguet
Company should receive from the treasurer of the Balatoc Company shares
of a par value of P600,000, in payment for the first P600,000 to be
thus advanced to it by the Benguet Company.

The performance
of this contract was speedily begun, and by May 31, 1929, the Benguet
Company had spent upon the development the sum of P1,417,952.15. In
compensation for this work a certificate for six hundred thousand
shares of the stock of the Balatoc Company has been delivered to the
Benguet Company, and the excess value of the work in the amount of
P817,952.15 has been returned to the Benguet Company in cash. Meanwhile
dividends of the Balatoc Company have been enriching its stockholders,
and at the time of the filing of the complaint the value of its shares
had increased in the market from a nominal valuation to more than
eleven pesos per share.

While the Benguet Company was
pouring its million and a half into the Balatoc property, the
arrangements made between the two companies appear to have been viewed
by the plaintiff Harden with complacency, he being the owner of many
thousands of the shares of the Balatoc Company. But as soon as the
success of the development had become apparent, he began this
litigation in which he has been joined by two others of the eighty
shareholders of the Balatoc Company.

Briefly, the legal
point upon which the action is planted is that it is unlawful for the
Benguet Company to hold any interest in a mining corporation and that
the contract by which the interest here in question was acquired must
be annulled, with the consequent obliteration of the certificate issued
to the Benguet Company and the corresponding enrichment of the
shareholders of the Balatoc Company.

When the Philippine
Islands passed to the sovereignty of the United States, the attention
of the Philippine Commission was early drawn to the fact that there is
no entity in Spanish law exactly corresponding to the notion of the
corporation in English and American law; and in the Philippine Bill,
approved July 1, 1902, the Congress of the United States inserted
certain provisions, under the head of Franchises, which were intended
to control the lawmaking power in the Philippine Islands in the matter
of granting of franchises, privileges and concessions. These provisions
are found in sections 74 and 75 of the. Act. The provisions of section
74 have been superseded by section 28 of the Act of Congress of August
29, 1916, but in section 75 there is a provision referring to mining
corporations, which still remains the law, as amended. This provision,
in its original form, reads as follows: “* * * it shall be unlawful for
any member of a corporation engaged in agriculture or mining and for
any corporation organized for any purpose except irrigation to be in
any wise interested in any other corporation engaged in agriculture or
in mining.”

Under the guidance of this and certain other
provisions thus enacted by Congress, the Philippine Commission entered
upon the enactment of a general law authorizing the creation of
corporations in the Philippine Islands. This rather elaborate piece of
legislation is embodied in what is called our Corporation Law (Act No.
4459 of the Philippine Commission). The evident purpose of the
commission was to introduce the American corporation into the
Philippine Islands as the standard commercial entity and to hasten the
day when the sociedad anonima of the Spanish law would be obsolete. That statute is a sort of codification of American corporate law.

For purposes of general description only, it may be stated that the sociedad anonima
is something very much like the English joint stock company, with
features resembling those of both the partnership and the corporation.
Its affinity to the partnership is shown in the fact that sociedad,
the generic component of its name in Spanish, is the same word that is
used in that language to designate other forms of partnership, and in
its organization it is constructed along the same general lines as the
ordinary partnership. It is therefore not surprising that for purposes
of loose translation the expression sociedad anonima has not
infrequently been translated into English by the word partnership. On
the other hand, the affinity of this entity to the American corporation
has not escaped notice, and the expression sociedad anonima is now generally translated by the word corporation. But when the word corporation is used in the sense of sociedad anonima and close discrimination is necessary, it should be associated with the Spanish expression sociedad anonima
either in a parenthesis or connected by the word “or”. This latter
device was adopted in sections 75 and 191 of the Corporation Law.

In drafting the Corporation Law the Philippine Commission inserted
bodily, in subsection (5) of section 13 of that Act (No. 1459) the
words which we have already quoted from section 75 of the Act of
Congress of July 1, 1902 (Philippine Bill); and it is of course obvious
that whatever meaning originally attached to this provision in the Act
of Congress, the same significance should be attached to it in section
13 of our Corporation Law.

As it was the intention of our
lawmakers to stimulate the introduction of the American corporation
into Philippine law in the place of the sociedad anonima, it
was necessary to make certain adjustments resulting from the continued
co-existence, for a time, of the two forms of commercial entities.
Accordingly, in section 75 of the Corporation Law, a provision is found
making the sociedad anonima subject to the provisions of the Corporation Law “so far as such provisions may be applicable”, and giving to the sociedades anonimas
previously created in the Islands the option to continue business as
such or to reform and organize under the provisions of the Corporation
Law. Again, in section 191 of the Corporation Law, the Code of Commerce
is repealed in so far as it relates to sociedades anonimas.
The purpose of the commission in repealing this part of the Code of
Commerce was to compel commercial entities thereafter organized to
incorporate under the Corporation Law, unless they should prefer to
adopt some form or other of the partnership. To this provision was
added another 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.”

As already
observed, the provision above quoted from section 75 of the Act of
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. The change in the law effected by this
amendment was in the direction of liberalization. Thus, the inhibition
contained in the original provision against members of a corporation
engaged in agriculture or mining from being interested in other
corporations engaged in agriculture or in mining was so modified as
merely to prohibit any such member 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.

As originally drawn,
our Corporation Law (Act No. 1459) did not contain any appropriate
clause directly penalizing the act of a corporation, or 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 reenacted 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 190 (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: * * *.”

Upon a survey of the facts sketched above it is obvious that there are
two fundamental questions involved in this controversy. The first is
whether the plaintiffs can maintain an action based upon the violation
of law supposedly committed by the Benguet Company in this case. The
second is whether, assuming the first question to be answered in the
affirmative, the Benguet Company, which was 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,
prohibiting a mining corporation from becoming interested in another
mining corporation. It is obvious that, if the first question be
answered in the negative, it will be unnecessary to consider the second
question in this lawsuit.

Upon the first point it is at once
obvious that the provision referred to was adopted by the lawmakers
with a sole view to the public policy that should control in the
granting of mining rights. Furthermore, the penalties imposed in what
is now section 190 (A) of the Corporation Law 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.

What room then is left for
the private action which the plaintiffs seek to assert in this case?
The defendant Benguet 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, where 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, by the
building of the Balatoc plant by the Benguet Company and the delivery
to the latter of the certificate of 600,000 shares of the Balatoc
Company. There is no possibility of really undoing what has been done.
Nobody would suggest the demolition of the mill. The Balatoc Company is
secure in the possession of that improvement, and talk about putting
the parties in statu quo ante by restoring the consideration
with interest, while the Balatoc Company remains in possession of what
it obtained by the use of that money, does not quite meet the case.
Also, to mulct the Benguet Company in many millions of dollars in favor
of individuals who have not the slightest equitable right to that money
is a proposition to which no court can give a ready assent.

The most plausible presentation of the case of the plaintiffs proceeds
on the assumption that only one of the contracting parties has been
guilty of a misdemeanor, namely, the Benguet Company, and that the
other party, the Balatoc Company, is wholly innocent of participation
in that wrong. The plaintiffs would then have us apply the second
paragraph of article 1305 of the Civil Code which declares that an
innocent party to an illegal contract may recover anything he may have
given, while he is not bound to fulfill any promise he may have made.
But, supposing that the first hurdle can be safely vaulted, the general
remedy supplied in article 1305 of the Civil Code cannot be invoked
where an adequate special remedy is supplied in a special law. It has
been so held by this court in Go Chioco vs. Martinez (45 Phil.,
256, 280), where we refused to apply that article to a case of nullity
arising upon a usurious loan. The reason given for the decision on this
point was that the Usury Act, as amended, contains all the provisions
necessary for the effectuation of its purposes, with the result that
the remedy given in article 1305 of the Civil Code is unnecessary. Much
more is that idea applicable to the situation now before us, where the
special provisions give ample remedies for the enforcement of the law
by action in the name of the Government, and where no civil wrong has
been done to the party here seeking redress.

The view of the
case presented above rests upon considerations arising upon our own
statutes; and it would seem to be unnecessary to ransack the American
decisions for analogies pertinent to the case. We may observe, however,
that the situation involved is not unlike that which has frequently
arisen in the United States under provisions of the National Bank Act
prohibiting banks organized under that law from holding real property.
It has been uniformly held that a trust deed or mortgage conveying
property of this kind to a bank, by way of security, is valid until the
transaction is assailed in a direct proceeding instituted by the
Government against the bank, and the illegality of such tenure supplies
no basis for an action by the former private owner, or his creditor, to
annul the conveyance. (National Bank vs. Matthews, 98 U. S., 621; Kerfoot vs. Farmers & M. Bank, 218 U. S., 281.) Other analogies point in the same direction. (South & Ala. B. Co. vs. Highland Ave. & Belt R. Co., 119 Ala., 105; Mac- Ginniss vs. B. & M. Consol. etc. Mining Co., 29 Mont., 428; Holmes & Griggs Mfg. Co. vs. Holmes & Wesseli Metal Co., 127 N. Y., 252; Oelbermann vs. N. Y. & N. R. Co., 77 Hun., 332.)

Most suggestive perhaps of all the cases is Compañia Azucarera de Carolina vs.
Registrar (19 Porto Rico, 143), for the reason that this case arose
under a provision of the Foraker Act, a law analogous to our Philippine
Bill. It appears that the registrar had refused to register two deeds
in favor of the Compañia Azucarera on the ground that the land thereby
conveyed was in excess of the area permitted by law to the company. The
Porto Rican court reversed the ruling of the registrar and ordered the
registration of the deeds, saying:

“Thus it
may be seen that a corporation limited by the law or by its charter has
until the State acts every power and capacity that any other individual
capable of acquiring lands, possesses. The corporation may exercise
every act of ownership over such lands; it may sue in ejectment or
unlawful detainer and it may demand specific performance. It has an
absolute title against all the world except the State after a proper
proceeding is begun in a court of law. * * * The Attorney General is
the exclusive officer in whom is confided the right to initiate
proceedings for escheat or attack the right of a corporation to hold
land.”

Having shown that the plaintiffs in
this case have no right of action against the Benguet Company for the
infraction of law supposed to have been committed, we forego any
discussion of the further question whether a sociedad anonima
created under Spanish law, such as the Benguet Company, is a
corporation within the meaning of the prohibitory provision already so
many times mentioned. That important question should, in our opinion,
be left until it is raised in an action brought by the Government.

The judgment which is the subject of this appeal will therefore be
affirmed, and it is so ordered, with costs against the appellants.

Avanceña, C. J., Villamor, Ostrand, Villa-Real, Abad Santos, Hull, Vickers, Imperial, and Butte, JJ., concur.