TANADA V.

TUVERA
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-63915

April 24, 1985

LORENZO M. TAADA, ABRAHAM F. SARMIENTO, and MOVEMENT OF ATTORNEYS

FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. [MABINI], petitioners,
vs.
HON. JUAN C. TUVERA, in his capacity as Executive Assistant to the President, HON.
JOAQUIN VENUS, in his capacity as Deputy Executive Assistant to the President ,
MELQUIADES P. DE LA CRUZ, in his capacity as Director, Malacaang Records Office,
and FLORENDO S. PABLO, in his capacity as Director, Bureau of Printing,
respondents.

ESCOLIN, J.:

Invoking the people's right to be informed on matters of public concern, a right

recognized in Section 6, Article IV of the 1973 Philippine Constitution, 1 as well as
the principle that laws to be valid and enforceable must be published in the Official
Gazette or otherwise effectively promulgated, petitioners seek a writ of mandamus
to compel respondent public officials to publish, and/or cause the publication in the
Official Gazette of various presidential decrees, letters of instructions, general
orders, proclamations, executive orders, letter of implementation and administrative
orders.

Specifically, the publication of the following presidential issuances is sought:

a]
Presidential Decrees Nos. 12, 22, 37, 38, 59, 64, 103, 171, 179, 184, 197,
200, 234, 265, 286, 298, 303, 312, 324, 325, 326, 337, 355, 358, 359, 360, 361,
368, 404, 406, 415, 427, 429, 445, 447, 473, 486, 491, 503, 504, 521, 528, 551,
566, 573, 574, 594, 599, 644, 658, 661, 718, 731, 733, 793, 800, 802, 835, 836,
923, 935, 961, 1017-1030, 1050, 1060-1061, 1085, 1143, 1165, 1166, 1242, 1246,
1250, 1278, 1279, 1300, 1644, 1772, 1808, 1810, 1813-1817, 1819-1826, 18291840, 1842-1847.

b]
Letter of Instructions Nos.: 10, 39, 49, 72, 107, 108, 116, 130, 136, 141, 150,
153, 155, 161, 173, 180, 187, 188, 192, 193, 199, 202, 204, 205, 209, 211-213,
215-224, 226-228, 231-239, 241-245, 248, 251, 253-261, 263-269, 271-273, 275283, 285-289, 291, 293, 297-299, 301-303, 309, 312-315, 325, 327, 343, 346, 349,
357, 358, 362, 367, 370, 382, 385, 386, 396-397, 405, 438-440, 444- 445, 473, 486,
488, 498, 501, 399, 527, 561, 576, 587, 594, 599, 600, 602, 609, 610, 611, 612,
615, 641, 642, 665, 702, 712-713, 726, 837-839, 878-879, 881, 882, 939-940,
964,997,1149-1178,1180-1278.

c]

General Orders Nos.: 14, 52, 58, 59, 60, 62, 63, 64 & 65.

d]
Proclamation Nos.: 1126, 1144, 1147, 1151, 1196, 1270, 1281, 1319-1526,
1529, 1532, 1535, 1538, 1540-1547, 1550-1558, 1561-1588, 1590-1595, 15941600, 1606-1609, 1612-1628, 1630-1649, 1694-1695, 1697-1701, 1705-1723,
1731-1734, 1737-1742, 1744, 1746-1751, 1752, 1754, 1762, 1764-1787, 17891795, 1797, 1800, 1802-1804, 1806-1807, 1812-1814, 1816, 1825-1826, 1829,
1831-1832, 1835-1836, 1839-1840, 1843-1844, 1846-1847, 1849, 1853-1858,
1860, 1866, 1868, 1870, 1876-1889, 1892, 1900, 1918, 1923, 1933, 1952, 1963,
1965-1966, 1968-1984, 1986-2028, 2030-2044, 2046-2145, 2147-2161, 2163-2244.

e]
Executive Orders Nos.: 411, 413, 414, 427, 429-454, 457- 471, 474-492, 494507, 509-510, 522, 524-528, 531-532, 536, 538, 543-544, 549, 551-553, 560, 563,
567-568, 570, 574, 593, 594, 598-604, 609, 611- 647, 649-677, 679-703, 705-707,
712-786, 788-852, 854-857.

f]
Letters of Implementation Nos.: 7, 8, 9, 10, 11-22, 25-27, 39, 50, 51, 59, 76,
80-81, 92, 94, 95, 107, 120, 122, 123.

g]

Administrative Orders Nos.: 347, 348, 352-354, 360- 378, 380-433, 436-439.

The respondents, through the Solicitor General, would have this case dismissed
outright on the ground that petitioners have no legal personality or standing to
bring the instant petition. The view is submitted that in the absence of any showing
that petitioners are personally and directly affected or prejudiced by the alleged
non-publication of the presidential issuances in question 2 said petitioners are
without the requisite legal personality to institute this mandamus proceeding, they
are not being "aggrieved parties" within the meaning of Section 3, Rule 65 of the
Rules of Court, which we quote:

SEC. 3.
Petition for Mandamus.When any tribunal, corporation, board or
person unlawfully neglects the performance of an act which the law specifically
enjoins as a duty resulting from an office, trust, or station, or unlawfully excludes
another from the use a rd enjoyment of a right or office to which such other is
entitled, and there is no other plain, speedy and adequate remedy in the ordinary
course of law, the person aggrieved thereby may file a verified petition in the proper
court alleging the facts with certainty and praying that judgment be rendered
commanding the defendant, immediately or at some other specified time, to do the
act required to be done to Protect the rights of the petitioner, and to pay the
damages sustained by the petitioner by reason of the wrongful acts of the
defendant.

Upon the other hand, petitioners maintain that since the subject of the petition
concerns a public right and its object is to compel the performance of a public duty,
they need not show any specific interest for their petition to be given due course.

The issue posed is not one of first impression. As early as the 1910 case of Severino
vs. Governor General, 3 this Court held that while the general rule is that "a writ of
mandamus would be granted to a private individual only in those cases where he
has some private or particular interest to be subserved, or some particular right to
be protected, independent of that which he holds with the public at large," and "it is
for the public officers exclusively to apply for the writ when public rights are to be
subserved [Mithchell vs. Boardmen, 79 M.e., 469]," nevertheless, "when the

question is one of public right and the object of the mandamus is to procure the
enforcement of a public duty, the people are regarded as the real party in interest
and the relator at whose instigation the proceedings are instituted need not show
that he has any legal or special interest in the result, it being sufficient to show that
he is a citizen and as such interested in the execution of the laws [High,
Extraordinary Legal Remedies, 3rd ed., sec. 431].

Thus, in said case, this Court recognized the relator Lope Severino, a private
individual, as a proper party to the mandamus proceedings brought to compel the
Governor General to call a special election for the position of municipal president in
the town of Silay, Negros Occidental. Speaking for this Court, Mr. Justice Grant T.
Trent said:

We are therefore of the opinion that the weight of authority supports the proposition
that the relator is a proper party to proceedings of this character when a public right
is sought to be enforced. If the general rule in America were otherwise, we think
that it would not be applicable to the case at bar for the reason 'that it is always
dangerous to apply a general rule to a particular case without keeping in mind the
reason for the rule, because, if under the particular circumstances the reason for
the rule does not exist, the rule itself is not applicable and reliance upon the rule
may well lead to error'

No reason exists in the case at bar for applying the general rule insisted upon by
counsel for the respondent. The circumstances which surround this case are
different from those in the United States, inasmuch as if the relator is not a proper
party to these proceedings no other person could be, as we have seen that it is not
the duty of the law officer of the Government to appear and represent the people in
cases of this character.

The reasons given by the Court in recognizing a private citizen's legal personality in
the aforementioned case apply squarely to the present petition. Clearly, the right
sought to be enforced by petitioners herein is a public right recognized by no less
than the fundamental law of the land. If petitioners were not allowed to institute this
proceeding, it would indeed be difficult to conceive of any other person to initiate
the same, considering that the Solicitor General, the government officer generally
empowered to represent the people, has entered his appearance for respondents in
this case.

Respondents further contend that publication in the Official Gazette is not a sine
qua non requirement for the effectivity of laws where the laws themselves provide
for their own effectivity dates. It is thus submitted that since the presidential
issuances in question contain special provisions as to the date they are to take
effect, publication in the Official Gazette is not indispensable for their effectivity.
The point stressed is anchored on Article 2 of the Civil Code:

Art. 2. Laws shall take effect after fifteen days following the completion of their
publication in the Official Gazette, unless it is otherwise provided, ...

The interpretation given by respondent is in accord with this Court's construction of

said article. In a long line of decisions, 4 this Court has ruled that publication in the
Official Gazette is necessary in those cases where the legislation itself does not
provide for its effectivity date-for then the date of publication is material for
determining its date of effectivity, which is the fifteenth day following its
publication-but not when the law itself provides for the date when it goes into
effect.

Respondents' argument, however, is logically correct only insofar as it equates the

effectivity of laws with the fact of publication. Considered in the light of other
statutes applicable to the issue at hand, the conclusion is easily reached that said
Article 2 does not preclude the requirement of publication in the Official Gazette,
even if the law itself provides for the date of its effectivity. Thus, Section 1 of
Commonwealth Act 638 provides as follows:

Section 1.
There shall be published in the Official Gazette [1] all important
legisiative acts and resolutions of a public nature of the, Congress of the Philippines;
[2] all executive and administrative orders and proclamations, except such as have
no general applicability; [3] decisions or abstracts of decisions of the Supreme Court
and the Court of Appeals as may be deemed by said courts of sufficient importance
to be so published; [4] such documents or classes of documents as may be required
so to be published by law; and [5] such documents or classes of documents as the
President of the Philippines shall determine from time to time to have general
applicability and legal effect, or which he may authorize so to be published. ...

The clear object of the above-quoted provision is to give the general public
adequate notice of the various laws which are to regulate their actions and conduct

as citizens. Without such notice and publication, there would be no basis for the
application of the maxim "ignorantia legis non excusat." It would be the height of
injustice to punish or otherwise burden a citizen for the transgression of a law of
which he had no notice whatsoever, not even a constructive one.

Perhaps at no time since the establishment of the Philippine Republic has the
publication of laws taken so vital significance that at this time when the people have
bestowed upon the President a power heretofore enjoyed solely by the legislature.
While the people are kept abreast by the mass media of the debates and
deliberations in the Batasan Pambansaand for the diligent ones, ready access to
the legislative recordsno such publicity accompanies the law-making process of
the President. Thus, without publication, the people have no means of knowing what
presidential decrees have actually been promulgated, much less a definite way of
informing themselves of the specific contents and texts of such decrees. As the
Supreme Court of Spain ruled: "Bajo la denominacion generica de leyes, se
comprenden tambien los reglamentos, Reales decretos, Instrucciones, Circulares y
Reales ordines dictadas de conformidad con las mismas por el Gobierno en uso de
su potestad. 5

The very first clause of Section I of Commonwealth Act 638 reads: "There shall be
published in the Official Gazette ... ." The word "shall" used therein imposes upon
respondent officials an imperative duty. That duty must be enforced if the
Constitutional right of the people to be informed on matters of public concern is to
be given substance and reality. The law itself makes a list of what should be
published in the Official Gazette. Such listing, to our mind, leaves respondents with
no discretion whatsoever as to what must be included or excluded from such
publication.

The publication of all presidential issuances "of a public nature" or "of general
applicability" is mandated by law. Obviously, presidential decrees that provide for
fines, forfeitures or penalties for their violation or otherwise impose a burden or. the
people, such as tax and revenue measures, fall within this category. Other
presidential issuances which apply only to particular persons or class of persons
such as administrative and executive orders need not be published on the
assumption that they have been circularized to all concerned. 6

It is needless to add that the publication of presidential issuances "of a public

nature" or "of general applicability" is a requirement of due process. It is a rule of

law that before a person may be bound by law, he must first be officially and
specifically informed of its contents. As Justice Claudio Teehankee said in Peralta vs.
COMELEC 7:

In a time of proliferating decrees, orders and letters of instructions which all form
part of the law of the land, the requirement of due process and the Rule of Law
demand that the Official Gazette as the official government repository promulgate
and publish the texts of all such decrees, orders and instructions so that the people
may know where to obtain their official and specific contents.

The Court therefore declares that presidential issuances of general application,

which have not been published, shall have no force and effect. Some members of
the Court, quite apprehensive about the possible unsettling effect this decision
might have on acts done in reliance of the validity of those presidential decrees
which were published only during the pendency of this petition, have put the
question as to whether the Court's declaration of invalidity apply to P.D.s which had
been enforced or implemented prior to their publication. The answer is all too
familiar. In similar situations in the past this Court had taken the pragmatic and
realistic course set forth in Chicot County Drainage District vs. Baxter Bank 8 to wit:

The courts below have proceeded on the theory that the Act of Congress, having
been found to be unconstitutional, was not a law; that it was inoperative, conferring
no rights and imposing no duties, and hence affording no basis for the challenged
decree. Norton v. Shelby County, 118 U.S. 425, 442; Chicago, 1. & L. Ry. Co. v.
Hackett, 228 U.S. 559, 566. It is quite clear, however, that such broad statements as
to the effect of a determination of unconstitutionality must be taken with
qualifications. The actual existence of a statute, prior to such a determination, is an
operative fact and may have consequences which cannot justly be ignored. The
past cannot always be erased by a new judicial declaration. The effect of the
subsequent ruling as to invalidity may have to be considered in various aspects-with
respect to particular conduct, private and official. Questions of rights claimed to
have become vested, of status, of prior determinations deemed to have finality and
acted upon accordingly, of public policy in the light of the nature both of the statute
and of its previous application, demand examination. These questions are among
the most difficult of those which have engaged the attention of courts, state and
federal and it is manifest from numerous decisions that an all-inclusive statement of
a principle of absolute retroactive invalidity cannot be justified.

Consistently with the above principle, this Court in Rutter vs. Esteban 9 sustained
the right of a party under the Moratorium Law, albeit said right had accrued in his
favor before said law was declared unconstitutional by this Court.

Similarly, the implementation/enforcement of presidential decrees prior to their

publication in the Official Gazette is "an operative fact which may have
consequences which cannot be justly ignored. The past cannot always be erased by
a new judicial declaration ... that an all-inclusive statement of a principle of absolute
retroactive invalidity cannot be justified."

From the report submitted to the Court by the Clerk of Court, it appears that of the
presidential decrees sought by petitioners to be published in the Official Gazette,
only Presidential Decrees Nos. 1019 to 1030, inclusive, 1278, and 1937 to 1939,
inclusive, have not been so published. 10 Neither the subject matters nor the texts
of these PDs can be ascertained since no copies thereof are available. But whatever
their subject matter may be, it is undisputed that none of these unpublished PDs
has ever been implemented or enforced by the government. In Pesigan vs. Angeles,
11 the Court, through Justice Ramon Aquino, ruled that "publication is necessary to
apprise the public of the contents of [penal] regulations and make the said penalties
binding on the persons affected thereby. " The cogency of this holding is apparently
recognized by respondent officials considering the manifestation in their comment
that "the government, as a matter of policy, refrains from prosecuting violations of
criminal laws until the same shall have been published in the Official Gazette or in
some other publication, even though some criminal laws provide that they shall take
effect immediately.

WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette
all unpublished presidential issuances which are of general application, and unless
so published, they shall have no binding force and effect.

SO ORDERED.

Relova, J., concurs.

Aquino, J., took no part.

Concepcion, Jr., J., is on leave.

Separate Opinions

FERNANDO, C.J., concurring (with qualification):

There is on the whole acceptance on my part of the views expressed in the ably
written opinion of Justice Escolin. I am unable, however, to concur insofar as it
would unqualifiedly impose the requirement of publication in the Official Gazette for
unpublished "presidential issuances" to have binding force and effect.

I shall explain why.

1.
It is of course true that without the requisite publication, a due process
question would arise if made to apply adversely to a party who is not even aware of
the existence of any legislative or executive act having the force and effect of law.
My point is that such publication required need not be confined to the Official
Gazette. From the pragmatic standpoint, there is an advantage to be gained. It
conduces to certainty. That is too be admitted. It does not follow, however, that
failure to do so would in all cases and under all circumstances result in a statute,
presidential decree or any other executive act of the same category being bereft of
any binding force and effect. To so hold would, for me, raise a constitutional
question. Such a pronouncement would lend itself to the interpretation that such a
legislative or presidential act is bereft of the attribute of effectivity unless published
in the Official Gazette. There is no such requirement in the Constitution as Justice

Plana so aptly pointed out. It is true that what is decided now applies only to past
"presidential issuances". Nonetheless, this clarification is, to my mind, needed to
avoid any possible misconception as to what is required for any statute or
presidential act to be impressed with binding force or effectivity.

2.
It is quite understandable then why I concur in the separate opinion of Justice
Plana. Its first paragraph sets forth what to me is the constitutional doctrine
applicable to this case. Thus: "The Philippine Constitution does not require the
publication of laws as a prerequisite for their effectivity, unlike some Constitutions
elsewhere. It may be said though that the guarantee of due process requires notice
of laws to affected Parties before they can be bound thereby; but such notice is not
necessarily by publication in the Official Gazette. The due process clause is not that
precise. 1 I am likewise in agreement with its closing paragraph: "In fine, I concur in
the majority decision to the extent that it requires notice before laws become
effective, for no person should be bound by a law without notice. This is elementary
fairness. However, I beg to disagree insofar as it holds that such notice shall be by
publication in the Official Gazette. 2

3.
It suffices, as was stated by Judge Learned Hand, that law as the command of
the government "must be ascertainable in some form if it is to be enforced at all. 3
It would indeed be to reduce it to the level of mere futility, as pointed out by Justice
Cardozo, "if it is unknown and unknowable. 4 Publication, to repeat, is thus
essential. What I am not prepared to subscribe to is the doctrine that it must be in
the Official Gazette. To be sure once published therein there is the ascertainable
mode of determining the exact date of its effectivity. Still for me that does not
dispose of the question of what is the jural effect of past presidential decrees or
executive acts not so published. For prior thereto, it could be that parties aware of
their existence could have conducted themselves in accordance with their
provisions. If no legal consequences could attach due to lack of publication in the
Official Gazette, then serious problems could arise. Previous transactions based on
such "Presidential Issuances" could be open to question. Matters deemed settled
could still be inquired into. I am not prepared to hold that such an effect is
contemplated by our decision. Where such presidential decree or executive act is
made the basis of a criminal prosecution, then, of course, its ex post facto character
becomes evident. 5 In civil cases though, retroactivity as such is not conclusive on
the due process aspect. There must still be a showing of arbitrariness. Moreover,
where the challenged presidential decree or executive act was issued under the
police power, the non-impairment clause of the Constitution may not always be
successfully invoked. There must still be that process of balancing to determine
whether or not it could in such a case be tainted by infirmity. 6 In traditional

terminology, there could arise then a question of unconstitutional application. That

is as far as it goes.

4.
Let me make therefore that my qualified concurrence goes no further than to
affirm that publication is essential to the effectivity of a legislative or executive act
of a general application. I am not in agreement with the view that such publication
must be in the Official Gazette. The Civil Code itself in its Article 2 expressly
recognizes that the rule as to laws taking effect after fifteen days following the
completion of their publication in the Official Gazette is subject to this exception,
"unless it is otherwise provided." Moreover, the Civil Code is itself only a legislative
enactment, Republic Act No. 386. It does not and cannot have the juridical force of a
constitutional command. A later legislative or executive act which has the force and
effect of law can legally provide for a different rule.

5.
Nor can I agree with the rather sweeping conclusion in the opinion of Justice
Escolin that presidential decrees and executive acts not thus previously published in
the Official Gazette would be devoid of any legal character. That would be, in my
opinion, to go too far. It may be fraught, as earlier noted, with undesirable
consequences. I find myself therefore unable to yield assent to such a
pronouncement.

I am authorized to state that Justices Makasiar, Abad Santos, Cuevas, and Alampay
concur in this separate opinion.

Makasiar, Abad Santos, Cuevas and Alampay, JJ., concur.

TEEHANKEE, J., concurring:

I concur with the main opinion of Mr. Justice Escolin and the concurring opinion of
Mme. Justice Herrera. The Rule of Law connotes a body of norms and laws published
and ascertainable and of equal application to all similarly circumstances and not
subject to arbitrary change but only under certain set procedures. The Court has

consistently stressed that "it is an elementary rule of fair play and justice that a
reasonable opportunity to be informed must be afforded to the people who are
commanded to obey before they can be punished for its violation, 1 citing the
settled principle based on due process enunciated in earlier cases that "before the
public is bound by its contents, especially its penal provisions, a law, regulation or
circular must first be published and the people officially and specially informed of
said contents and its penalties.

Without official publication in the Official Gazette as required by Article 2 of the Civil
Code and the Revised Administrative Code, there would be no basis nor justification
for the corollary rule of Article 3 of the Civil Code (based on constructive notice that
the provisions of the law are ascertainable from the public and official repository
where they are duly published) that "Ignorance of the law excuses no one from
compliance therewith.

Respondents' contention based on a misreading of Article 2 of the Civil Code that

"only laws which are silent as to their effectivity [date] need be published in the
Official Gazette for their effectivity" is manifestly untenable. The plain text and
meaning of the Civil Code is that "laws shall take effect after fifteen days following
the completion of their publication in the Official Gazette, unless it is otherwise
provided, " i.e. a different effectivity date is provided by the law itself. This proviso
perforce refers to a law that has been duly published pursuant to the basic
constitutional requirements of due process. The best example of this is the Civil
Code itself: the same Article 2 provides otherwise that it "shall take effect [only] one
year [not 15 days] after such publication. 2 To sustain respondents' misreading that
"most laws or decrees specify the date of their effectivity and for this reason,
publication in the Official Gazette is not necessary for their effectivity 3 would be to
nullify and render nugatory the Civil Code's indispensable and essential requirement
of prior publication in the Official Gazette by the simple expedient of providing for
immediate effectivity or an earlier effectivity date in the law itself before the
completion of 15 days following its publication which is the period generally fixed by
the Civil Code for its proper dissemination.

MELENCIO-HERRERA, J., concurring:

I agree. There cannot be any question but that even if a decree provides for a date
of effectivity, it has to be published. What I would like to state in connection with
that proposition is that when a date of effectivity is mentioned in the decree but the
decree becomes effective only fifteen (15) days after its publication in the Official
Gazette, it will not mean that the decree can have retroactive effect to the date of
effectivity mentioned in the decree itself. There should be no retroactivity if the
retroactivity will run counter to constitutional rights or shall destroy vested rights.

PLANA, J., concurring (with qualification):

The Philippine Constitution does not require the publication of laws as a prerequisite
for their effectivity, unlike some Constitutions elsewhere. * It may be said though
that the guarantee of due process requires notice of laws to affected parties before
they can be bound thereby; but such notice is not necessarily by publication in the
Official Gazette. The due process clause is not that precise. Neither is the
publication of laws in the Official Gazette required by any statute as a prerequisite
for their effectivity, if said laws already provide for their effectivity date.

Article 2 of the Civil Code provides that "laws shall take effect after fifteen days
following the completion of their publication in the Official Gazette, unless it is
otherwise provided " Two things may be said of this provision: Firstly, it obviously
does not apply to a law with a built-in provision as to when it will take effect.
Secondly, it clearly recognizes that each law may provide not only a different period
for reckoning its effectivity date but also a different mode of notice. Thus, a law may
prescribe that it shall be published elsewhere than in the Official Gazette.

Commonwealth Act No. 638, in my opinion, does not support the proposition that for
their effectivity, laws must be published in the Official Gazette. The said law is
simply "An Act to Provide for the Uniform Publication and Distribution of the Official
Gazette." Conformably therewith, it authorizes the publication of the Official
Gazette, determines its frequency, provides for its sale and distribution, and defines
the authority of the Director of Printing in relation thereto. It also enumerates what
shall be published in the Official Gazette, among them, "important legislative acts
and resolutions of a public nature of the Congress of the Philippines" and "all
executive and administrative orders and proclamations, except such as have no

general applicability." It is noteworthy that not all legislative acts are required to be
published in the Official Gazette but only "important" ones "of a public nature."
Moreover, the said law does not provide that publication in the Official Gazette is
essential for the effectivity of laws. This is as it should be, for all statutes are equal
and stand on the same footing. A law, especially an earlier one of general
application such as Commonwealth Act No. 638, cannot nullify or restrict the
operation of a subsequent statute that has a provision of its own as to when and
how it will take effect. Only a higher law, which is the Constitution, can assume that
role.

In fine, I concur in the majority decision to the extent that it requires notice before
laws become effective, for no person should be bound by a law without notice. This
is elementary fairness. However, I beg to disagree insofar as it holds that such
notice shall be by publication in the Official Gazette.

Cuevas and Alampay, JJ., concur.

GUTIERREZ, Jr., J., concurring:

I concur insofar as publication is necessary but reserve my vote as to the necessity

of such publication being in the Official Gazette.

DE LA FUENTE, J., concurring:

I concur insofar as the opinion declares the unpublished decrees and issuances of a
public nature or general applicability ineffective, until due publication thereof.

Separate Opinions

FERNANDO, C.J., concurring (with qualification):

There is on the whole acceptance on my part of the views expressed in the ably
written opinion of Justice Escolin. I am unable, however, to concur insofar as it
would unqualifiedly impose the requirement of publication in the Official Gazette for
unpublished "presidential issuances" to have binding force and effect.

I shall explain why.

1.
It is of course true that without the requisite publication, a due process
question would arise if made to apply adversely to a party who is not even aware of
the existence of any legislative or executive act having the force and effect of law.
My point is that such publication required need not be confined to the Official
Gazette. From the pragmatic standpoint, there is an advantage to be gained. It
conduces to certainty. That is too be admitted. It does not follow, however, that
failure to do so would in all cases and under all circumstances result in a statute,
presidential decree or any other executive act of the same category being bereft of
any binding force and effect. To so hold would, for me, raise a constitutional
question. Such a pronouncement would lend itself to the interpretation that such a
legislative or presidential act is bereft of the attribute of effectivity unless published
in the Official Gazette. There is no such requirement in the Constitution as Justice
Plana so aptly pointed out. It is true that what is decided now applies only to past
"presidential issuances". Nonetheless, this clarification is, to my mind, needed to
avoid any possible misconception as to what is required for any statute or
presidential act to be impressed with binding force or effectivity.

2.
It is quite understandable then why I concur in the separate opinion of Justice
Plana. Its first paragraph sets forth what to me is the constitutional doctrine
applicable to this case. Thus: "The Philippine Constitution does not require the
publication of laws as a prerequisite for their effectivity, unlike some Constitutions
elsewhere. It may be said though that the guarantee of due process requires notice
of laws to affected Parties before they can be bound thereby; but such notice is not
necessarily by publication in the Official Gazette. The due process clause is not that
precise. 1 I am likewise in agreement with its closing paragraph: "In fine, I concur in
the majority decision to the extent that it requires notice before laws become
effective, for no person should be bound by a law without notice. This is elementary
fairness. However, I beg to disagree insofar as it holds that such notice shall be by
publication in the Official Gazette. 2

3.
It suffices, as was stated by Judge Learned Hand, that law as the command of
the government "must be ascertainable in some form if it is to be enforced at all. 3
It would indeed be to reduce it to the level of mere futility, as pointed out by Justice
Cardozo, "if it is unknown and unknowable. 4 Publication, to repeat, is thus
essential. What I am not prepared to subscribe to is the doctrine that it must be in
the Official Gazette. To be sure once published therein there is the ascertainable
mode of determining the exact date of its effectivity. Still for me that does not
dispose of the question of what is the jural effect of past presidential decrees or
executive acts not so published. For prior thereto, it could be that parties aware of
their existence could have conducted themselves in accordance with their
provisions. If no legal consequences could attach due to lack of publication in the
Official Gazette, then serious problems could arise. Previous transactions based on
such "Presidential Issuances" could be open to question. Matters deemed settled
could still be inquired into. I am not prepared to hold that such an effect is
contemplated by our decision. Where such presidential decree or executive act is
made the basis of a criminal prosecution, then, of course, its ex post facto character
becomes evident. 5 In civil cases though, retroactivity as such is not conclusive on
the due process aspect. There must still be a showing of arbitrariness. Moreover,
where the challenged presidential decree or executive act was issued under the
police power, the non-impairment clause of the Constitution may not always be
successfully invoked. There must still be that process of balancing to determine
whether or not it could in such a case be tainted by infirmity. 6 In traditional
terminology, there could arise then a question of unconstitutional application. That
is as far as it goes.

4.
Let me make therefore that my qualified concurrence goes no further than to
affirm that publication is essential to the effectivity of a legislative or executive act
of a general application. I am not in agreement with the view that such publication

must be in the Official Gazette. The Civil Code itself in its Article 2 expressly
recognizes that the rule as to laws taking effect after fifteen days following the
completion of their publication in the Official Gazette is subject to this exception,
"unless it is otherwise provided." Moreover, the Civil Code is itself only a legislative
enactment, Republic Act No. 386. It does not and cannot have the juridical force of a
constitutional command. A later legislative or executive act which has the force and
effect of law can legally provide for a different rule.

5.
Nor can I agree with the rather sweeping conclusion in the opinion of Justice
Escolin that presidential decrees and executive acts not thus previously published in
the Official Gazette would be devoid of any legal character. That would be, in my
opinion, to go too far. It may be fraught, as earlier noted, with undesirable
consequences. I find myself therefore unable to yield assent to such a
pronouncement.

I am authorized to state that Justices Makasiar, Abad Santos, Cuevas, and Alampay
concur in this separate opinion.

Makasiar, Abad Santos, Cuevas and Alampay, JJ., concur.

TEEHANKEE, J., concurring:

I concur with the main opinion of Mr. Justice Escolin and the concurring opinion of
Mme. Justice Herrera. The Rule of Law connotes a body of norms and laws published
and ascertainable and of equal application to all similarly circumstances and not
subject to arbitrary change but only under certain set procedures. The Court has
consistently stressed that "it is an elementary rule of fair play and justice that a
reasonable opportunity to be informed must be afforded to the people who are
commanded to obey before they can be punished for its violation, 1 citing the
settled principle based on due process enunciated in earlier cases that "before the
public is bound by its contents, especially its penal provisions, a law, regulation or
circular must first be published and the people officially and specially informed of
said contents and its penalties.

Without official publication in the Official Gazette as required by Article 2 of the Civil
Code and the Revised Administrative Code, there would be no basis nor justification
for the corollary rule of Article 3 of the Civil Code (based on constructive notice that
the provisions of the law are ascertainable from the public and official repository
where they are duly published) that "Ignorance of the law excuses no one from
compliance therewith.

Respondents' contention based on a misreading of Article 2 of the Civil Code that

"only laws which are silent as to their effectivity [date] need be published in the
Official Gazette for their effectivity" is manifestly untenable. The plain text and
meaning of the Civil Code is that "laws shall take effect after fifteen days following
the completion of their publication in the Official Gazette, unless it is otherwise
provided, " i.e. a different effectivity date is provided by the law itself. This proviso
perforce refers to a law that has been duly published pursuant to the basic
constitutional requirements of due process. The best example of this is the Civil
Code itself: the same Article 2 provides otherwise that it "shall take effect [only] one
year [not 15 days] after such publication. 2 To sustain respondents' misreading that
"most laws or decrees specify the date of their effectivity and for this reason,
publication in the Official Gazette is not necessary for their effectivity 3 would be to
nullify and render nugatory the Civil Code's indispensable and essential requirement
of prior publication in the Official Gazette by the simple expedient of providing for
immediate effectivity or an earlier effectivity date in the law itself before the
completion of 15 days following its publication which is the period generally fixed by
the Civil Code for its proper dissemination.

MELENCIO-HERRERA, J., concurring:

I agree. There cannot be any question but that even if a decree provides for a date
of effectivity, it has to be published. What I would like to state in connection with
that proposition is that when a date of effectivity is mentioned in the decree but the
decree becomes effective only fifteen (15) days after its publication in the Official
Gazette, it will not mean that the decree can have retroactive effect to the date of
effectivity mentioned in the decree itself. There should be no retroactivity if the
retroactivity will run counter to constitutional rights or shall destroy vested rights.

PLANA, J., concurring (with qualification):

The Philippine Constitution does not require the publication of laws as a prerequisite
for their effectivity, unlike some Constitutions elsewhere. * It may be said though
that the guarantee of due process requires notice of laws to affected parties before
they can be bound thereby; but such notice is not necessarily by publication in the
Official Gazette. The due process clause is not that precise. Neither is the
publication of laws in the Official Gazette required by any statute as a prerequisite
for their effectivity, if said laws already provide for their effectivity date.

Article 2 of the Civil Code provides that "laws shall take effect after fifteen days
following the completion of their publication in the Official Gazette, unless it is
otherwise provided " Two things may be said of this provision: Firstly, it obviously
does not apply to a law with a built-in provision as to when it will take effect.
Secondly, it clearly recognizes that each law may provide not only a different period
for reckoning its effectivity date but also a different mode of notice. Thus, a law may
prescribe that it shall be published elsewhere than in the Official Gazette.

Commonwealth Act No. 638, in my opinion, does not support the proposition that for
their effectivity, laws must be published in the Official Gazette. The said law is
simply "An Act to Provide for the Uniform Publication and Distribution of the Official
Gazette." Conformably therewith, it authorizes the publication of the Official
Gazette, determines its frequency, provides for its sale and distribution, and defines
the authority of the Director of Printing in relation thereto. It also enumerates what
shall be published in the Official Gazette, among them, "important legislative acts
and resolutions of a public nature of the Congress of the Philippines" and "all
executive and administrative orders and proclamations, except such as have no
general applicability." It is noteworthy that not all legislative acts are required to be
published in the Official Gazette but only "important" ones "of a public nature."
Moreover, the said law does not provide that publication in the Official Gazette is
essential for the effectivity of laws. This is as it should be, for all statutes are equal
and stand on the same footing. A law, especially an earlier one of general
application such as Commonwealth Act No. 638, cannot nullify or restrict the
operation of a subsequent statute that has a provision of its own as to when and

how it will take effect. Only a higher law, which is the Constitution, can assume that
role.

In fine, I concur in the majority decision to the extent that it requires notice before
laws become effective, for no person should be bound by a law without notice. This
is elementary fairness. However, I beg to disagree insofar as it holds that such
notice shall be by publication in the Official Gazette.

Cuevas and Alampay, JJ., concur.

GUTIERREZ, Jr., J., concurring:

I concur insofar as publication is necessary but reserve my vote as to the necessity

of such publication being in the Official Gazette.

DE LA FUENTE, J., concurring:

I concur insofar as the opinion declares the unpublished decrees and issuances of a
public nature or general applicability ineffective, until due publication thereof.

Footnotes

1
Section 6. The right of the people to information on matters of public concern
shag be recognized, access to official records, and to documents and papers
pertaining to official acts, transactions, or decisions, shag be afforded the citizens
subject to such limitation as may be provided by law.

2
Anti-Chinese League vs. Felix, 77 Phil. 1012; Costas vs. Aidanese, 45 Phil.
345; Almario vs. City Mayor, 16 SCRA 151;Parting vs. San Jose Petroleum, 18 SCRA
924; Dumlao vs. Comelec, 95 SCRA 392.

16 Phil. 366, 378.

4
Camacho vs. Court of Industrial Relations, 80 Phil 848; Mejia vs. Balolong, 81
Phil. 486; Republic of the Philippines vs. Encamacion, 87 Phil. 843; Philippine
Blooming Mills, Inc. vs. Social Security System, 17 SCRA 1077; Askay vs. Cosalan, 46
Phil. 179.

1 Manresa, Codigo Civil 7th Ed., p. 146.

6
People vs. Que Po Lay, 94 Phil. 640; Balbuena et al. vs. Secretary of
Education, et al., 110 Phil. 150.

82 SCRA 30, dissenting opinion.

308 U.S. 371, 374.

93 Phil.. 68,.

10
The report was prepared by the Clerk of Court after Acting Director Florendo
S. Pablo Jr. of the Government Printing Office, failed to respond to her letter-request
regarding the respective dates of publication in the Official Gazette of the
presidential issuances listed therein. No report has been submitted by the Clerk of
Court as to the publication or non-publication of other presidential issuances.

11

129 SCRA 174.

Fernando, CJ.:

1
Separate Opinion of Justice Plana, first paragraph. He mentioned in tills
connection Article 7, Sec. 21 of the Wisconsin Constitution and State ex rel. White v.
Grand Superior Ct., 71 ALR 1354, citing the Constitution of Indiana, U.S.A

Ibid, closing paragraph.

Learned Hand, The Spirit of Liberty 104 (1960).

Cardozo, The Growth of the Law, 3 (1924).

5
Cf. Nunez v. Sandiganbayan, G.R. No. 50581-50617, January 30, 1982, 111
SCRA 433.

6
172.

Cf. Alalayan v. National Power Corporation, L-24396, July 29, 1968, 24 SCRA

Teehankee, J.:

1
People vs. de Dios, G.R. No. 11003, Aug. 3l, 1959, per the late Chief Justice
Paras.

Notes in brackets supplied.

Respondents: comment, pp. 14-15.

Plana, J.:

*
See e.g., Wisconsin Constitution, Art. 7, Sec. 21: "The legislature shall provide
publication of all statute laws ... and no general law shall be in force until
published." See also S ate ex rel. White vs. Grand Superior Ct., 71 ALR 1354, citing
Constitution of Indiana, U.S.A.
PHIL vs. COA
G.R. No. 132593 June 25, 1999
PHILIPPINE INTERNATIONAL TRADING CORPORATION, petitioner,
vs.
COMMISSION ON AUDIT, respondent.

GONZAGA-REYES, J.:
This is a petition for certiorari under Rule 64 of the 1997 Rules of Civil Procedure to annul Decision
No. 2447 dated July 27, 1992 of the Commission on Audit (COA) denying Philippine International
Trading Corporation's (PITC) appeal from the disallowances made by the resident COA auditor on
PITC's car plan benefits; and Decision No. 98-048 dated January 27, 1998 of the COA denying
PITC's motion for reconsideration.
The following facts are undisputed:
The PITC is a government-owned and controlled corporation created under Presidential Decree
(PD) No. 252 on July 21, 1973 1, primarily for the purpose of promoting and developing Philippine trade
in pursuance of national economic development. On October 19, 1988, the PITC Board of Directors
approved a Car Plan Program for qualified PITC officers. 2 Under such car plan program, an eligible officer
is entitled to purchase a vehicle, fifty percent (50%) of the value of which shall be shouldered by PITC
while the remaining fifty percent (50%) will be shouldered by the officer through salary deduction over a
period of five (5) years. Maximum value of the vehicle to be purchased ranges from Two Hundred
Thousand Pesos (P200,000.00) to Three Hundred and Fifty Thousand Pesos (P350,000.00), depending
on the position of the officer in the corporation. In addition, PITC will reimburse the officer concerned fifty
percent (50%) of the annual car registration, insurance premiums and costs of registration of the chattel
mortgage over the car for a period of five (5) years from the date the vehicle was purchased. The terms
and conditions of the car plan are embodied in a "Car Loan Agreement". 3 Per PITC's car plan guidelines,
the purpose of the plan is to provide financial assistance to qualified employees in purchasing their own
transportation facilities in the performanced of their work, for representation, and personal use. 4 The plan
is envisioned to facilitate greater mobility during official trips especially within Metro Manila or the
employee's principal place of assignment, without having to rely on PITC vehicles, taxis or cars for hire. 5
On July 1, 1989, Republic Act No. 6758 (RA 6758), entitled "An Act Prescribing a Revised
Compensation and Position Classification System in the Government and For Other Purposes", took
effect. Section 12 of said law provides for the consolidation of allowances and additional
compensation into standardized salary rates save for certain additional compensation such as
representation and transportation allowances which were exempted from consolidation into the

standardized rate. Said section likewise provides that other additional compensation being received
by incumbents as by of July 1, 1989 not integrated into the standardized salary rates shall continue
to be authorized.
Sec. 12, RA 6758, reads
Sec. 12. Consolidation of All Allowances and Compensation. All allowances,
except for representation and transportation allowances; clothing and laundry
allowances; subsistence allowance of marine officers and crew on board government
vessels and hospital personnel; hazard pay; allowances of foreign service personnel
stationed abroad; and such other additional compensation not otherwise specified
herein as may be determined by the DBM, shall be deemed included in the
standardized salary rates herein prescribed. Such other additional compensation,
whether in cash or in kind, being received by incumbents only as of July 1, 1989 not
integrated into the standardized salary rates shall continue to be authorized.
To implement RA 6758, the Department of Budget and Management (DBM) issued Corporate
Compensation Circular No. 10 (DBM-CCC No. 10). Paragraph 5.6 of DBM-CCC No. 10 discontinued
effective November 1, 1989, all allowances and fringe benefits granted on top of basic salary, not
otherwise enumerated under paragraphs 5.4 and 5.5 thereof.
Paragraph 5.6 of DBM-CCC No. 10 provides:
5.6 Payment of other allowances/fringe benefits and all other forms of compensation
granted on top of basic salary, whether in cash or in kind, not mentioned in Subparagraphs 5.4 and 5.5 6 above shall be discontinued effective November 1, 1989.
Payment made for such allowance/fringe benefits after said date shall be considered as
illegal disbursement of public funds.
On post audit, the payment/reimbursement of the above-mentioned expenses (50% of the yearly car
registration and insurance premiums and 50% of the costs of registration of the chattel mortgage
over the car) made after November 1, 1989 was disallowed by the resident COA auditor. The
disallowance was made on the ground that the subject car plan benefits were not one of the fringe
benefits or form of compensation allowed to be continued after said date under the aforequoted
paragraph 5.6 of DBM-CCC No. 10 7, in relation to Paragraphs 5.4 and 5.5 thereof.
PITC, on its behalf, and that of the affected PITC officials, appealed the decision of the resident COA
auditor to the COA. On July 27, 1992, COA denied PITC's appeal and affirmed the disallowance of
the said car plan expenses in the assailed Decision No. 2447 dated July 27, 1992. Relevant portions
of the decision read thus:
Upon circumspect evaluation thereof, this Commission finds the instant appeal to be
devoid of merit. It should be noted that the reimbursement/payment of expenses in
question is based on the Car Plan benefit granted under Board Resolution No. 1088-03 adopted by the PITC Board of Directors on October 19, 1988. The Car Plan is
undeniably a fringe benefit as appearing in PITC's "Compensation Policy under the
heading "3. Other Fringe Benefits", particularly Item No. 3.13 thereof. Inasmuch as
PITC is a government-owned and/or controlled corporation, the grant of the Car Plan
(being a fringe benefit) should be governed by the provisions of Corporate
Compensation Circular No. 10, implementing RA 6758. Under sub-paragraph 5.6 of
said Circular, it explicitly provides:

xxx xxx xxx

Since the Car Plan benefit is not one of those fringe benefits or other forms of
compensation mentioned in Sub-paragraphs 5.4 and 5.5 of CCC No. 10,
consequently the reimbursement of the 50% share of PITC in the yearly registration
and insurance premium of the cars purchased under said Car Plan benefit should not
be allowed. . . . 8
PITC's motion for reconsideration was denied by the COA in its Resolution dated January 27, 1998. 9
Hence, the instant petition on the following grounds:
1. That the legislature did not intend to revoke existing benefits being
received by incumbent government employees as of July 1, 1989
(including subject car plan benefits) when RA 6758 was passed;
2. That the Car Loan Agreements signed between PITC and its
officers pursuant to PITC's Car Plan Program, including the Car Loan
Agreements, duly executed prior to the effectivity of RA 6758,
constitute the law between the parties and as such, protected by
Section 10, Article III of the 1987 Philippine Constitution which
prohibits the impairment of contracts; and
3. Finally, that the provisions of PD 985 do not apply to PITC
inasmuch as under its Revised Charter, PD 1071, as amended by
E.O. 756 and E.O. 1067, PITC is not only expressly exempted from
OCPC rules and regulations but its Board of Directors was expressly
authorized to adopt compensation policies and other related benefits
to its officers/employees without need for further approval thereof by
any government office, agency or authority. 10
The petition is meritorious.
First of all, we must mention that this Court has confirmed in Philippine Post Authority
vs. Commission on Audit 11the legislative intent to protect incumbents who are receiving salaries and/or
allowances over and above those authorized by RA 6758 to continue to receive the same even after RA
6758 took effect. In reserving the benefit to incumbents, the legislature has manifested its intent to
gradually phase out this privilege without upsetting the policy of non-diminution of pay and consistent with
the rule that laws should only be applied prospectively in the spirit of fairness and justice. 12 Addressing
the issue as to whether the petitioners-officials may still receive their representation and transportation
allowance (RATA) at the higher rates provided by Letter of Implementation (LOI) No. 97 in light of Section
12, RA 6758, this Court said:
Now, under the second sentence of Section 12, first paragraph, the RATA enjoyed by
these PPA officials shall continue to be authorized only if they are "being received by
incumbents only as of July 1, 1989." RA 6758 has therefore, to this extent, amended
LOI No. 97. By limiting the benefit of the RATA granted by LOI No. 97 to incumbents,
Congress has manifested its intent to gradually phase out this privilege without
upsetting its policy of non-diminution of pay.
The legislature has similarly adhered to this policy of non-diminution of pay when it
provided for the transition allowance under Section 17 of RA 6758 which reads:

Sec. 17. Salaries of Incumbents. Incumbents of position presently

receiving salaries and additional compensation/fringe benefits
including those absorbed from local government units and other
emoluments the aggregate of which exceeds the standardized salary
rate as herein prescribed, shall continue to receive such excess
compensation, which shall be referred to as transition allowance. The
transition allowance shall be reduced by the amount of salary
adjustment that the incumbent shall receive in the future.
While Section 12 refers to allowances that are not integrated into the standardized
salaries whereas Section 17 refers to salaries and additional compensation or fringe
benefits, both sections are intended to protect incumbents who are receiving said
salaries and/or allowances at the time RA 6758 took effect. 13 (Emphasis supplied.)
Based on the foregoing pronouncement, petitioner correctly pointed out that there was no intention
on the part of the legislature to revoke existing benefits being enjoyed by incumbents of government
positions at the time of the virtue of Sections 12 and 17 thereof. There is no dispute that the PITC
officials who availed of the subject car plan benefits were incumbents of their positions as of July 1,
1989. Thus, it was legal and proper for them to continue enjoying said benefits within the five year
period from date of purchase of the vehicle allowed by their Car Loan Agreements with PITC.
Further, we see the rationale for the corporation's fifty percent (50%) participation and contribution to
the subject expenses. As to the insurance premium, PITC, at least, up to the extent of 50% of the
value of the vehicle, has an insurable interest in said vehicle in case of loss or damage thereto. As to
the costs of registration of the vehicle in the employee's name and of the chattel mortgage in favor of
PITC, this is to secure PITC of the repayment of the "Car Loan Agreement" and the fulfillment of the
other obligations contained therein by the employee.
Still further, the vehicle being utilized by the officer is actually being used for corporate purposes
because the officer concerned is no longer entitled to utilize company-owned vehicles for official
business once he/she has availed of a car plan. Neither is said officer allowed to reimburse the costs
of other land transportation used within his principal place of assignment (i.e. Metro Manila) as the
vehicle is presumed to be his official vehicle. 14 In the event that the employee resigns, retires or is
separated from the company without cause prior to the completion of the 60-month car plan, the
employee shall be given the privilege to buy the car provided he pays the remaining installments of the
loan and the amount equivalent to that portion of the company's contribution corresponding to the
unexpired period of the car plan. On the other hand, if the employee has been separated from the
company for cause, the company has the other option aside from the foregoing to repossess the car from
the employee, in which case, the company shall pay back to the employee all amortizations already made
by the employee to the company, interest free.15
Secondly, COA relied on DBM-CCC No. 10 16 as basis for the disallowance of the subject car plan
benefits. DBM-CCC No. 10 which was issued by the DBM pursuant to Section 23 17 of RA 6758
mandating the said agency to issue the necessary guidelines to implement RA 6758 has been declared
by this Court in De Jesus, et al. vs. Commission on Audit, et al. 18 as of no force and effect due to the
absence of publication thereof in the Official Gazette or in a newspaper of general circulation. Salient
portions of said decision read:
On the need publication of subject DBM-CCC No. 10, we rule in the affirmative.
Following the doctrine enunciated in Tanada 19, publication in the Official Gazette or in a
newspaper of general circulation in the Philippines is required since DBM-CCC No. 10 is
in the nature of an administrative circular the purpose of which is to enforce or implement
an existing law. Stated differently, to be effective and enforceable, DBM-CCC No. 10

must go through the requisite publication in the Official Gazette or in a newspaper of

general circulation in the Philippines.

In the present case under scrutiny, it is decisively clear that DBM-CCC No. 10, which
completely disallows payment of allowances and other additional compensation to
government officials and employees, starting November 1, 1989, is not a mere
interpretative or internal regulation. It is something more than that. And why not,
when it tends to deprive government workers of their allowances and additional
compensation sorely needed to keep body and soul together. At the very least,
before the circular under attack may be permitted to substantially reduce their
income, the government officials and employees concerned should be apprised and
alerted by the publication of said circular in the Official Gazette or in a newspaper or
general circulation in the Philippines to the end that they be given amplest
opportunity to voice out whatever opposition they may have, and to ventilate their
stance on the matter. This approach is more in keeping with democratic precepts and
rudiments of fairness and transparency.
In the case at bar, the disallowance of the subject car plan benefits would hamper the officials in the
performance of their functions to promote and develop trade which requires mobility in the
performance of official business. Indeed, the car plan benefits are supportive of the implementation
of the objectives and mission of the agency relative to the nature of its operation and responsive to
the exigencies of the service.
It has come to our knowledge that DBM-CCC No. 10 has been re-issued in its entirety and submitted
for publication in the Official Gazette per letter to the National Printing Office dated March 9, 1999.
Would the subsequent publication thereof cure the defect and retroact to the time that the abovementioned items were disallowed in audit?
The answer is in the negative, precisely, for the reason that publication is required as a condition
precedent to the effectivity of a law to inform the public of the contents of the law or rules and
regulations before their rights and interests are affected by the same. From the time the COA
disallowed the expenses in audit up to the filing of herein petition the subject circular remained in
legal limbo due to its non-publication. As was stated in Tanada vs.Tuvera, 21, "prior publication of laws
before they become effective cannot be dispensed with, for the reason that such omission would offend
due process insofar as it would deny the public knowledge of the laws that are supposed to govern it.
In view of the nullity of DBM-CCC No. 10 relied upon by the COA as basis for the disallowance of the
subject car plan benefits, we deem it unnecessary to discuss the second issue raised in the instant
petition.
We deem it necessary though to resolve the third issue as to whether PITC is exempt from RA
985 22 as subsequently amended by RA 6758. According to petitioner, PITC's Revised Charter, PD 1071
dated January 25, 1977, as amended by EO 756 dated December 29, 1981, and further amended by EO
1067 dated November 25, 1985, expressly exempted PITC from the Office of the Compensation and
Position Classification (OCPC) rules and regulations. Petitioner cites Section 28 of P.D. 1071 23; Section 6
of EO 756 24; and Section 3 of EO 1067. 25
According to the COA in its Decision No. 98-048 dated January 27, 1998, the exemption granted to
the PITC has been repealed and revoked by the repealing provisions of RA 6758, particularly
Section 16 thereof which provides:

Sec. 16. Repeal of Special Salary Laws and Regulations. All laws, decrees,
executive, orders, corporate charters, and other issuances or parts thereof, that
exempt agencies from the coverage of the System, or that authorize and fix position
classifications, salaries, pay rates or allowances of specified positions, or groups of
officials, and employees or of agencies, which are inconsistent with the System,
including the proviso under Section 2 and Section 16 of PD No. 985 are hereby
repealed.
To this, petitioner argues that RA 6758 which is a law of general application cannot repeal provisions
of the Revised Charter of PITC and its amendatory laws expressly exempting PITC from OCPC
coverage being special laws. Our rules on statutory construction provide that a special law cannot be
repealed, amended or altered by a subsequent general law by mere
implication 26; that a statute, general in character as to its terms and application, is not to be construed as
repealing a special or specific enactment, unless the legislative purpose to do so is manifested 27; that if
repeal of particular or specific law or laws is intended, the proper step is to so express it. 28
In the case at bar, the repeal by Section 16 of RA 6758 of "all corporate charters that exempt
agencies from the coverage of the System" was clear and expressed necessarily to achieve the
purposes for which the law was enacted, that is, the standardization of salaries of all employees in
government owned and/or controlled corporations to achieve "equal pay for substantially equal
work". Henceforth, PITC should now be considered as covered by laws prescribing a compensation
and position classification system in the government including RA 6758. This is without prejudice,
however, as discussed above, to the non-diminution of pay of incumbents as of July 1, 1989 as
provided in Sections 12 and 17 of said law.
WHEREFORE, the Petition is hereby GRANTED, the assailed Decisions of the Commission on Audit
are SET ASIDE.
SO ORDERED.
Davide, Jr., C.J., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Quisumbing, Purisima,
Pardo and Ynares-Santiago, JJ., concur.
Panganiban and Buena, JJ., are on leave.
Footnotes

1 Amended by PD 1071 on January 19, 1977, later by Executive Order (EO) No. 756 on
December 29, 1981, and EO No. 1067 on November 25, 1985.
2 Resolution No. 10-88-03.
3 Rollo, p. 53.
4 Ibid., p. 43.
5 Id.
6 5.4 The rates of the following allowances/fringe benefits which are not integrated into the
basic salary and which are allowed to be continued after June 30, 1989 shall be subject to
the condition that the grant of such benefits is covered by statutory authority:

5.4.1 Representation and Transportation Allowances (RATA) of

incumbent of the position authorized to receive the same at the
highest amount legally authorized as of June 30, 1989 for the level of
his position within the particular GOCC/GFI;.
5.4.2 Uniform and Clothing Allowance at a rate as previously
authorized;
5.4.3 Hazard pay as authorized by law;
5.4.4 Honoraria/additional compensation for employees on detail with
special projects or inter-agency undertakings;
5.4.5 Honoraria for services rendered by researchers, experts and
specialists who are of acknowledged authorities in their fields of
specialization;
5.4.6 Honoraria for lecturers and resource persons/speakers;
5.4.7 Overtime pay in accordance to Memorandum Order No. 228;
5.4.8 Clothing/laundry allowances and subsistence allowance of
marine officers and crew on board GOCCs/GFIs owned vessels and
used in their operations, and of hospital personnel who attend directly
to patients and who by nature of their duties are required to wear
uniforms;
5.4.9 Quarters Allowance of officials and employees who are
presently entitled to the same;
5.4.10 Overseas, Living Quarters and other allowances presently
authorized for personnel stationed abroad;
5.4.11 Night Differential of personnel on night duty;
5.4.12 Per Diems of members of the governing Boards of
GOCCs/GFIs at the rate as prescribed in their respective Charters;
5.4.13 Flying Pay of personnel undertaking serial flights;
5.4.14 Per Diems/Allowances of Chairman and Members/Staff of
collegial bodies and Committee; and,
5.4.15 Per Diems/Allowances of officials and employees on official
foreign and local travel outside of their official station.
5.5 Other allowances/fringe benefits not likewise integrated into the basic salary and allowed
to be continued only for incumbents as of June 30, 1989 subject to the condition that the
grant of same is with appropriate authorization either from the DBM, Office of the President
or legislative issuances areas follows:

5.5.1 Rice Subsidy

5.5.2 Sugar Subsidy
5.5.3 Death Benefits other than those granted by the GSIS;
5.5.4 Medical/dental/optical allowances/benefits;
5.5.5 Children's allowance;
5.5.6 Special Duty Pay/Allowance;
5.5.7 Meal Subsidy;
5.5.8 Longevity Pay; and
5.5.9 Teller's Allowance
7 Rollo, p. 31.
8 Id., pp. 30-31.
9 Id., p. 23.
10 Id., p. 8.
11 214 SCRA 653.
12 Erectors, Inc. vs. National Labor Relations Commission, 256 SCRA 629.
13 See note 11, p. 660.
14 Rollo, p. 39.
15 Ibid., pp. 49-50.
16 Rules and Regulations for the Implementation of the Revised Compensation and Position
Classification System Prescribed Under R.A. No. 6758 for Government Owned And/Or
Controlled Corporations (GOCC's) and Government Financial Institutions (GFIs).
17 Sec. 23. Effectivity. Thin Act shall take effect July 1, 1989. The DBM shall within sixty
(60) days after its approval allocate all positions in their appropriate position titles and salary
grades and prepare and issue the necessary guidelines to implement the same.
18 G.R. No. 109023, August 12, 1998.
19 Referring to Tanada vs. Tuvera, 146 SCRA 453.
20 Supra, at pp. 7-8.

21 supra.
22 "A Decree Revising The Position Classification and Compensation Systems In The
National Government, And Integrating The Same" issued on August 22, 1976, to standardize
the compensation of government officials and employees, including those in governmentowned and/or controlled corporations.
23 Sec. 28. Personnel Recruitment The corporation shall adopt a special recruitment and
employment scheme that is responsive to the commercial nature of its operations. Further,
the corporation is hereby authorized to extend permanent appointment to, or contract the
services of, trained and experienced persons, even without civil eligibility, for its manpower
building as a competing trading firm. In view of the pioneering nature of its operation, the
Corporation shall continue to be exempt from the OCPC rules and regulations.
24 Sec. 6. Exemption from OCPC In recognition of the special nature of its operations, the
Corporation shall continue to be exempt from the application of the rules and regulations of
the Office of the Compensation and Position Classification or any other similar agencies that
may be established hereafter as provided under Presidential Decree 1071. . . .
25 Sec. 3. Compensation Policies. The compensation policies including allowances, merit
increases and other employee benefits for all officers and employees adopted by the Board
of Directors are hereby approved in accordance with P.D. Nos. 1177 and 1597. Any future
changes approved by the Board that may be deemed necessary shall not require any
referral to or approval of any other authority, agency or office.
1wphi1.nt

26 Laguna Lake Development Authority vs. Court of Appeals, 251 SCRA 42.
27 Commissioner of Internal Revenue vs. Court of Appeals, 207 SCRA 487.
28 Agujetas vs. Court of Appeals, 258 SCRA 17.

Phil veterans bank employees v VEGA

PHILIPPINE VETERANS BANK EMPLOYEES UNION-N.U.B.E. and

PERFECTO
V.
FERNANDEZ, petitioners,
vs. HONORABLE
BENJAMIN VEGA, Presiding Judge of Branch 39 of the REGIONAL
TRIAL COURT of Manila, the CENTRAL BANK OF THE
PHILIPPINES and THE LIQUIDATOR OF THE PHILIPPINE
VETERANS BANK, respondents
DECISION
KAPUNAN, J.:

May a liquidation court continue with liquidation proceedings of the Philippine Veterans
Bank (PVB) when Congress had mandated its rehabilitation and reopening?

This is the sole issue raised in the instant Petition for Prohibition with Petition for
Preliminary Injunction and application for Ex Parte Temporary Restraining Order.
The antecedent facts of the case are as follows:
Sometime in 1985, the Central Bank of the Philippines (Central Bank, for brevity) filed with
Branch 39 of the Regional Trial Court of Manila a Petition for Assistance in the Liquidation of
the Philippine Veterans Bank, the same docketed as Case No. SP-32311. Thereafter, the
Philipppine Veterans Bank Employees Union-N.U.B.E., herein petitioner, represented by
petitioner Perfecto V. Fernandez, filed claims for accrued and unpaid employee wages and
benefits with said court in SP-32311.[1]
After lengthy proceedings, partial payment of the sums due to the employees were
made. However, due to the piecemeal hearings on the benefits, many remain unpaid.[2]
On March 8, 1991, petitioners moved to disqualify the respondent judge from hearing the
above case on grounds of bias and hostility towards petitioners.[3]
On January 2, 1992, the Congress enacted Republic Act No. 7169 providing for the
rehabilitation of the Philippine Veterans Bank.[4]
Thereafter, petitioners filed with the labor tribunals their residual claims for benefits and for
reinstatement upon reopening of the bank.[5]
Sometime in May 1992, the Central Bank issued a certificate of authority allowing the PVB
to reopen.[6]
Despite the legislative mandate for rehabilitation and reopening of PVB, respondent
judge continued with the liquidation proceedings of the bank. Moreover, petitioners learned that
respondents were set to order the payment and release of employee benefits upon motion of
another lawyer, while petitioners claims have been frozen to their prejudice.
Hence, the instant petition.
Petitioners argue that with the passage of R.A. 7169, the liquidation court became functus
officio, and no longer had the authority to continue with liquidation proceedings.
In a Resolution, dated June 8, 1992, the Supreme Court resolved to issue a Temporary
Restraining Order enjoining the trial court from further proceeding with the case.
On June 22, 1992, VOP Security & Detective Agency (VOPSDA) and its 162 security
guards filed a Motion for Intervention with prayer that they be excluded from the operation of

the Temporary Restraining Order issued by the Court. They alleged that they had filed a motion
before Branch 39 of the RTC of Manila, in SP-No. 32311, praying that said court order PVB to
pay their backwages and salary differentials by authority of R.A. No 6727, Wage Orders No.
NCR-01 and NCR-01-Ad and Wage Orders No. NCR-02 and NCR-02-A; and, that said court, in
an Order dated June 5, 1992, approved therein movants case and directed the bank liquidator or
PVB itself to pay the backwages and differentials in accordance with the computation
incorporated in the order. Said intervenors likewise manifested that there was an error in the
computation of the monetary benefits due them.
On August 18, 1992, petitioners, pursuant to the Resolution of this Court, dated July 6, 1992,
filed their Comment opposing the Motion for Leave to File Intervention and for exclusion from
the operation of the T.R.O. on the grounds that the movants have no legal interest in the subject
matter of the pending action; that allowing intervention would only cause delay in the
proceedings; and that the motion to exclude the movants from the T.R.O. is without legal basis
and would render moot the relief sought in the petition.
On September 3, 1992, the PVB filed a Petition-In-Intervention praying for the issuance of
the writs of certiorari and prohibition under Rule 65 of the Rules of Court in connection with the
issuance by respondent judge of several orders involving acts of liquidation of PVB even after
the effectivity of R.A. No. 7169. PVB further alleges that respondent judge clearly acted in
excess of or without jurisdiction when he issued the questioned orders.
We find for the petitioners.
Republic Act No. 7169 entitled An Act To Rehabilitate The Philippine Veterans Bank
Created Under Republic Act No. 3518, Providing The Mechanisms Therefor, And For Other
Purposes, which was signed into law by President Corazon C. Aquino on January 2, 1992 and
which was published in the Official Gazette on February 24, 1992, provides in part for the
reopening of the Philippine Veterans Bank together with all its branches within the period of
three (3) years from the date of the reopening of the head office. [7] The law likewise provides for
the creation of a rehabilitation committee in order to facilitate the implementation of the
provisions of the same.[8]
Pursuant to said R.A. No. 7169, the Rehabilitation Committee submitted the proposed
Rehabilitation Plan of the PVB to the Monetary Board for its approval. Meanwhile, PVB filed a
Motion to Terminate Liquidation of Philippine Veterans Bank dated March 13, 1992 with the
respondent judge praying that the liquidation proceedings be immediately terminated in view of
the passage of R.A. No. 7169.
On April 10, 1992, the Monetary Board issued Monetary Board Resolution No. 348 which
approved the Rehabilitation Plan submitted by the Rehabilitaion Committee.

Thereafter, the Monetary Board issued a Certificate of Authority allowing PVB to reopen.
On June 3, 1992, the liquidator filed A Motion for the Termination of the Liquidation
Proceedings of the Philippine Veterans Bank with the respondent judge.
As stated above, the Court, in a Resolution dated June 8, 1992, issued a temporary
restraining order in the instant case restraining respondent judge from further proceeding with
the liquidation of PVB.
On August 3, 1992, the Philippine Veterans Bank opened its doors to the public and started
regular banking operations.
Clearly, the enactment of Republic Act No. 7169, as well as the subsequent developments
has rendered the liquidation court functus officio. Consequently, respondent judge has been
stripped of the authority to issue orders involving acts of liquidation.
Liquidation, in corporation law, connotes a winding up or settling with creditors and debtors.
It is the winding up of a corporation so that assets are distributed to those entitled to receive
them. It is the process of reducing assets to cash, discharging liabilities and dividing surplus or
loss.
[9]

On the opposite end of the spectrum is rehabilitation which connotes a reopening or

reorganization. Rehabilitation contemplates a continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position of successful operation and
solvency.[10]
It is crystal clear that the concept of liquidation is diametrically opposed or contrary to the
concept of rehabilitation, such that both cannot be undertaken at the same time. To allow the
liquidation proceedings to continue would seriously hinder the rehabilitation of the subject bank.
Anent the claim of respondents Central Bank and Liquidator of PVB that R.A. No. 7169
became effective only on March 10, 1992 or fifteen (15) days after its publication in the Official
Gazette; and, the contention of intervenors VOP Security, et. al. that the effectivity of said law is
conditioned on the approval of a rehabilitation plan by the Monetary Board, among others, the
Court is of the view that both contentions are bereft of merit.
While as a rule, laws take effect after fifteen (15) days following the completion of their
publication in the Official Gazette or in a newspaper of general circulation in the Philippines, the
legislature has the authority to provide for exceptions, as indicated in the clause unless otherwise
provided.
In the case at bar, Section 10 of R.A. No. 7169 provides:

Sec. 10. Effectivity. - This Act shall take effect upon its approval.
Hence, it is clear that the legislature intended to make the law effective immediately upon its
approval. It is undisputed that R.A. No. 7169 was signed into law by President Corazon C.
Aquino on January 2, 1992. Therefore, said law became effective on said date.
Assuming for the sake of argument that publication is necessary for the effectivity of R.A.
No. 7169, then it became legally effective on February 24, 1992, the date when the same was
published in the Official Gazette, and not on March 10, 1992, as erroneously claimed by
respondents Central Bank and Liquidator.
WHEREFORE, in view of the foregoing, the instant petition is hereby GIVEN
DUE COURSE and GRANTED. Respondent Judge is hereby PERMANENTLY ENJOINED
from further proceeding with Civil Case No. SP- 32311.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.

Government v. El Hogar Filipino

Today is Sunday, July 19, 2015

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Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-26649

July 13, 1927

THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on relation of the AttorneyGeneral), plaintiff,
vs.
EL HOGAR FILIPINO, defendant.

Attorney-General Jaranilla and Solicitor-General Reyes for plaintiff.

Fisher, DeWitt, Perkins and Brady; Camus, Delgado and Recto and Antonio Sanz for
defendant.
Wm. J. Rohde as amicus curiae.

STREET, J.:

This is a quo warranto proceeding instituted originally in this court by the

Government of the Philippine Islands on the relation of the Attorney-General against
the building and loan association known as El Hogar Filipino, for the purpose of
depriving it of its corporate franchise, excluding it from all corporate rights and
privileges, and effecting a final dissolution of said corporation. The complaint
enumerates seventeen distinct causes of action, to all of which the defendant has
answered upon the merits, first admitting the averments of the first paragraph in
the statement of the first cause of action, wherein it is alleged that the defendant
was organized in the year 1911 as a building and loan association under the laws of
the Philippine Islands, and that, since its organization, the corporation has been
doing business in the Philippine Islands, with its principal office in the City of Manila.
Other facts alleged in the various causes of action in the complaint are either
denied in the answer or controverted in legal effect by other facts.

After issue had been thus joined upon the merits, the attorneys entered into an
elaborate agreement as to the fact, thereby removing from the field of dispute such
matters of fact as are necessary to the solution of the controversy. It follows that we
are here confronted only with the legal questions arising upon the agreed
statement.

On March 1, 1906, the Philippine Commission enacted what is known as the

Corporation Law (Act No. 1459) effective upon April 1 of the same year. Section 171
to 190, inclusive, of this Act are devoted to the subject of building and loan
associations, defining their objects making various provisions governing their
organization and administration, and providing for the supervision to be exercised
over them. These provisions appear to be adopted from American statutes
governing building and loan associations and they of course reflect the ideals and
principles found in American law relative to such associations. The respondent, El
Hogar Filipino, was apparently the first corporation organized in the Philippine
Islands under the provisions cited, and the association has been favored with
extraordinary success. The articles of incorporation bear the date of December 28,
1910, at which time capital stock in the association had been subscribed to the
amount of P150,000 of which the sum of P10,620 had been paid in. Under the law
as it then stood, the capital of the Association was not permitted to exceed
P3,000,000, but by Act No. 2092, passed December 23, 1911, the statute was so
amended as to permit the capitalization of building and loan associations to the
amount of ten millions. Soon thereafter the association took advantage of this
enactment by amending its articles so as to provide that the capital should be in an
amount not exceeding the then lawful limit. From the time of its first organization
the number of shareholders has constantly increased, with the result that on
December 31, 1925, the association had 5,826 shareholders holding 125,750
shares, with a total paid-up value of P8,703,602.25. During the period of its
existence prior to the date last above-mentioned the association paid to
withdrawing stockholders the amount of P7,618,257,.72; and in the same period it
distributed in the form of dividends among its stockholders the sum of
P7,621,565.81.

First cause of action. The first cause of action is based upon the alleged illegal
holding by the respondent of the title to real property for a period in excess of five
years after the property had been bought in by the respondent at one of its own
foreclosure sales. The provision of law relevant to the matter is found in section 75
of Act of Congress of July 1, 1902 (repeated in subsection 5 of section 13 of the
Corporation Law.) In both of these provisions it is in substance declared that while
corporations may loan funds upon real estate security and purchase real estate
when necessary for the collection of loans, they shall dispose of real estate so
obtained within five years after receiving the title.

In this connection it appears that in the year 1920 El Hogar Filipino was the holder
of a recorded mortgage upon a tract of land in the municipality of San Clemente,
Province of Tarlac, as security for a loan of P24,000 to the shareholders of El Hogar
Filipino who were the owners of said property. The borrowers having defaulted in

their payments, El Hogar Filipino foreclosed the mortgage and purchased the land at
the foreclosure sale for the net amount of the indebtedness, namely, the sum of
P23,744.18. The auction sale of the mortgaged property took place November 18,
1920, and the deed conveying the property to El Hogar Filipino was executed and
delivered December 22, 1920. On December 27, 1920, the deed conveying the
property to El Hogar Filipino was sent to the register of deeds of the Province of
Tarlac, with the request that the certificate of title then standing in the name of the
former owners be cancelled and that a new certificate of title be issued in the name
of El Hogar Filipino. Said deed was received in the office of the register of deeds of
Tarlac on December 28, 1920, together with the old certificate of title, and
thereupon the register made upon the said deed the following annotation:

The foregoing document was received in this office at 4.10 p. m., December 28,
1920, according to entry 1898, page 50 of Book One of the Day Book and registered
on the back of certificate of title No. 2211 and its duplicate, folio 193 of Book A-10
of the register of original certificate. Tarlac, Tarlac, January 12, 1921. (Sgd.) SILVINO
LOPEZ DE JESUS, Register of Deeds.

For months no reply was received by El Hogar Filipino from the register of deeds of
Tarlac, and letters were written to him by El Hogar Filipino on the subject in March
and April, 1921, requesting action. No answer having been received to these letters,
a complaint was made by El Hogar Filipino to the Chief of the General Land
Registration Office; and on May 7, 1921, the certificate of title to the San Clemente
land was received by El Hogar Filipino from the register of deeds of Tarlac.

On March 10, 1921, the board of directors of El Hogar Filipino adopted a resolution
authorizing Vicente Bengzon, an agent of the corporation, to endeavor to find a
buyer for the San Clemente land. On July 27, 1921, El Hogar Filipino authorized one
Jose Laguardia to endeavor to find a purchaser for the San Clemente land for the
sum of P23,000 undertaking to pay the said Laguardia a commission of 5 per
centum of the selling price for his services, but no offers to purchase were obtained
through this agent or through the agent Bengzon. In July, 1923, plans of the San
Clemente land were sent to Mr. Luis Gomez, Mr. J. Gonzalez and Mr. Alfonso de
Castelvi, as prospective purchasers, but no offers were received from them. In
January, 1926, the agent not having succeeded in finding a buyer, the San
Clemente land was advertised for sale by El Hogar Filipino in El Debate, La
Vanguardia and Taliba, three newspapers of general circulation in the Philippine
Islands published in the City of Manila. On March 16, 1926, the first offer for the
purchase of the San Clemente land was received by El Hogar Filipino. This offer was
made to it in writing by one Alcantara, who offered to buy it for the sum of P4,000,

Philippine currency, payable P500 in cash, and the remainder within thirty days.
Alcantara's offer having been reported by the manager of El Hogar Filipino to its
board of directors, it was decided, by a resolution adopted at a meeting of the board
held on March 25, 1926, to accept the offer, and this acceptance was
communicated to the prospective buyer. Alcantara was given successive extensions
of the time, the last of which expired April 30, 1926, within which to make the
payment agreed upon; and upon his failure to do so El Hogar Filipino treated the
contract with him as rescinded, and efforts were made at once to find another
buyer. Finally the land was sold to Doa Felipa Alberto for P6,000 by a public
instrument executed before a notary public at Manila, P. I., on July 30, 1926.

Upon consideration of the facts above set forth it is evident that the strict letter of
the law was violated by the respondent; but it is equally obvious that its conduct
has not been characterized by obduracy or pertinacity in contempt of the law.
Moreover, several facts connected with the incident tend to mitigate the offense.
The Attorney-General points out that the respondent acquired title on December 22,
1920, when the deed was executed and delivered, by which the property was
conveyed to it as purchaser at its foreclosure sale, and this title remained in it until
July 30, 1926, when the property was finally sold to Felipa Alberto. The interval
between these two conveyances is thus more than five years; and it is contended
that the five year period did not begin to run against the respondent until May 7,
1921, when the register of deeds of Tarlac delivered the new certificate of title to
the respondent pursuant to the deed by which the property was acquired. As an
equitable consideration affecting the case this contention, though not decisive, is in
our opinion more than respectable. It has been held by this court that a purchaser of
land registered under the Torrens system cannot acquire the status of an innocent
purchaser for value unless his vendor is able to place in his hands an owner's
duplicate showing the title of such land to be in the vendor (Director of Lands vs.
Addison, 49, Phil., 19; Rodriguez vs. Llorente, G. R. No. 266151). It results that prior
to May 7, 1921, El Hogar Filipino was not really in a position to pass an indefeasible
title to any purchaser. In this connection it will be noted that section 75 of the Act of
Congress of July 1, 1902, and the similar provision in section 13 of the Corporation
Law, allow the corporation "five years after receiving the title," within which to
dispose of the property. A fair interpretation of these provisions would seem to
indicate that the date of the receiving of the title in this case was the date when the
respondent received the owner's certificate, or May 7, 1921, for it was only after
that date that the respondent had an unequivocal and unquestionable power to
pass a complete title. The failure of the respondent to receive the certificate sooner
was not due in any wise to its fault, but to unexplained delay on the part of the
register of deeds. For this delay the respondent cannot be held accountable.

Again, it is urged for the respondent that the period between March 25, 1926, and
April 30, 1926, should not be counted as part of the five-year period. This was the
period during which the respondent was under obligation to sell the property to
Alcantara, prior to the rescission of the contract by reason of Alcantara's failure to
make the stipulated first payment. Upon this point the contention of the respondent
is, in our opinion, well founded. The acceptance by it of Alcantara's offer obligated
the respondent to Alcantara; and if it had not been for the default of Alcantara, the
effective sale of the property would have resulted. The respondent was not at all
chargeable with the collapse of these negotiations; and hence in any equitable
application of the law this period should be deducted from the five-year period
within which the respondent ought to have made the sale. Another circumstance
explanatory of the respondent's delay in selling the property is found in the fact that
it purchased the property for the full amount of the indebtedness due to it from the
former owner, which was nearly P24,000. It was subsequently found that the
property was not salable for anything like that amount and in the end it had to be
sold for P6,000, notwithstanding energetic efforts on the part of the respondent to
find a purchaser upon better terms.

The question then arises whether the failure of the respondent to get rid of the San
Clemente property within five years after it first acquired the deed thereto, even
supposing the five-year period to be properly counted from that date, is such a
violation of law as should work a forfeiture of its franchise and require a judgment to
be entered for its dissolution in this action of quo warranto. Upon this point we do
not hesitate to say that in our opinion the corporation has not been shown to have
offended against the law in a manner that should entail a forfeiture of its charter.
Certainly no court with any discretion to use in the matter would visit upon the
respondent and its thousands of shareholders the extreme penalty of the law as a
consequence of the delinquency here shown to have been committed.

The law applicable to the case is in our opinion found in section 212 of the Code of
Civil Procedure, as applied by this court in Government of the Philippine Islands vs.
Philippine Sugar Estates Development Co. (38 Phil., 15). This section (212), in
prescribing the judgment to be rendered against a corporation in an action of quo
warranto, among other things says:

. . . When it is found and adjudged that a corporation has offended in any matter or
manner which does not by law work as a surrender or forfeiture, or has misused a
franchise or exercised a power not conferred by law, but not of such a character as
to work a surrender or forfeiture of its franchise, judgment shall be rendered that it
be outset from the continuance of such offense or the exercise of such power.

This provision clearly shows that the court has a discretion with respect to the
infliction of capital punishment upon corporation and that there are certain
misdemeanors and misuses of franchises which should not be recognized as
requiring their dissolution. In Government of the Philippine Islands vs. Philippine
Sugar Estates Development Co. (38 Phil., 15), it was found that the offending
corporation had been largely (though indirectly) engaged in the buying and holding
or real property for speculative purposes in contravention of its charter and contrary
to the express provisions of law. Moreover, in that case the offending corporation
was found to be still interested in the properties so purchased for speculative at the
time the action was brought. Nevertheless, instead of making an absolute and
unconditional order for the dissolution of the corporation, the judgment of ouster
was made conditional upon the failure of the corporation to discontinue its unlawful
conduct within six months after final decision. In the case before us the respondent
appears to have rid itself of the San Clemente property many months prior to the
institution of this action. It is evident from this that the dissolution of the respondent
would not be an appropriate remedy in this case. We do not of course undertake to
say that a corporation might not be dissolved for offenses of this nature perpetrated
in the past, especially if its conduct had exhibited a willful obduracy and contempt
of law. We content ourselves with holding that upon the facts here before us the
penalty of dissolution would be excessively severe and fraught with consequences
altogether disproportionate to the offense committed.

The evident purpose behind the law restricting the rights of corporations with
respect to the tenure of land was to prevent the revival of the entail (mayorazgo) or
other similar institution by which land could be fettered and its alienation hampered
over long periods of time. In the case before us the respondent corporation has in
good faith disposed of the piece of property which appears to have been in its
hands at the expiration of the period fixed by law, and a fair explanation is given of
its failure to dispose of it sooner. Under these circumstances the destruction of the
corporation would bring irreparable loss upon the thousand of innocent
shareholders of the corporation without any corresponding benefit to the public. The
discretion permitted to this court in the application of the remedy of quo warranto
forbids so radical a use of the remedy.

But the case for the plaintiff supposes that the discretion of this court in matters like
that now before us has been expressly taken away by the third section of Act No.
2792, and that the dissolution of the corporation is obligatory upon the court a mere
finding that the respondent has violated the provision of the Corporation Law in any
respect. This makes necessary to examine the Act last above-mentioned with some

care. Upon referring thereto, we find that it consists of three sections under the
following style:

No. 2792. An Act to amend certain sections of the Corporation Law, Act
Numbered Fourteen hundred and fifty-nine, providing for the publication of the
assets and liabilities of corporations registering in the Bureau of Commerce and
Industry, determining the liability of the officers of corporations with regard to the
issuance of stock or bonus, establishing penalties for certain things, and for other
purposes.

The first two section contain amendments to the Corporation Law with respect to
matters with which we are not here concurred. The third section contains anew
enactment to be inserted as section 190 (A) in the corporation Law immediately
following section 190. This new section 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 one thousand pesos, or by imprisonment for not more than five years, or
both, in the discretion of the court. If the 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: Provided, That nothing in this section
provided shall be construed to repeal the other causes for the dissolution of
corporation prescribed by existing law, and the remedy provided for in this section
shall be considered as additional to the remedies already existing.

The contention for the plaintiff is to the effect that the second sentence in this
enactment has entirely abrogated the discretion of this court with respect to the
application of the remedy of qou warranto, as expressed in section 212 of the Code
of Civil Procedure, and that it is now mandatory upon us to dissolved any
corporation whenever we find that it has committed any violation of the Corporation
Law, however trivial. In our opinion in this radical view of the meaning of the
enactment is untenable. When the statute says, "If the violation is committed by a
corporation, the same shall, upon such violation being proved, be dissolved by quo
warranto proceedings . . .," the intention was to indicate that the remedy against
the corporation shall be by action of quo warranto. There was no intention to define
the principles governing said remedy, and it must be understood that in applying
the remedy the court is still controlled by the principles established in immemorial
jurisprudence. The interpretation placed upon this language in the brief of the

Attorney-General would be dangerous in the extreme, since it would actually place

the life of all corporate investments in the official. No corporate enterprise of any
moment can be conducted perpetually without some trivial misdemeanor against
corporate law being committed by some one or other of its numerous employees.
As illustrations of the preposterous effects of the provision, in the sense contended
for by the Attorney-General, the attorneys for the respondent have called attention
to the fact that under section 52 of the Corporation Law, a business corporation is
required to keep a stock book and a transfer book in which the names of
stockholders shall kept in alphabetical order. Again, under section 94, railroad
corporations are required to cause all employees working on passenger trains or at
a station for passengers to wear a badge on his cap or hat which will indicate his
office. Can it be supposed that the Legislature intended to penalize the violation of
such provisions as these by dissolution of the corporation involved? Evidently such
could not have been the intention; and the only way to avoid the consequence
suggested is to hold, as we now hold, that the provision now under consideration
has not impaired the discretion of this court in applying the writ of quo warranto.

Another way to put the same conclusion is to say that the expression "shall be
dissolved by quo warranto proceedings" means in effect, "may be dissolved by quo
warranto proceedings in the discretion of the court." The proposition that the word
"shall" may be construed as "may", when addressed by the Legislature to the
courts, is well supported in jurisprudence. In the case of Becker vs. Lebanon and M.
St. Ry. Co., (188 Pa., 484), the Supreme Court of Pennsylvania had under
consideration a statute providing as follows:

It shall be the duty of the court . . . to examine, inquire and ascertain whether such
corporation does in fact posses the right or franchise to do the act from which such
alleged injury to private rights or to the rights and franchises of other corporations
results; and if such rights or franchises have not been conferred upon such
corporations, such courts, it exercising equitable power, shall, by injunction, at suit
of the private parties or other corporations, restrain such injurious acts.

In an action based on this statute the plaintiff claimed injunctive relief as a matter
of right. But this was denied the court saying:

Notwithstanding, therefore, the use of the imperative "shall" the injunction is not to
be granted unless a proper case for injunction be made out, in accordance with the
principles and practice of equity. The word "shall" when used by the legislature to a

court, is usually a grant of authority and means "may", and even if it be intended to
be mandatory it must be subject to the necessary limitation that a proper case has
been made out for the exercise of the power.

Other authorities amply sustain this view (People vs. Nusebaum, 66 N. Y. Supp., 129,
133; West Wisconsin R. Co. vs. Foley, 94 U. S., 100, 103; 24 Law. Ed., 71; Clancy vs.
McElroy, 30 Wash., 567; 70 Pac., 1095; State vs. West, 3 Ohio State, 509, 511; In re
Lent, 40 N. Y. Supp., 570, 572; 16 Misc. Rep., 606; Ludlow vs. Ludlow's Executors, 4
N. J. Law [1 Sothard], 387, 394; Whipple vs. Eddy, 161 Ill., 114;43 N. E., 789, 790;
Borkheim vs. Fireman's Fund Ins. Co., 38 Cal., 505, 506; Beasley vs. People, 89 Ill.,
571, 575; Donnelly vs. Smith, 128 Iowa, 257; 103 N. W., 776).

But section 3 of Act No. 2792 is challenged by the respondent on the ground that
the subject-matter of this section is not expressed in the title of the Act, with the
result that the section is invalid. This criticism is in our opinion well founded. Section
3 of our organic law (Jones Bill) declares, among other things, that "No bill which
may be enacted into law shall embrace more than one subject, and that subject
shall be expressed in the title of the bill." Any law or part of a law passed by the
Philippine Legislature since this provision went into effect and offending against its
requirement is necessarily void.

Upon examining the entire Act (No. 2792), we find that it is directed to three ends
which are successively dealt with in the first three sections of the Act. But it will be
noted that these three matters all relate to the Corporation Law; and it is at once
apparent that they might properly have been embodied in a single Act if a title of
sufficient unity and generality had been prefixed thereto. Furthermore, it is obvious,
even upon casual inspection, that the subject-matter of each of the first two
sections is expressed and defined with sufficient precision in the title. With respect
to the subject-matter of section 3 the only words in the title which can be taken to
refer to the subject-matter of said section are these, "An Act . . . establishing
penalties for certain things, and for other purposes." These words undoubtedly have
sufficient generality to cover the subject-matter of section 3 of the Act. But this is
not enough. The Jones Law requires that the subject-matter of the bill "shall be
expressed in the title of the bill."

When reference is had to the expression "establishing penalties for certain things,"
it is obvious that these words express nothing. The constitutional provision was
undoubtedly adopted in order that the public might be informed as to what the

Legislature is about while bills are in process of passage. The expression

"establishing penalties for certain things" would give no definite information to
anybody as to the project of legislation intended under this expression. An
examination of the decided cases shows that courts have always been indulgent of
the practices of the Legislature with respect to the form and generality of title, for if
extreme refinements were indulged by the courts, the work of legislation would be
unnecessarily hampered. But, as has been observed by the California court, there
must be some reasonable limit to the generality of titles that will be allowed. The
measure of legality is whether the title is sufficient to give notice of the general
subject of the proposed legislation to the persons and interests likely to be affected.

In Lewis vs. Dunne (134 Cal., 291), the court had before it a statute entitled "An Act
to revise the Code of Civil Procedure of the State of California, by amending certain
sections, repealing others, and adding certain new sections." This title was held to
embrace more than one subject, which were not sufficiently expressed in the title.
In discussing the question the court said:

* * * It is apparent that the language of the title of the act in question, in and of
itself, express no subject whatever. No one could tell from the title alone what
subject of legislation was dealt with in the body of the act; such subject so far as the
title of the act informs us, might have been entirely different from anything to be
found in the act itself.

We cannot agree with the contention of some of respondent's counsel apparently

to some extent countenanced by a few authorities that the provision of the
constitution in question can be entirely avoided by the simple device of putting into
the title of an act words which denote a subject "broad" enough to cover everything.
Under that view, the title, "An act concerning the laws of the state," would be good,
and the convention and people who framed and adopted the constitution would be
convicted of the folly of elaborately constructing a grave constitutional limitation of
legislative power upon a most important subject, which the legislature could at once
circumvent by a mere verbal trick. The word "subject" is used in the constitution
embrace but "one subject" it necessarily implies what everybody knows that
there are numerous subjects of the legislation, and declares that only one of these
subjects shall embraced in any one act. All subjects cannot be conjured into one
subject by the mere magic of a word in a title.

In Rader vs. Township of Union (39 N. J. L., 509, 515), the Supreme Court of New
Jersey made the following observation:

* * * It is true, that it may be difficult to indicate, by a formula, how specialized the

title of a statute must be; but it is not difficult to conclude that it must mean
something in the way of being a notice of what is doing. Unless it does not enough
that it embraces the legislative purpose it must express it; and where the
language is too general, it will accomplish the former, but not the latter. Thus, a law
entitled "An act for a certain purpose," would embrace any subject, but would
express none, and, consequently, it would not stand the constitutional test.

The doctrine properly applicable in matters of this kind is, we think, fairly summed
up in a current repository of jurisprudence in the following language:

* * * While it may be difficult to formulate a rule by which to determine the extent to

which the title of a bill must specialize its object, it may be safely assumed that the
title must not only embrace the subject of proposed legislation, but also express it
clearly and fully enough to give notice of the legislative purpose. (25 R. C. L., p.
853.)

In dealing with the problem now before us the words "and for other purposes "found
at the end of the caption of Act No. 2792, must be laid completely out of
consideration. They express nothing, and amount to nothing as a compliance with
the constitutional requirement to which attention has been directed. This expression
"(for other purposes") is frequently found in the title of acts adopted by the
Philippine Legislature; and its presence in our laws is due to the adoption by our
Legislature of the style used in Congression allegation. But it must be remembered
that the legislation of Congress is subject to no constitutional restriction with
respect to the title of bills. Consequently, in Congressional legislation the words
"and for other purposes" at least serve the purpose of admonishing the public that
the bill whose heading contains these words contains legislation upon other subjects
than that expressed in the title. Now, so long as the Philippine Legislature was
subject to no restriction with respect to the title of bills intended for enactment into
general laws, the expression "for other purposes" could be appropriately used in
titles, not precisely for the purpose of conveying information as to the matter
legislated upon, but for the purpose ad admonishing the public that any bill
containing such words in the title might contain other subjects than that expressed
in the definitive part of the title. But, when congress adopted the Jones Law, the

restriction with which we are now dealing became effective here and the words "for
other purposes" could no longer be appropriately used in the title of legislative bills.
Nevertheless, the custom of using these words has still been followed, although
they can no longer serve to cover matter not germane to the bill in the title of which
they are used. But the futility of adding these words to the style of any act is now
obvious (Cooley, Const. Lims., 8th ed., p. 302)

In the brief for the plaintiff it is intimated that the constitutional restriction which we
have been discussing is more or less of a dead letter in this jurisdiction; and it
seems to be taken for granted that no court would ever presume to hold a
legislative act or part of a legislative act invalid for non-compliance with the
requirement. This is a mistake; and no utterance of this court can be cited as giving
currency to any such notion. On the contrary the discussion contained in Central
Capiz vs. Ramirez (40 Phil., 883), shows that when a case arises where a violation of
the restriction is apparent, the court has no alternative but to declare the legislation
affected thereby to be invalid.

Second cause of action. The second cause of action is based upon a charge that
the respondent is owning and holding a business lot, with the structure thereon, in
the financial district of the City of Manila is excess of its reasonable requirements
and in contravention of subsection 5 of section 13 of the corporation Law. The facts
on which this charge is based appear to be these:

On August 28, 1913, the respondent purchased 1,413 square meters of land at the
corner of Juan Luna Street and the Muelle de la Industria, in the City of Manila,
immediately adjacent to the building then occupied by the Hongkong and Shanghai
Banking Corporation. At the time the respondent acquired this lot there stood upon
it a building, then nearly fifty years old, which was occupied in part by the offices of
an importing firm and in part by warehouses of the same firm. The material used in
the construction was Guadalupe stone and hewn timber, and the building contained
none of the facilities usually found in a modern office building.

In purchase of a design which had been formed prior to the purchase of the
property, the directors of the El Hogar Filipino caused the old building to be
demolished; and they erected thereon a modern reinforced concrete office building.
As at first constructed the new building was three stories high in the main, but in
1920, in order to obtain greater advantage from the use of the land, an additional
story was added to the building, making a structure of four stories except in one

corner where an additional story was place, making it five stories high over an area
of 117.52 square meters. It is admitted in the plaintiffs brief that this "noble and
imposing structure" to use the words of the Attorney-General "has greatly
improved the aspect of the banking and commercial district of Manila and has
greatly contributed to the movement and campaign for the Manila Beautiful." It is
also admitted that the competed building is reasonably proportionate in value and
revenue producing capacity to the value of the land upon which it stands. The total
outlay of the respondent for the land and the improvements thereon was P690,000
and at this valuation the property is carried on the books of the company, while the
assessed valuation of the land and improvements is at P786,478.

Since the new building was completed the respondent has used about 324 square
meters of floor space for its own offices and has rented the remainder of the office
space in said building, consisting of about 3,175 square meters, to other persons
and entities. In the second cause of action of the complaint it is supposed that the
acquisition of this lot, the construction of the new office building thereon, and the
subsequent renting of the same in great part to third persons, are ultra vires acts on
the part of the corporation, and that the proper penalty to be enforced against it in
this action is that if dissolution.

With this contention we are unable to agree. Under subsection 5 of section 13 of the
Corporation Law, every corporation has the power to purchase, hold and lease such
real property as the transaction of the lawful business of the corporation may
reasonably and necessarily require. When this property was acquired in 1916, the
business of El Hogar Filipino had developed to such an extent, and its prospects for
the future were such as to justify its directors in acquiring a lot in the financial
district of the City of Manila and in constructing thereon a suitable building as the
site of its offices; and it cannot be fairly said that the area of the lot 1,413 square
meters was in excess of its reasonable requirements. The law expressly declares
that corporations may acquire such real estate as is reasonably necessary to enable
them to carry out the purposes for which they were created; and we are of the
opinion that the owning of a business lot upon which to construct and maintain its
offices is reasonably necessary to a building and loan association such as the
respondent was at the time this property was acquired. A different ruling on this
point would compel important enterprises to conduct their business exclusively in
leased offices a result which could serve no useful end but would retard industrial
growth and be inimical to the best interests of society.

We are furthermore of the opinion that, inasmuch as the lot referred to was lawfully
acquired by the respondent, it is entitled to the full beneficial use thereof. No

legitimate principle can discovered which would deny to one owner the right to
enjoy his (or its) property to the same extent that is conceded to any other owner;
and an intention to discriminate between owners in this respect is not lightly to be
imputed to the Legislature. The point here involved has been the subject of
consideration in many decisions of American courts under statutes even more
restrictive than that which prevails in this jurisdiction; and the conclusion has
uniformly been that a corporations whose business may properly be conducted in a
populous center may acquire an appropriate lot and construct thereon an edifice
with facilities in excess of its own immediate requirements.

Thus in People vs. Pullman's Palace-Car Co. (175 Ill., 125; 64 L. R. A., 366), it
appeared that the respondent corporation owned and controlled a large ten-story
business block in the City of Chicago, worth $2,000,000, and that it occupied only
about one-fourth thereof for its own purposes, leasing the remainder to others at
heavy rentals. The corporate charter merely permitted the holding of such real
estate by the respondent as might be necessary for the successful prosecution of its
business. An attempt was made to obtain the dissolution of the corporation in a quo
warranto proceeding similar to that now before us, but the remedy was denied.

In Rector vs. Hartford Deposit Co., a question was raised as to the power of the
Deposit Company to erect and own a fourteen-story building containing eight
storerooms, one hundred suites of offices, and one safety deposit vault, under a
statute authorizing the corporation to possess so much real estate "as shall be
necessary for the transaction of their business." The court said:

That the appellee company possessed ample power to acquire real property and
construct a building thereon for the purpose of transacting therein the legitimate
business of the corporation is beyond the range of debate. Nor is the contrary
contended, but the insistence is that, under the guise of erecting a building for
corporate purposes, the appellee company purposely constructed a much larger
building than its business required, containing many rooms intended to be rented to
others for offices and business purposes, among them, the basement rooms
contracted to be leased to the appellant, and that in so doing it designedly
exceeded its corporate powers. The position off appellant therefore is that the
appellee corporation has flagrantly abused its general power to acquire real estate
and construct a building thereon . . . It was within the general scope of the express
powers of the appellee corporation to own and possess a building necessary for its
proper corporate purposes. In planning and constructing such a building, as was
said in People vs. Pullman's Palace Car Co., supra, the corporation should not
necessarily be restricted to a building containing the precise number of rooms its

then business might require, and no more, but that the future probable growth and
volume of its business might be considered and anticipated, and a larger building,
and one containing more rooms than the present volume of business required be
erected, and the rooms not needed might be rented by the corporation, provided,
of course, such course should be taken in good faith, and not as a mere evasion of
the public law and the policy of the state relative to the ownership of real estate by
corporations. In such state of case the question is whether the corporation has
abused or excessively and unjustifiably used the power and authority granted it by
the state to construct buildings and own real estate necessary for its corporate
purposes.

In Home savings building Association vs. Driver (129 Ky., 754), one of the questions
before the court was precisely the same as that now before us. Upon this the
Supreme Court of Kentucky said:

The third question is, has the association the right to erect, remodel, or own a
building of more than sufficient capacity to accommodate its own business and to
rent out the excess? There is nothing in the Constitution, charter of the association,
or statutes placing any limitation upon the character of a building which a
corporation may erect as a home in which to conduct its business. A corporation
conducting a business of the character of that in which appellant is engaged
naturally expects its business to grow and expand from time to time, and, in
building a home it would be exercising but a short-sighted judgment if it did not
make provision for the future by building a home large enough to take care of its
expanding business, and hence, even if it should build a house larger and roomier
than its present needs or interests require, it would be acting clearly with the
exercise of its corporate right and power. The limitation which the statute imposes is
that proper conduct of its business, but it does not attempt to place any restriction
or limitation upon the right of the corporation or association as to the character of
building it shall erect on said real estate; and, while the Constitution and the
statutes provide that no corporation shall engage in any business other than that
expressly authorized by its charter, we are of opinion that, in renting out the
unoccupied and unused portions of the building so erected, the association could
not be said to engaged in any other business than that authorized by its charter.
The renting of the unused portions of the building is a mere incident in the conduct
of its real business. We would not say that a building association might embark in
the business of building houses and renting or leasing them, but there is quite a
difference in building or renting a house in which to conduct its own business and
leasing the unused portion thereof for the time being, or until such time as they
may be needed by the association, and in building houses for the purpose of renting
or leasing them. The one might properly be said to be the proper exercise of a

power incident to the conduct of its legitimate business, whereas the other would be
a clear violation of that provision of the statute which denies to any corporation the
right to conduct any business other than that authorized by its charter. To hold
otherwise would be to charge most of the banking institutions, trust companies and
other corporations, such as title guaranty companies, etc., doing with violating the
law; for it is known that there are few of such institutions that do not, at times, rent
out or lease the unneeded portions of the building occupied by them as homes. We
do not think that in so doing they are violating any provisions of the law, but that
the renting out of the unused or unoccupied portions of their buildings is but an
incident in the conduct of their business.

In Wingert vs. First National Bank of Hagerstown, Md. (175 Fed., 739, 741), a
stockholder sought to enjoin the bank from building a six-story building owned by
the bank in the commercial district of Hagerstown of which only the first story was
to be used by the bank, the remaining stories to be rented out for offices and places
of business, on the theory that such action was ultra vires and in violation of the
provisions of the national banking act confining such corporations to the holding,
only, of such real estate "as shall be necessary for its immediate accommodation in
the transaction of its business."

The injunction was denied, the court adopting the opinion of the lower court in
which the following was said:

'The other ground urged by the complainant is that the proposed action is violative
of the restriction which permits a national bank to hold only such real estate as shall
be necessary for its immediate accommodation in the transaction of its business,
and that, therefore, the erection of a building which will contain offices not
necessary for the business of the bank is not permitted by the law, although that
method of improving the lot may be the most beneficial use that can be made of it.
It is matter of common knowledge that the actual practice of national banks is to
the contrary. Where ground is valuable, it may probably be truly said that the
majority of national bank buildings are built with accommodations in excess of the
needs of the bank for the purpose of lessening the bank's expense by renting out
the unused portion. If that were not allowable, many smaller banks in cities would
be driven to become tenants as the great cost of the lot would be prohibitive of
using it exclusively for the banking accommodation of a single bank. As indicative of
the interpretation of the law commonly received and acted upon, reference may be
made to the reply of the Comptroller of the Currency to the injury by the bank in
this case asking whether the law forbids the bank constructing such a building as
was contemplated.

'The reply was follows: "Your letter of the 9th instant received, stating that the
directors contemplate making improvements in the bank building and inquiring if
there is anything in the national banking laws prohibiting the construction of a
building which will contain floors for offices to be rented out by the bank as well as
the banking room. Your attention is called to the case of Brown vs. Schleier, 118
Fed., 981 [55 C. C. A, 475], in which the court held that: 'If the land which a national
bank purchases or leases for the accommodation of its business is very valuable it
may exercise the same rights that belong to other landowners of improving it in a
way that will yield the largest income, lessen its own rent, and render that part of its
funds which are invested in realty most productive.'" This seems to be the common
sense interpretation of the act of Congress and is the one which prevails.'

It would seem to be unnecessary to extend the opinion by lengthy citations upon

the point under consideration, but Brown vs. Schleier (118 Fed., 981), may be cited
as being in harmony with the foregoing authorities. In dealing with the powers of a
national bank the court, in this case, said:

When an occasion arises for an investment in real property for either of the
purposes specified in the statute the national bank act permits banking associations
to act as any prudent person would act in making an investment in real estate, and
to exercise the same measure of judgment and discretion. The act ought not to be
construed in such as way as to compel a national bank, when it acquires real
property for a legitimate purpose, to deal with it otherwise than a prudent land
owner would ordinarily deal with such property.

In the brief of the Attorney-General reliance is place almost entirely upon two Illinois
cases, namely Africani Home Purchase and Loan Association vs. Carroll (267 Ill.,
380), and First Methodist Episcopal Church of Chicago vs. Dixon (178 Ill., 260). In
our opinion these cases are either distinguishable from that now before us, or they
reflect a view of the law which is incorrect. At any rate the weight of judicial opinion
is so overwhelmingly in favor of sustaining the validity of the acts alleged in the
second cause of action to have been done by the respondent in excess of its powers
that we refrain from commenting at any length upon said cases. The ground stated
in the second cause of action is in our opinion without merit.

Third cause of action. Under the third cause of action the respondent is charged
with engaging in activities foreign to the purposes for which the corporation was

created and not reasonable necessary to its legitimate ends. The specifications
under this cause of action relate to three different sorts of activities. The first
consist of the administration of the offices in the El Hogar building not used by the
respondent itself and the renting of such offices to the public. As stated in the
discussion connected with the second cause of action, the respondent uses only
about ten per cent of the office space in the El Hogar building for its own purposes,
and it leases the remainder to strangers. In the years 1924 and 1925 the
respondent received as rent for the leased portions of the building the sums of
P75,395.06 and P58,259.27, respectively. The activities here criticized clearly fall
within the legitimate powers of the respondent, as shown in what we have said
above relative to the second cause of action. This matter will therefore no longer
detain us. If the respondent had the power to acquire the lot, construct the edifice
and hold it beneficially, as there decided, the beneficial administration by it of such
parts of the building as are let to others must necessarily be lawful.

The second specification under the third cause of action has reference to the
administration and management of properties belonging to delinquent shareholders
of the association. In this connection it appears that in case of delinquency on the
part of its shareholders in the payment of interest, premium, and dues, the
association has been accustomed (pursuant to clause 8 of its standard mortgage) to
take over and manage the mortgaged property for the purpose of applying the
income to the obligations of the debtor party. For these services the respondent
charges a commission at the rate of 2 per centum on sums collected. The case for
the government supposes that the only remedy which the respondent has in case of
default on the part of its shareholders is to proceed to enforce collection of the
whole loan in the manner contemplated in section 185 of the Corporation Law. It will
be noted, however, that, according to said section, the association may treat the
whole indebtedness as due, "at the option of the board of directors," and this
remedy is not made exclusive. We see no reason to doubt the validity of the clause
giving the association the right to take over the property which constitutes the
security for the delinquent debt and to manage it with a view to the satisfaction of
the obligations due to the debtor than the immediate enforcement of the entire
obligation, and the validity of the clause allowing this course to be taken appears to
us to be not open to doubt. The second specification under this cause of action is
therefore without merit, as was true of the first.

The third specification under this cause of action relates to certain activities which
are described in the following paragraphs contained in the agreed statements of
facts:.

El Hogar Filipino has undertaken the management of some parcels of improved real
estate situated in Manila not under mortgage to it, but owned by shareholders, and
has held itself out by advertisement as prepared to do so. The number of properties
so managed during the years 1921 to 1925, inclusive, was as follows:

1921 eight properties

1922 six properties

1923 ten properties

1924 fourteen properties

1925 fourteen properties.

This service is limited to shareholders; but some of the persons whose properties
are so managed for them became shareholders only to enable them to take
advantage thereof.

The services rendered in the management of such improved real estate by El Hogar
Filipino consist in the renting of the same, the payment of real estate taxes and
insurance for the account of the owner, causing the necessary repairs for upkeep to
be made, and collecting rents due from tenants. For the services so rendered in the
management of such properties El Hogar Filipino receives compensation in the form
of commissions upon the gross receipts from such properties at rates varying from
two and one-half per centum to five per centum of the sums so collected, according
to the location of the property and the effort involved in its management.

The work of managing real estate belonging to non-borrowing shareholders

administered by El Hogar Filipino is carried on by the same members of the staff
who attend to the details of the management of properties administered by the
manager of El Hogar Filipino under the provisions of paragraph 8 of the standard
mortgage form, and of properties bought in on foreclosure of mortgage.

The practice described in the passage above quoted from the agreed facts is in our
opinion unauthorized by law. Such was the view taken by the bank examiner of the
Treasury Bureau in his report to the Insular Treasurer on December 21, 1925,
wherein the practice in question was criticized. The administration of property in the
manner described is more befitting to the business of a real estate agent or trust
company than to the business of a building and loan association. The practice to
which this criticism is directed relates of course solely to the management and
administration of properties which are not mortgaged to the association. The
circumstance that the owner of the property may have been required to subscribe
to one or more shares of the association with a view to qualifying him to receive this
service is of no significance. It is a general rule of law that corporations possess only
such express powers. The management and administration of the property of the
shareholders of the corporation is not expressly authorized by law, and we are
unable to see that, upon any fair construction of the law, these activities are
necessary to the exercise of any of the granted powers. The corporation, upon the
point now under the criticism, has clearly extended itself beyond the legitimate
range of its powers. But it does not result that the dissolution of the corporation is in
order, and it will merely be enjoined from further activities of this sort.

Fourth cause of action. It appears that among the by laws of the association there
is an article (No. 10) which reads as follows:

The board of directors of the association, by the vote of an absolute majority of its
members, is empowered to cancel shares and to return to the owner thereof the
balance resulting from the liquidation thereof whenever, by reason of their conduct,
or for any other motive, the continuation as members of the owners of such shares
is not desirable.

This by-law is of course a patent nullity, since it is in direct conflict with the latter
part of section 187 of the Corporation Law, which expressly declares that the board
of directors shall not have the power to force the surrender and withdrawal of
unmatured stock except in case of liquidation of the corporation or of forfeiture of
the stock for delinquency. It is agreed that this provision of the by-laws has never
been enforced, and in fact no attempt has ever been made by the board of directors
to make use of the power therein conferred. In November, 1923, the Acting Insular
Treasurer addressed a letter to El Hogar Filipino, calling attention to article 10 of its
by-laws and expressing the view that said article was invalid. It was therefore
suggested that the article in question should be eliminated from the by-laws. At the

next meeting of the board of directors the matter was called to their attention and it
was resolved to recommend to the shareholders that in their next annual meeting
the article in question be abrogated. It appears, however, that no annual meeting of
the shareholders called since that date has been attended by a sufficient number of
shareholders to constitute a quorum, with the result that the provision referred to
has no been eliminated from the by-laws, and it still stands among the by-laws of
the association, notwithstanding its patent conflict with the law.

It is supposed, in the fourth cause of action, that the existence of this article among
the by-laws of the association is a misdemeanor on the part of the respondent
which justifies its dissolution. In this view we are unable to concur. The obnoxious
by-law, as it stands, is a mere nullity, and could not be enforced even if the
directors were to attempt to do so. There is no provision of law making it a
misdemeanor to incorporate an invalid provision in the by-laws of a corporation; and
if there were such, the hazards incident to corporate effort would certainly be
largely increased. There is no merit in this cause of action.

Fifth cause of action. In section 31 of the Corporation Law it is declared that, "at
all elections of directors there must be present, either in person or by representative
authorized to act by written proxy, the owners of the majority of the subscribed
capital stock entitled to vote. . . ." Conformably with this requirement it is declared
in article 61 of the by-laws of El Hogar Filipino that, "the attendance in person or by
proxy of shareholders owning one-half plus one of the shareholders shall be
necessary to constitute a quorum for the election of directors. At the general annual
meetings of the El Hogar Filipino held in the years 1911 and 1912, there was a
quorum of shares present or represented at the meetings and directors were duly
elected accordingly. As the corporation has grown, however, it has been fond
increasingly difficult to get together a quorum of the shareholders, or their proxies,
at the annual meetings; and with the exception of the annual meeting held in 1917,
when a new directorate was elected, the meetings have failed for lack of quorum. It
has been foreseen by the officials in charge of the respondent that this condition of
affairs would lead to embarrassment, and a special effort was made by the
management to induce a sufficient number of shareholders to attend the annual
meeting for February, 1923. In addition to the publication of notices in the
newspapers, as required by the by-laws, a letter of notification was sent to every
shareholder at his last known address, together with a blank form of proxy to be
used in the event the shareholder could not personally attend the meeting.
Notwithstanding these special efforts the meeting was attended only by
shareholders, in person and by proxy, representing 3,889 shares, out of a total of
106,491 then outstanding and entitled to vote.

Owing to the failure of a quorum at most of the general meetings since the
respondent has been in existence, it has been the practice of the directors to fill
vacancies in the directorate by choosing suitable persons from among the
stockholders. This custom finds its sanction in article 71 of the by-laws, which reads
as follows:

ART. 71. The directors shall elect from among the shareholders members to fill the
vacancies that may occur in the board of directors until the election at the general
meeting.

The person thus chosen to fill vacancies in the directorate have, it is admitted,
uniformly been experienced and successful business and professional men of
means, enjoying earned incomes of from P12,000 to P50,000 per annum, with an
annual average of P30,000 in addition to such income as they derive from their
properties. Moreover, it appears that several of the individuals constituting the
original directorate and persons chosen to supply vacancies therein belong to
prominent Filipino families, and that they are more or less related to each other by
blood or marriage. In addition to this it appears that it has been the policy of the
directorate to keep thereon some member or another of a single prominent
American law firm in the city.

It is supposed in the statement of the fifth cause of action in the complaint that the
failure of the corporation to hold annual meetings and the filling of vacancies in the
directorate in the manner described constitute misdemeanors on the part of the
respondent which justify the resumption of the franchise by the Government and
dissolution of the corporation; and in this connection it is charge that the board of
directors of the respondent has become a permanent and self perpetuating body
composed of wealthy men instead of wage earners and persons of moderate
means. We are unable to see the slightest merit in the charge. No fault can be
imputed to the corporation on account of the failure of the shareholders to attend
the annual meetings; and their non-attendance at such meetings is doubtless to be
interpreted in part as expressing their satisfaction of the way in which things have
been conducted. Upon failure of a quorum at any annual meeting the directorate
naturally holds over and continues to function until another directorate is chosen
and qualified. Unless the law or the charter of a corporation expressly provides that
an office shall become vacant at the expiration of the term of office for which the
officer was elected, the general rule is to allow the officer to holdover until his
successor is duly qualified. Mere failure of a corporation to elect officers does not

terminate the terms of existing officers nor dissolve the corporation (Quitman Oil
Company vs. Peacock, 14 Ga. App., 550; Jenkins vs. Baxter, 160 Pa. State, 199; New
York B. & E. Ry. Co. vs. Motil, 81 Conn., 466; Hatch vs. Lucky Bill Mining Company,
71 Pac., 865; Youree vs. Home Town Matual Ins. Company, 180 Missouri, 153;
Cassell vs. Lexington, H. and P. Turnpike Road Co., 10 Ky. L. R., 486). The doctrine
above stated finds expressions in article 66 of the by-laws of the respondent which
declares in so many words that directors shall hold office "for the term of one year
on until their successors shall have been elected and taken possession of their
offices."

It result that the practice of the directorate of filling vacancies by the action of the
directors themselves is valid. Nor can any exception be taken to then personality of
the individuals chosen by the directors to fill vacancies in the body. Certainly it is no
fair criticism to say that they have chosen competent businessmen of financial
responsibility instead of electing poor persons to so responsible a position. The
possession of means does not disqualify a man for filling positions of responsibility
in corporate affairs.

Sixth cause of action. Under the sixth cause of action it is alleged that the
directors of El Hogar Filipino, instead of serving without pay, or receiving nominal
pay or a fixed salary, as the complaint supposes would be proper, have been
receiving large compensation, varying in amount from time to time, out of the
profits of the respondent. The facts relating to this cause of action are in substance
these:

Under section 92 of the by-laws of El Hogar Filipino 5 per centum of the net profit
shown by the annual balance sheet is distributed to the directors in proportion to
their attendance at meetings of the board. The compensation paid to the directors
from time to time since the organization was organized in 1910 to the end of the
year 1925, together with the number of meetings of the board held each year, is
exhibited in the following table:

Year

Compensation

paid directors
as a whole
meetings

Number of

held

Rate per

meeting
as a whole
1911 ..................................

P 4,167.96

25

P 166.71

1912 ..................................

10,511.87

29

362.47

1913 ..................................

15,479.29

27

573.30

1914 ..................................

19,164.72

27

709.80

1915 ..................................

24,032.85

25

961.31

1916 ..................................

27,539.50

28

983.55

1917 ..................................

31,327.00

26

1,204.88

1918 ..................................

32,858.35

20

1,642.91

1919 ..................................

36,318.78

21

1,729.46

1920 ..................................

63,517.01

28

2,268.46

1921 ..................................

36,815.33

25

1,472.61

1922 ..................................

43,133.73

25

1,725.34

1923 ..................................

39,773.61

27

1,473.09

1924 ..................................

38,651.92

26

1,486.61

1925 ..................................

35,719.27

26

1,373.81

It will be note that the compensation above indicated as accruing to the directorate
as a whole has been divided among the members actually present at the different
meetings. As a result of this practice, and the liberal measure of compensation
adopted, we find that the attendance of the membership at the board meetings has
been extraordinarily good. Thus, during the years 1920 to 1925, inclusive, when the
board was composed of nine members, the attendance has regularly been eight
meeting with the exception of two years when the average attendance was seven. It
is insisted in the brief for the Attorney-General that the payment of the
compensation indicated is excessive and prejudicial to he interests of the
shareholders at large. For the respondent, attention is directed to the fact that the
liberal policy adopted by the association with respect to the compensation of the
directors has had highly beneficial results, not only in securing a constant
attendance on the part of the membership, but in obtaining their intelligent

attention to the affairs of the association. Certainly, in this connection, the following
words from the report of the government examiners for 1918 to the Insular
Treasurer contain matter worthy of consideration:

The management of the association is entrusted to men of recognized ability in

financial affairs and it is believed that they have long foreseen all possible future
contingencies and that under such men the interests of the stockholders are duly
protected. The steps taken by the directorate to curtail the influx of unnecessary
capital into the association's coffers, as mentioned above, reveals how the men at
grasp the situation and to apply the necessary remedy as the circumstances were
found in the same excellent condition as in the previous examination.

In so far as this court is concerned the question here before us is not one
concerning the propriety and wisdom of the measure of compensation adopted by
the respondent but rather the question of the validity of the measure. Upon this
point there can, it seems to us, be no difference of intelligent opinion. The
Corporation Law does not undertake to prescribe the rate of compensation for the
directors of corporations. The power to fixed the compensation they shall receive, if
any, is left to the corporation, to be determined in its by-laws(Act No. 1459, sec. 21).
Pursuant to this authority the compensation for the directors of El Hogar Filipino has
been fixed in section 92 of its by-laws, as already stated. The justice and property of
this provision was a proper matter for the shareholders when the by-laws were
framed; and the circumstance that, with the growth of the corporation, the amount
paid as compensation to the directors has increased beyond what would probably
be necessary to secure adequate service from them is matter that cannot be
corrected in this action; nor can it properly be made a basis for depriving the
respondent of its franchise, or even for enjoining it from compliance with the
provisions of its own by-laws. If a mistake has been made, or the rule adopted in the
by-laws meeting to change the rule. The remedy, if any, seems to lie rather in
publicity and competition, rather than in a court proceeding. The sixth cause of
action is in our opinion without merit.

Seventh cause of action. It appears that the promoter and organizer of El Hogar
Filipino was Mr. Antonio Melian, and in the early stages of the organization of the
association the board of directors authorized the association to make a contract
with him with regard to the services him therefor. Pursuant to this authority the
president of the corporation, on January 11, 1911, entered into a written agreement
with Mr. Melian, which is reproduced in the agreed statement of facts and of which
the important clauses are these:

1. The corporation "El Hogar Filipino Sociedad Mutua de Construccion y Prestamos,"

and on its behalf its president, Don Antonio R. Roxas, hereby confers on Don Antonio
Melian the office of manager of said association for the period of one year from the
date of this contract.

2. Don Antonio Melian accepts said office and undertakes to render the services
thereto corresponding for the period of one year, as prescribed by the by-laws of the
corporation, without salary.

3. Don Antonio Melian furthermore undertakes to pay for his own account, all the
expenses incurred in the organization of the corporation.

4. Don Antonio Melian further undertakes to lend to the corporation, without interest
the sum of six thousand pesos (P6,000), Philippine Currency, for the purpose of
meeting the expense of rent, office supplies, etcetera, until such time as the
association has sufficient funds of its own with which to return this loan: Provided,
nevertheless, That the maximum period thereof shall not exceed three (3) years.

5. Don Antonio Melian undertakes that the capital of the association shall amount to
the sum of four hundred thousand pesos (P400,000), Philippine currency, par value,
during the first year of its duration.

6. In compensation of the studies made and services rendered by Don Antonio

Melian for its organization, the expenses incurred by him to that end, and in further
consideration of the said loan of six thousand pesos (P6,000), and of the services to
be rendered by him as manager, and of the obligation assumed by him that the
nominal value of the capital of the association shall reach the sum of four hundred
thousand pesos (P400,000) during the first year of its duration, the corporation 'El
Hogar Filipino Sociedad Mutua de Construccion y Prestamos' hereby grants him five
per centum (5%) of the net profits to be earned by it in each year during the period
fixed for the duration of the association by its articles of incorporation; Provided,
that this participation in the profits shall be transmitted to the heirs of Seor Melian
in the event of his death; And provided further, that the performance of all the
obligations assumed by Seor Melian in favor of the association, in accordance with
this contract, shall and does constitute a condition precedent to the acquisition by

Seor Melian of the right to the said participation in the profits of the association,
unless the non-performance of such obligations shall be due to a fortuitous event or
force majeure.

In conformity with this agreement there was inserted in section 92 of the by-laws of
the association a provision recognizing the rights of Melian, as founder, to 5 per
centum of the net profits shown by the annual balance sheet, payment of the same
to be made to him or his heirs during the life of the association. It is declared in said
article that this portion of the earnings of the association is conceded to him in
compensation for the studies, work and contributions made by him for the
organization of El Hogar Filipino and the performance on his part of the contract of
January 11, 1911, above quoted. During the whole life of the association, thus far, it
has complied with the obligations assumed by it in the contract above- mentioned;
and during the years 1911 to 1925, inclusive, it paid to him as founder's royalty the
sum of P459,011.19, in addition to compensation received from the association by
him in to remuneration of services to the association in various official capacities.

As a seventh cause of action it is alleged in the complaint that this royalty of the
founder is "unconscionable, excessive and out of all proportion to the services
rendered, besides being contrary to and incompatible with the spirit and purpose of
building and loan associations." It is not alleged that the making of this contract was
beyond the powers of the association (ultra vires); nor it alleged that it is vitiated by
fraud of any kind in its procurement. Nevertheless, it is pretended that in making
and observing said contract the respondent committed an offense requiring its
dissolution, or, as is otherwise suggested, that the association should be enjoined
from performing the agreement.

It is our opinion that this contention is entirely without merit. Stated in its true
simplicity, the primary question here is whether the making of a (possibly)
indiscreet contract is a capital offense in a corporation, a question which answers
itself. No possible doubt exists as to the power of a corporation to contract for
services rendered and to be rendered by a promoter in connection with organizing
and maintaining the corporation. It is true that contracts with promoters must be
characterized by good faith; but could it be said with certainty, in the light of facts
existing at the time this contract was made, that the compensation therein provided
was excessive? If the amount of the compensation now appears to be a subject of
legitimate criticism, this must be due to the extraordinary development of the
association in recent years.

If the Melian contract had been clearly ultra vires which is not charged and is
certainly untrue its continued performance might conceivably be enjoined in such
a proceeding as this; but if the defect from which it suffers is mere matter for an
action because Melian is not a party. It is rudimentary in law that an action to annul
a contract cannot be maintained without joining both the contracting parties as
defendants. Moreover, the proper party to bring such an action is either the
corporation itself, or some shareholder who has an interest to protect.

The mere fact that the compensation paid under this contract is in excess of what,
in the full light of history, may be considered appropriate is not a proper
consideration for this court, and supplies no ground for interfering with its
performance. In the case of El Hogar Filipino vs. Rafferty (37 Phil., 995), which was
before this court nearly ten years ago, this court held that the El Hogar Filipino is
contract with Mr. Melian did not affect the association's legal character. The
inference is that the contract under consideration was then considered binding, and
it occurred to no one that it was invalid. It would be a radical step indeed for a court
to attempt to substitute its judgment for the judgment of the contracting parties
and to hold, as we are invited to hold under this cause of action, that the making of
such a contract as this removes the respondent association from the pale of the law.
The majority of the court is of the opinion that our traditional respect for the
sanctity of the contract obligation should prevail over the radical and innovating
tendencies which find acceptance with some and which, if given full rein, would go
far to sink legitimate enterprise in the Islands into the pit of populism and
bolshevism. The seventh count is not sustainable.

Eight cause of action. Under the fourth cause of action we had case where the
alleged ground for the revocation of the respondent's charter was based upon the
presence in the by-laws of article 10 that was found to be inconsistent with the
express provisions of law. Under the eight cause of action the alleged ground for
putting an end to the corporate life of the respondent is found in the presence of
other articles in the by-laws, namely, articles 70 and 76, which are alleged to be
unlawful but which, as will presently be seen, are entirely valid. Article 70 of the bylaws in effect requires that persons elected to the board of directors must be
holders of shares of the paid up value of P5,000 which shall be held as security may
be put up in the behalf of any director by some other holder of shares in the amount
stated. Article 76 of the by-laws declares that the directors waive their right as
shareholders to receive loans from the association.

It is asserted, under the eight cause of action, that article 70 is objectionable in

that, under the requirement for security, a poor member, or wage-earner, cannot

serve as director, irrespective of other qualifications and that as a matter of fact

only men of means actually sit on the board. Article 76 is criticized on the ground
that the provision requiring directors to renounce their right to loans unreasonably
limits their rights and privileges as members. There is nothing of value in either of
theses suggestions. Section 21 of the Corporation Law expressly gives the power to
the corporation to provide in its by-laws for the qualifications of directors; and the
requirement of security from them for the proper discharge of the duties of their
office, in the manner prescribed in article 70, is highly prudent and in conformity
with good practice. Article 76, prohibiting directors from making loans to
themselves, is of course designed to prevent the possibility of the looting of the
corporation by unscrupulous directors. A more discreet provision to insert in the bylaws of a building and loan association would be hard to imagine. Clearly, the eighth
cause of action cannot be sustained.

Ninth cause of action. The specification under this head is in effect that the
respondent has abused its franchise in issuing "special" shares. The issuance of
these shares is allege to be illegal and inconsistent with the plan and purposes of
building and loan associations; and in particular, it is alleged and inconsistent with
the plan and purposes of building and loan associations; and in particular, it is
alleged that they are, in the main, held by well-to-wage-earners for accumulating
their modest savings for the building of homes.

In the articles of incorporation we find the special shares described as follows:

"Special" shares shall be issued upon the payment of 80 per cent of their par value
in cash, or in monthly dues of P10. The 20 per cent remaining of the par value of
such shares shall be completed by the accumulation thereto of their proportionate
part of the profits of the corporation. At the end of each quarter the holders of
special shares shall be entitled to receive in cash such part of the net profits of the
corporation corresponding to the amount on such date paid in by the holders of
special shares, on account thereof, as shall be determined by the directors, and at
the end of each year the full amount of the net profits available for distribution
corresponding to the special shares. The directors shall apply such part as they
deem advisable to the amortization of the subscription to capital with respect to
shares not fully paid up, and the remainder of the profits, if any, corresponding to
such shares, shall be delivered to the holders thereof in accordance with the
provision of the by-laws.

The ground for supposing the issuance of the "special" shares to be unlawful is that
special shares are not mentioned in the Corporation Law as one of the forms of
security which may be issued by the association. In the agreed statement of facts it
is said that special shares are issued upon two plans. By the second, the
shareholder, upon subscribing, pays in cash P10 for each share taken, and
undertakes to pay P10 a month, as dues, until the total so paid in amounts to P160
per share. On December 31, 1925, there were outstanding 20,844 special shares of
a total paid value (including accumulations ) of P3,680,162.51. The practice of El
Hogar Filipino, since 1915, has been to accumulate to each special share, at the end
of the year, one-tenth of the divident declared and to pay the remainder of the
divident in cash to the holders of shares. Since the same year dividend have been
declared on the special and common shares at the rate of 10 per centum per
annum. When the amount paid in upon any special share plus the accumulated
dividends accruing to it, amounts to the par value of the share (P200), such share
matures and ceases to participate further in the earning. The amount of the par
value of the share (P200) is then returned to the shareholder and the share
cancelled. Holders of special and ordinary shares participate ratably in the dividends
declared and distributed, the part pertaining to each share being computed on the
basis of the capital paid in, plus the accumulated dividends pertaining to each share
at the end of the year. The total number of shares of El Hogar Filipino outstanding
on December 31, 1925, was 125,750, owned by 5,826 shareholders, and dividend
into classes as follows:

Preferred shares .................................. 1,503

Special shares ..................................... 20,884
Ordinary shares .................................. 103,363
The matter of the propriety of the issuance of special shares by El Hogar Filipino has
been before this court in two earlier cases, in both of which the question has
received the fullest consideration from this court. In El Hogar Filipino vs. Rafferty (37
Phil., 995), it was insisted that the issuance of such shares constituted a departure
on the part of the association from the principle of mutuality; and it was claimed by
the Collector of Internal Revenue that this rendered the association liable for the
income tax to which other corporate entities are subject. It was held that this
contention was untenable and that El Hogar Filipino was a legitimate building and
loan association notwithstanding the issuance of said shares. In Sevireno vs. El
Hogar Filipino (G. R. No. 24926),2 and the related cases of Gervasio Miraflores and
Gil Lopes against the same entity, it was asserted by the plaintiffs that the emission
of special shares deprived the herein responded of the privileges and immunities of
a building and loan association and that as a consequence the loans that had been
made to the plaintiffs in those cases were usurious. Upon an elaborate review of the

authorities, the court, though divided, adhered to the principle announced in the
earlier case and held that the issuance of the special shares did not affect the
respondent's character as a building and loan association nor make its loans
usurious. In view of the lengthy discussion contained in the decisions abovementioned, it would appear to be an act of supererogation on our part to go over
the same ground again. The discussion will therefore not be repeated, and what is
now to be said should be considered supplemental thereto.

Upon examination of the nature of the special shares in the light of American usage,
it will be found that said shares are precisely the same kind of shares that, in some
American jurisdictions, are generally known as advance payment shares; in if close
attention be paid to the language used in the last sentence of section 178 of the
Corporation Law, it will be found that special shares where evidently created for the
purpose of meeting the condition cause by the prepayment of dues that is there
permitted. The language of this provision is as follow "payment of dues or interest
may be made in advance, but the corporation shall not allow interest on such
advance payment at a greater rate than six per centum per annum nor for a longer
period than one year." In one sort of special shares the dues are prepaid to the
extent of P160 per share; in the other sort prepayment is made in the amount of
P10 per share, and the subscribers assume the obligation to pay P10 monthly until
P160 shall have been paid.

It will escape notice that the provision quoted say that interest shall not be allowed
on the advance payments at a greater rate than six per centum per annum nor for a
longer period than one year. The word "interest " as there used must be taken in its
true sense of compensation for the used of money loaned, and it not must not be
confused with the dues upon which it is contemplated that the interest may be paid.
Now, in the absence of any showing to the contrary, we infer that no interest is ever
paid by the association in any amount for the advance payments made on these
shares; and the reason is to be found in the fact that the participation of the special
shares in the earnings of the corporation, in accordance with section 188 of the
Corporation Law, sufficiently compensates the shareholder for the advance
payments made by him; and no other incentive is necessary to induce inventors to
purchase the stock.

It will be observed that the final 20 per centum of the par value of each special
share is not paid for by the shareholder with funds out of the pocket. The amount is
satisfied by applying a portion of the shareholder's participation in the annual
earnings. But as the right of every shareholder to such participation in the earnings
is undeniable, the portion thus annually applied is as much the property of the

shareholder as if it were in fact taken out of his pocket. It follows that the mission of
the special shares does not involve any violation of the principle that the shares
must be sold at par.

From what has been said it will be seen that there is express authority, even in the
very letter of the law, for the emission of advance-payment or "special" shares, and
the argument that these shares are invalid is seen to be baseless. In addition to this
it is satisfactorily demonstrated in Severino vs. El Hogar Filipino, supra, that even
assuming that the statute has not expressly authorized such shares, yet the
association has implied authority to issue them. The complaint consequently fails
also as regards the stated in the ninth cause of action.

Tenth cause of action. Under this head of the complaint it is alleged that the
defendant is pursuing a policy of depreciating, at the rate of 10 per centum per
annum, the value of the real properties acquired by it at its sales; and it is alleged
that this rate is excessive. From the agreed statement it appears that since its
organization in 1910 El Hogar Filipino, prior to the end of the year 1925, had made
1,373 loans to its shareholders secured by first mortgages on real estate as well as
by the pledge of the shares of the borrowers. In the same period the association has
purchased at foreclosure sales the real estate constituting the security for 54 of the
aforesaid loans. In making these purchases the association has always bid the full
amount due to it from the debtor, after deducting the withdrawal value of the
shares pledged as collateral, with the result that in no case has the shareholder
been called upon to pay a deficiency judgement on foreclosure.

El Hogar Filipino places real estate so purchased in its inventory at actual cost, as
determined by the amount bid on foreclosure sale; and thereafter until sold the
book value of such real estate is depreciated at the rate fixed by the directors in
accordance with their judgment as to each parcel, the annual average depreciation
having varied from nothing to a maximum of 14.138 per cent. The sales thereof, but
sales are made for the best prices obtainable, whether greater or less than the book
value.

It is alleged in the complaint that depreciation is charged by the association at the

rate of 10 per centum per annum. The agreed statement of facts on this point
shows that the annual average varies from nothing to a maximum of something
over 14 per centum. We are thus left in the dark as to the precise depreciation
allowed from year to year. It is not claimed for the Government that the association

is without power to allow some depreciation; and it is quite clear that the board of
directors possesses a discretion in this matter. There is no positive 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; and article 74 of its by-laws
expressly authorizes the board of directors to determine each year the amount to
be written down upon the expenses of installation and the property of the
corporation. There can be no question that the power to adopt such a by-law is
embraced within the power to make by-laws for the administration of the corporate
affairs of the association and for the management of its business, as well as the
care, control and disposition of its property (Act No. 1459, sec. 13 [7]). But the
Attorney-General questions the exercise of the direction confided to the board; and
it is insisted that the excessive depreciation of the property of the association is
objectionable in several respects, but mainly because it tends to increase unduly
the reserves of the association, thereby frustrating the right of the shareholders to
participate annually and equally in the earnings of the association.

This count for the complaint proceeds, in our opinion, upon an erroneous notion as
to what a court may do in determining the internal policy of a business corporation.
If the criticism contained in the brief of the Attorney-General upon the practice of
the respondent association with respect to depreciation be well founded, the
Legislature should supply the remedy by defining the extent to which depreciation
may be allowed by building and loan associations. Certainly this court cannot
undertake to control the discretion of the board of directors of the association about
an administrative matter as to which they have legitimate power of action. The
tenth cause of action is therefore not well founded.

Eleventh and twelfth causes of action. The same comment is appropriate with
respect to the eleventh and twelfth causes of action, which are treated together in
the briefs, and will be here combined. The specification in the eleventh cause of
action is that the respondent maintains excessive reserve funds, and in the twelfth
cause of action that the board of directors has settled upon the unlawful policy of
paying a straight annual dividend of 10 per centum, regardless of losses suffered
and profits made by the corporation and in contravention of the requirements of
section 188 of the Corporation Law. The facts relating to these two counts in the
complaint, as set forth in the stipulation, are these:

In article 92 of the by-laws of El Hogar Filipino it is provided that 5 per centum of the
net profits earned each year, as shown by the annual balance sheet shall be carried
to a reserve fund. The fund so created is called the General Reserve. Article 93 of
the by-laws authorizes the directors to carry funds to a special reserve, whenever in

their judgment it is advisable to do so, provided that the annual dividend in the year
in which funds are carried to special reserve exceeds 8 per centum. It appears to
have been the policy of the board of directors for several years past to place in the
special reserve any balance in the profit and loss account after the satisfaction of
preferential charges and the payment of a dividend of 10 per centum to all special
and ordinary shares (with accumulated dividends). As things stood in 1926 the
general reserve contained an amount equivalent to about 5 per centum of the paidin value of shared. This fund has never been drawn upon for the purpose of
maintaining the regular annual dividend; but recourse has been had to the special
reserve on three different occasions to make good the amount necessary to pay
dividends. It appears that in the last five years the reserves have declined from
something over 9 per cent to something over 7.

It is insisted in the brief of the Attorney-General that the maintenance of reserve

funds is unnecessary in the case of building and loan associations, and at any rate
the keeping of reserves is inconsistent with section 188 of the Corporation Law.
Moreover, it is said that the practice of the association in declaring regularly a 10
per cent dividend is in effect a guaranty by the association of a fixed dividend which
is contrary to the intention of the statute.

Upon careful consideration of the questions involved we find no reason to doubt the
right of the respondent to maintain these reserves. It is true that the corporation
law does not expressly grant this power, but we think it is to be implied. It is a fact
of common observation that all commercial enterprises encounter periods when
earnings fall below the average, and the prudent manager makes provision for such
contingencies. To regard all surplus as profit is to neglect one of the primary canons
of good business practice. Building and loan associations, though among the most
solid of financial institutions, are nevertheless subject to vicissitudes. Fluctuations in
the dividend rate are highly detrimental to any fiscal institutions, while uniformity in
the payments of dividends, continued over long periods, supplies the surest
foundations of public confidence.

The question now under consideration is not new in jurisprudence, for the American
courts have been called upon more than once to consider the legality of the
maintenance of reserves by institutions of this or similar character.

In Greeff vs. Equitable Life Assurance Society, the court had under consideration a
charter provision of a life insurance company, organized on the mutual plan, in its

relation to the power of the company to provide reserves. There the statute
provided that "the officers of the company, within sixty days from the expiration of
the first five years, from December 31, 1859, and within the first sixty days of every
subsequent period of five years, shall cause a balance to be struck of the affairs of
the company, which shall exhibit its assets and liabilities, both present and
contingent, and also the net surplus, after deducting a sufficient amount to cover all
outstanding risks and other obligations. Each policy holder shall be credited with an
equitable share of the said surplus."

The court said:

No prudent person would be inclined to take a policy in a company which had so

improvidently conducted its affairs that it only retained a fund barely sufficient to
pay its present liabilities, and, therefore, was in a condition where any change by
the reduction of interest upon, or depreciation in, the value of its securities, or any
increase of mortality, would render it insolvent and subject to be placed in the
hands of a receiver. The evident purpose of the provisions of the defendant's
charter and policy relating to this subject was to vest in the directors of the
corporation a discretion to determine the proportion of its surplus which should be
dividend each year.

In a friendly suit tried in a circuit court of Wisconsin in 1916, entitled Boheman Bldg.
and Loan Association vs. Knolt, the court, in commenting on the nature of these
reserves, said:

The apparent function of this fund is to insure the stockholders against losses. Its
purpose is not unlike that of the various forms of insurance now in such common
use. This contribution is as legitimate an item of expense as are the premiums paid
on any insurance policy. (See Clarks and Chase, Building and Loan Association,
footnote, page 344.)

In commenting on the necessity of such funds, Sundheim says:

It is optional with the association whether to maintain such a fund or not, but justice
and good business policy seem to require it. The retiring stockholder must be paid
the value of his stock in cash and leave for those remaining a large number of

securities and perhaps some real estate purchased to protect the associations
interest. How much will be realized on these securities, or real estate, no human
foresight can tell. Further, the realizing on these securities may entail considerable
litigation and expense. There are many other contingencies which might cause a
shrinkage in the association's assets, such as defective titles, undisclosed
defalcations on the part of an officer, a miscalculation of assets and liabilities, and
many other errors and omissions which must always be reckoned within the conduct
of human affairs.

The contingent fund is merely insurance against possible loss. That losses may
occur from time to time seems almost inevitable and it is, therefore, inequitable
that the remaining stockholders should be compelled to accept all securities at par,
so, to say the least, the maintenance of this fund is justified. The association
teaches the duty of providing for the proverbial rainy day. Why should it not provide
for the hour of adversity? The reserve fund has protected the maturing or
withdrawing member during the period of his membership. In case of loss it has or
would have reimbursed him and, at all times, it has protected him and given
strength and standing to the association. Losses may occur, after his membership
ceases, that arose from some mistake or mismanagement committed during the
period of his membership, and in fairness and equity the remaining members should
have some protection against this. (Sundheim, Law of Building and Loan
Association, sec. 53.)

The government insists, we thing, upon an interpretation of section 188 of the

Corporation Law that is altogether too strict and literal. From the fact that the
statute provides that profits and losses shall be annually apportioned among the
shareholders it is argued that all earnings should be distributed without carrying
anything to the reserve. But it will be noted that it is provided in the same section
that the profits and losses shall be determined by the board of directors: and this
means that they shall exercise the usual discretion of good businessmen in
allocating a portion of the annual profits to purposes needful to the welfare of the
association. The law contemplates the distribution of earnings and losses after other
legitimate obligations have been met.

Our conclusion is that the respondent has the power to maintain the reserves
criticized in the eleventh and twelfth counts of the complaint; and at any rate, if it
be supposed that the reserves referred to have become excessive, the remedy is in
the hands of the Legislature. It is no proper function of the court to arrogate to itself
the control of administrative matters which have been confided to the discretion of

the board of directors. The causes of action under discussion must be pronounced
to be without merit.

Thirteenth cause of action. The specification under this head is, in effect, that the
respondent association has made loans which, to the knowledge of the associations
officers were intended to be used by the borrowers for other purposes than the
building of homes. In this connection it appears that, though loans have been made
by the association exclusively to its shareholders, no attempt has been made by it
to control the borrowers with respect to the use made of the borrowed funds, the
association being content to see that the security given for the loan in each case is
sufficient. On December 31, 1925, the respondent had five hundred forty-four loans
outstanding secured by mortgages upon real estate and by the pledge of the
borrowers' shares in an amount sufficient at maturity to amortize the loans. With
respect to the nature of the real estate upon which these loans were made it
appears that three hundred fifty-one loans were secured by mortgages upon city
residences, seven by mortgages upon commercial building in cities, and three
mortgages upon unimproved city lots. At the same time one hundred eighty-three of
the loans were secured by mortgages upon groves, sugar land, and rice land, with a
total area of about 7,558 hectares. From information gathered by the association
from voluntary statements of borrowers given at the time of application with respect
to the use intended to be made of the borrowed funds, it appears that the amount
of P693,200 was borrowed to redeem real property from existing mortgages or
pactos de retro, P280,800 to buy real estate, P449,100 to erect buildings, P24,000
to improve and repair buildings, P1,480,900 for agricultural purposes, while the
amount of P5,763,700 was borrowed for purposes not disclosed.

Upon these facts an elaborate argument has been constructed in behalf of the
plaintiff to the effect that in making loans for other purposes than the building of
residential houses the association has illegally departed from its character and
made itself amenable to the penalty of dissolution. Aside from being directly
opposed to the decision of this court in Lopez and Javelona vs. El Hogar Filipino and
Registrar of Deeds of Occidental Negros (47 Phil., 249), this contention finds no
substantial support in the prevailing decisions made in American courts; and our
attention has not been directed to a single case wherein the dissolution of a building
and loan association has been decreed in a quo warranto proceeding because the
association allowed its borrowers to use the loans for other purposes than the
acquisition of homes.

The case principally relied upon for the Government appears to be Pfeister vs.
Wheeling Building Association (19 W. Va., 676, 716),which involved the question

whether a building and loan association could recover the full amount of a note
given to it by a member and secured by a mortgage from a stranger. At the time the
case arose there was a statute in force in the State of West Virginia expressly
forbidding building and loan associations to use or direct their funds for or to any
other object or purpose than the buying of lots or houses or in building and
repairing houses, and it was declared that in case the funds should be improperly
directed to other objects, the offending association should forfeit all rights and
privileges as a corporation. Under the statute so worded the court held that the
plaintiff could only recover the amount actually advanced by it with lawful interest
and fines, without premium; and judgment was given accordingly. The suggestion in
that case that the result would have been the same even in the absence of statute
was mere dictum and is not supported by respectable authority.

Reliance is also placed in the plaintiff's brief upon McCauley vs. Building & Saving
Association. The statute in force in the State of Tennessee at the time this action
arose provided that all loans should be made to the members of the association at
open stated meetings and that the money should be lent to the highest bidder.
Inconsistently with this provision, there was inserted in the by-laws of the
association a provision to the effect that no loan should be made at a greater
premium than 30 per cent, nor at a less premium than 29 7/8 per cent. It was held
that this by-law made free and open competition impossible and that it in effect
established a fixed premium. It was accordingly held, in the case cited, that an
association could not recover such part of the loan as had been applied by it to the
satisfaction of a premium of 30 per centum.

We have no criticism to make upon the result reached in either of the two decisions
cited, but it is apparent that much of the discussion contained in the opinions in
those cases does not reflect the doctrine now prevailing in the United States; and
much less are those decisions applicable in this jurisdiction. There is no statute here
expressly declaring that loans may be made by these associations solely for the
purpose of building homes. On the contrary, the building of homes is mentioned in
section 171 of the Corporation Law as only one among several ends which building
and loan associations are designed to promote. Furthermore, section 181 of the
Corporation Law expressly authorities the Board of directors of the association from
time to time to fix the premium to be charged.

In the brief of the plaintiff a number of excerpts from textbooks and decisions have
been collated in which the idea is developed that the primary design of building and
loan associations should be to help poor people to procure homes of their own. This
beneficent end is undoubtedly served by these associations, and it is not to be

denied that they have been generally fostered with this end in view. But in this
jurisdiction at least the lawmaker has taken care not to limit the activities of
building and loan associations in an exclusive manner, and the exercise of the
broader powers must in the end approve itself to the business community. Judging
from the past history of these institutions it can be truly said that they have done
more to encourage thrift, economy and saving among the people at large than any
other institution of modern times, not excepting even the saving banks. In this
connection Mr. Sundheim, in a late treatise upon the subject of the law of building
and loan associations, makes the following comment:

They have grown to such an extent in recent years that they no longer restrict their
money to the home buyer, but loan their money to the mere investor or dealer in
real estate. They are the holder of large mortgages secured upon farms, factories
and other business properties and rows of stores and dwellings. This is not an abuse
of their powers or departure from their main purposes, but only a natural and proper
expansion along healthy and legitimate lines. (Sundheim, Building and Loan
Associations, sec. 7.)

Speaking of the purpose for which loans may be made, the same author adds:

Loans are made for the purpose of purchasing a homestead, or other real estate, or
for any lawful purpose or business, but there is no duty or obligation of the
association to inquire for what purpose the loan is obtained, or to require any
stipulation from the borrower as to what use he will make of the money, or in any
manner to supervise or control its disbursement. (Sundheim, Building and Loan
Association, sec. 111.)

In Lopez and Javelona vs. El Hogar Filipino and Registrar of Deeds of Occidental
Negros, this court had before it the question whether a loan made by the
respondent association upon the security of a mortgage upon agricultural land,
where the loan was doubtless used for agricultural purposes, was usurious or not;
and the case turned upon the point whether, in making such loans, the association
had violated the law and departed from its fundamental purposes. The conclusion of
the court was that the loan was valid and could be lawfully enforced by a nonjudicial
foreclosure in conformity with the terms of the contract between the association
and the borrowing member. We now find no reason to depart from the conclusion
reached in that case, and it is unnecessary to repeat what was then said. The
thirteenth cause of action must therefore be pronounced unfounded.

Fourteenth cause of action. The specification under this head is that the loans
made by the defendant for purposes other than building or acquiring homes have
been extended in extremely large amounts and to wealthy persons and large
companies. In this connection attention is directed to eight loans made at different
times in the last several years to different persons or entities, ranging in amounts
from P120,000 to P390,000 and to two large loans made to the Roxas Estate and to
the Pacific Warehouse Company in the amounts of P1,122,000 and P2,320,000,
respectively. In connection with the larger of the two after this loan was made the
available funds of El Hogar Filipino were reduced to the point that the association
was compelled to take advantage of certain provisions of its by-laws authorizing the
postponement of the payment of claims resulting from withdrawals, whereas
previously the association had always settled these claims promptly from current
funds. At no time was there apparently any delay in the payment of matured shares;
but in four or five cases there was as much as ten months delay in the payment of
withdrawal applications.

There is little that can be said upon the legal aspects of this cause of action. In so
far, as it relates to the purposes for which these loans were made, the matter is
covered by what was said above with reference to the thirteenth cause of action;
and in so far as it relates to the personality of the borrowers, the question belongs
more directly to the discussion under the sixteenth cause of action, which will be
found below. The point, then, which remains for consideration here is whether it is a
suicidal act on the part of a building and loan association to make loans in large
amount. If the loans which are here the subject of criticism had been made upon
inadequate security, especially in case of the largest two, the consequences
certainly would have been disastrous to the association in the extreme; but no such
fact is alleged; and it is to be assumed that none of the ten borrowers have
defaulted in their contracts.

Now, it must be admitted that two of these loans at least are of a very large size,
considering the average range of financial transaction in this country; and the
making of the largest loan was followed, as we have already see, with unpleasant
consequences to the association in dealing with current claims. Nevertheless the
agreed statement of facts shoes that all of the loan referred to are only ten out of a
total of five hundred forty-four outstanding on December 31, 1925; and the average
of all the loans taken together is modest enough. It appears that the chief examiner
of banks and corporations of the Philippine Treasury, after his examination of El
Hogar Filipino at the end of the year 1925, made a report concerning this
association as of January 31, 1926, in which he criticized the Pacific Warehouse

Company loan as being so large that it temporarily crippled the lending power of
the association for some time. This criticism was apparently justified as proper
comment on the activities of the association; but the question for use here to decide
is whether the making of this and the other large loans constitutes such a misuser
of the franchise as would justify us in depriving the association of its corporate life.
This question appears to us to be so simple as almost to answer itself. The law
states no limit with respect to the size of the loans to be made by the association.
That matter is confided to the discretion of the board of directors; and this court
cannot arrogate to itself a control over the discretion of the chosen officials of the
company. If it should be thought wise in the future to put a limit upon the amount of
loans to be made to a single person or entity, resort should be had to the
Legislature; it is not a matter amenable to judicial control. The fourteenth cause of
action is therefore obviously without merit.

Fifteenth cause of action. The criticism here comes back to the supposed
misdemeanor of the respondent in maintaining its reserve funds, a matter
already discussed under the eleventh and twelfth causes of action. Under the
fifteenth cause of action it is claimed that upon the expiration of the franchise of the
association through the effluxion of time, or earlier liquidation of its business, the
accumulated reserves and other properties will accrue to the founder, or his heirs,
and the then directors of the corporation and to those persons who may at that time
to be holders of the ordinary and special shares of the corporation. In this
connection we note that article 95 of the by-laws reads as follows:

ART. 95. The funds obtained by the liquidation of the association shall be applied in
the first place to the repayment of shares and the balance, if any, shall be distribute
in accordance with the system established for the distribution of annual profits.

It will be noted that the cause of action with which we are now concerned is not
directed to any positive misdemeanor supposed to have been committed by the
association. It has exclusive relation to what may happen some thirty-five years
hence when the franchise expires, supposing of course that the corporation should
not be reorganized and continued after that date. There is nothing in article 95 of
the by-laws which is, in our opinion, subject to criticism. The real point of criticism is
that upon the final liquidation of the corporation years hence there may be in
existence a reserve fund out of all proportion to the requirements that may then fall
upon it in the liquidation of the company. It seems to us that this is matter that may
be left to the prevision of the directors or to legislative action if it should be deemed

expedient to require the gradual suppression of the reserve funds as the time for
dissolution approaches. It is no matter for judicial interference, and much less could
the resumption of the franchise on this ground be justified. There is no merit in the
fifteenth cause of action.

Sixteenth cause of action. This part of the complaint assigns as cause of action
that various loans now outstanding have been made by the respondent to
corporations and partnerships, and that these entities have in some instances
subscribed to shares in the respondent for the sole purpose of obtaining such loans.
In this connection it appears from the stipulation of facts that of the 5,826
shareholders of El Hogar Filipino, which composed its membership on December 31,
1925, twenty-eight are juridical entities, comprising sixteen corporations and
fourteen partnerships; while of the five hundred forty-four loans of the association
outstanding on the same date, nine had been made to corporations an five to
partnerships. It is also admitted that some of these juridical entities became
shareholders merely for the purpose of qualifying themselves to take loans from the
association, and the same is said with respect to many natural persons who have
taken shares in the association. Nothing is said in the agreed statement of facts on
the point whether the corporations and partnerships that have taken loans from the
respondent are qualified by law governing their own organization to enter into these
contracts with the respondent.

In section 173 of the Corporation Law it is declared that "any person" may become a
stockholder in building and loan associations. The word "person" appears to be here
used in its general sense, and there is nothing in the context to indicate that the
expression is used in the restricted sense of both natural and artificial persons, as
indicated in section 2 of the Administrative Code. We would not say that the word
"person" or persons," is to be taken in this broad sense in every part of the
Corporation Law. For instance, it would seem reasonable to say that the
incorporators of a corporation ought to be natural persons, although in section 6 it
is said that five or more "persons", although in section 6 it is said that five or more
"persons," not exceeding fifteen, may form a private corporation. But the context
there, as well as the common sense of the situation, suggests that natural persons
are meant. When it is said, however, in section 173, that "any person" may become
a stockholder in a building and loan association, no reason is seen why the phrase
may not be taken in its proper broad sense of either a natural or artificial person. At
any rate the question whether these loans and the attendant subscriptions were
properly made involves a consideration of the power of the subscribing corporations
and partnerships to own the stock and take the loans; and it is not alleged in the
complaint that they were without power in the premises. Of course the mere motive
with which subscriptions are made, whether to qualify the stockholders to take a

loan or for some other reason, is of no moment in determining whether the

subscribers were competent to make the contracts. The result is that we find
nothing in the allegations of the sixteenth cause of action, or in the facts developed
in connection therewith, that would justify us in granting the relief.

Seventeenth cause of action. Under the seventeenth cause of action, it is

charged that in disposing of real estates purchased by it in the collection of its
loans, the defendant has no various occasions sold some of the said real estate on
credit, transferring the title thereto to the purchaser; that the properties sold are
then mortgaged to the defendant to secure the payment of the purchase price, said
amount being considered as a loan, and carried as such in the books of the
defendant, and that several such obligations are still outstanding. It is further
charged that the persons and entities to which said properties are sold under the
condition charged are not members or shareholders nor are they made members or
shareholders of the defendant.

This part of the complaint is based upon a mere technicality of bookkeeping. The
central idea involved in the discussion is the provision of the Corporation Law
requiring loans to be stockholders only and on the security of real estate and shares
in the corporation, or of shares alone. It seems to be supposed that, when the
respondent sells property acquired at its own foreclosure sales and takes a
mortgage to secure the deferred payments, the obligation of the purchaser is a true
loan, and hence prohibited. But in requiring the respondent to sell real estate which
it acquires in connection with the collection of its loans within five years after
receiving title to the same, the law does not prescribe that the property must be
sold for cash or that the purchaser shall be a shareholder in the corporation. Such
sales can of course be made upon terms and conditions approved by the parties;
and when the association takes a mortgage to secure the deferred payments, the
obligation of the purchaser cannot be fairly described as arising out of a loan. Nor
does the fact that it is carried as a loan on the books of the respondent make it a
loan on the books of the respondent make it a loan in law. The contention of the
Government under this head is untenable.

In conclusion, the respondent is enjoined in the future from administering real

property not owned by itself, except as may be permitted to it by contract when a
borrowing shareholder defaults in his obligation. In all other respects the complaint
is dismissed, without costs. So ordered.

Avancea, C. J., Johnson, Villamor and Vila-Real, JJ., concur.

Separate Opinions

MALCOLM, J., with whom concur OSTRAND and JOHNS, JJ., dissenting:

For the second time in the history of the court so counsel for plaintiff inform us
we must try a corporation for the violation of a law which carries with it a death
warrant so counsel for defendant intimates. That the corporation at bar is
wealthy and powerful should neither prejudice us against it nor cause us to cringe
before its might. The court has a duty to perform and should perform it with fairness
to the corporation and with justice to the public, whose interests are involved. El
Hogar Filipino, deserves exactly the same consideration as any other litigant. No
more, no less.

The proceeding is one of quo warranto, begun by the Government of the Philippine
Islands under authority of section 190-A of the Corporation Law, and of sections
197-216, 519 of the Code of Civil Procedure. The complaint contains seventeen
causes of action. To all of them, the defendant has made answer. The facts have
been covered by stipulation. The government asks for an order of dissolution.
Defendant tenaciously resists.

El Hogar de Filipino is a corporation organized as a mutual building and loan

association under the provisions of the Corporation Law (Act No. 1459). The law last
mentioned, it may recalled, is divided into two parts. Chapter one is entitled
"General Provisions." In chapter two is entitled "Special Provisions". In chapter two,
section 171 to 190, inclusive, are found the special provisions pertaining to building
and loan corporations. Section 171 thereof is indicative of the legislative purpose. It
provides:

All corporations whose capital stock is required or is permitted to be paid in by the

stockholders in regular, equal, periodical payments and whose purpose is to
accumulate the savings of its stockholders, to repay to said stockholder their
accumulated savings and profits upon surrender of their stock, to encourage

industry, frugality, and home building among its stockholders, and to loan its funds
and funds borrowed for the purpose to stockholders on the security of
unencumbered real estate and the pledge of shares of capital stock owned by the
stockholders as collateral security, shall be known as building and loan corporation,
and the words mutual building and loan association shall form part of the name of
every such corporation.

The articles of incorporation of El Hogar Filipino show that the purpose of the
corporation are: (1) The accumulation of the savings of its shareholders; (2) the
return to said shareholders of their accumulated savings and profits upon the
surrender and cancellation of their shares; (3) the encouragement of industry,
frugality, and home building among its shareholders; (4) the loan of its funds and
funds borrowed for the purpose to its shareholders on the security of unencumbered
real estate and the pledge of shares of capital stock of the company owned by its
shareholders as collateral security; and (5) the borrowing of money upon the credit
of the corporation and the issuance of bonds or other documents evidencing the
existence of such obligations. The capital of the corporation is made not to exceed
P10,000,000. At the end of 1925 it had 5,826 shareholders holding 125,750 shares,
the total paid up value of which was P8,703,602.25.

El Hogar Filipino having been incorporated under Philippine law as a mutual building
and loan association, the primary inquiry should naturally be as to the nature,
purposes, and operations of mutual building and loan associations.

In the case of El Hogar Filipino vs. Rafferty ([1918] 37 Phil., 995),this court had
presented the question of whether El Hogar Filipino, as a building and loan
association, was relieved from the necessity of paying an income tax. It was held
that it was. Mr. Justice Johnson, speaking for the court, said:

A building and loan association is an organization created for the purpose of

accumulating a fund by the monthly subscription or saving of its members, to assist
them in building or purchasing for themselves dwellings or real estate, by loaning to
them the requisite money from the funds of the society. To all particular intent it
may be said to be to enable a number of associates to have and invest their savings
to mutual advantage, so that, from time to time, any individual among them may
receive, out of the accumulation of the pittances which each contributes
periodically, a sum, by way of loan, wherewith to build or pay for a home, and

ultimately making it absolutely his own by the payment of such small amounts from
time to time. (Rhodes vs. Missouri Savings & Loan Co., 173 Ill., 621; 42 L. R. A., 93.)

The same opinion quoted from Endlich on Building Associations, section 7, who was
termed a leading authority upon such associations, on the subject of the primary
designs and general operation of building associations, the following:

The idea which first gave rise to the institution of building associations, which
furnished their ostensible and legitimate raison d'etre, and which secured to them
their popularity and their, in many respects, exceptionally favored position before
the law, is that of enabling persons belonging to a class whose earning are small,
and with whom the slowness of the accumulation discourages the effort, to become
by a process of gradual and compulsory savings, either at the end of a certain
period, or by anticipation of it, the owners of homesteads. The operation of the
scheme may be easily understood.

The same opinion quoted from Thornton and Blackledge in their work on Building
and Loan Associations, at page 6 the following:

Societies, known as building, loan fund, and savings association, are now
recognized as important factors in the social and economic development of this
country. The controlling idea is the massing of the separate earnings of wageworkers, and the savings of persons of small means, in such a manner as to aid
them in procuring homes. It is the organization of thrift and self-help; a practical
application of the maxim that in "union there is strength." The effect of such a
movement is to dignify the home; to foster morality, and to make thoughtful, wise,
and responsible citizens. It is for such reason that the law and the courts, where
such associations have been properly conducted, have looked upon them with favor.
Whether they shall retain the favorable estimation of legislatures and courts will
depend in large measure upon the wise forecast and determined purpose of those
who control such institutions. Those departures from the original idea, intended to
enhance the profits of investors, without in any degree aiding those who are
endeavoring to build homes, have been, and in the future probably will be, severely
censured by the courts.

In the case of Lopez and Javelona vs. El Hogar Filipino and Registrar of Deeds of
Occidental Negros ([1925], 47 Phil., 249), the principal issue had to do with the

relation of El Hogar Filipino to the Usury Law permitting it to charge a higher rate of
interest than persons or entities, charge than similarly organized mutual building
and loan associations. Mr. Justice Johns, in a vigorous dissenting opinion, said:

There must be and is valid reason for the exception made in the statute which
permits building and loan associations to charge and receive 18 per cent per annum
as interest, and which limits all other loans made by any other person, firm or
corporation to interest at 12 per cent per annum.

All building and loan associations are founded, and exceptions made in their favor
as to the rate of interest, upon the theory that they will enable a person with small
means or small income who has a family to support, to build a home in which to live
and to improve his property and develop the country. When the exception was made
by the Legislature, it was never intended that the El Hogar Filipino or any other
corporation, under the guise of a building and loan association, should make a loan
upon a sugar plantation of the nature of the one in question.

xxx

xxx

xxx

It will be noted that the exception made in the statute above quoted is for mutual
building and loan societies incorporated under the Corporation Act. The use of the
word mutual is significant and important. Under the statute, it is not sufficient that
the corporation should be a building and loan association. It must be a mutual
building and loan association.

In the same dissent, reference was made to the case of El Hogar Filipino vs.
Rafferty, supra, and the remarks of Endlich, and Thornton and Blackledge on the
purposes of mutual building and loan associations. Fletcher, Cyclopedia of
Corporation, volume 1, page 136, was also quoted from as follows:

An incorporated building and loan association is a corporation for the purpose of

raising, by periodical subscriptions of members, a stock or fund to assist members
by advances or loans, generally on mortgage security, in building or purchasing
homes. Such corporations are different from corporations formed for pecuniary
profit.

The term (building and loan association) does not generally include corporations
unless their purpose is to accumulate funds and lend the same to members to
assists them in purchasing or building homes . . . (Cases cited.) It does not include a
corporation . . . for the purpose of purchasing and improving real estate and
advancing money on mortgages . . . or a corporation merely for the purpose of
loaning money.

In the same dissent, reference was made to what Corpus Juris, volume 9, page 920,
contains on the subject of the object and purpose of building and loan associations,
namely:

As it is sometimes stated in the statutes relating to, and in the charters and
constitutions of, building and loan associations, the principal object of a building and
loan association is to create a loan fund for the benefit of its borrowing members,
the underlying idea being that, by means of the system of small periodical
payments provided, people of limited means will be enabled to become the owners
of homes, and thrift, economy, and good citizenship will thereby be promoted. By
reason of the favorable results attending the operation of these associations, and
their beneficent purposes, they have, especially before they attained their present
tremendous growth, been favored and granted special privileges by the various
legislatures, such as permission to charge high rates of interest and exemption from
taxation. . . ." In lieu of asterisk the next succeeding sentence from Corpus Juris
could also have been appropriately used: "However, with the growth of these
organizations, evils have crept in, the privileges granted have in many instances
been abused by unscrupulous officers, and, in recent years, the courts have been
compelled to subject their transactions to closer scrutiny.

Speaking of the purposes for which loans can be made by building and loan
associations, Rosenthal, in his work on Building, Loan and Savings Associations,
third edition, page 108, says:

In our opinion, the object of building, loan and savings associations is to furnish
funds for homes rather than for mercantile or manufacturing improvements. Some
of the larger associations have granted loans of this character, and we consider it a
dangerous departure from the purposes for which these associations were created.

Thompson on Building Associations, page 5, 23, 24, 232 and 558, says:

The building association as now existing is a private corporation designed for the
accumulation, by the members, of their money, by periodical payments into its
treasury, to be invested from time to time in loans to the members upon real estate
for home purposes,

The building association is a home builder. The member by its system is enabled to
acquire a home, and to pay for it he pledges his future savings. . . . It enforces
economy, and awakens thoughts of citizenship in its better sense of offering homes.
This is the first purpose of these institutions. The language of the Supreme Court of
Georgia is timely: "The they have improved our towns by leading to the erection of a
number of new buildings, furnished many families with homes of their own, that
could not otherwise have possessed the, given a considerable impulse to
mechanical enterprise, and in many other ways promoted the prosperity and
welfare of the communities where they exist, is undoubtedly true. But whether they
will continue to be entitled to the epithet of the "poor man's exchequer," and
whether they will, as they promise to do, enable every man to become his own
landlord, will depend entirely upon the manner in which they conduct their
business . . ."

These institutions are well known all over the United States to be depositories of
money savings, and investors of those savings in homes for members. The
legislature has created them in the interest of good citizenship, to enable the people
to save their money and acquire homes and become steady citizens. The ultimate
legislative purpose is home-building. If it was merely a depository of savings it
would have no strong reason for existence, because the savings banks furnish that;
but it goes further, and is designed by law to use those savings in procuring homes
for its members. And the courts should promptly curb any disposition to depart from
the corporate purposes.

. . . But a building association is not an ordinary corporation; in fact, it exercises

some extraordinary privileges, particularly in not being amenable to the usury laws.
It is created for the declared purposes of accumulating money and lending the
accumulation to members to build or acquire homes for themselves. The legislature
devised this plan of cooperative accumulations for the purpose of assisting each
member to become his own landlord. The state has a selfish motive in the
promotion of a building association, as through its workings it is planting deeply the

roots of citizenship. The drifting, thriftless classes are offered a school of economy,
and the earnest and economical classes are given an opportunity. There is, then, the
formation of a steady, energetic and accumulating citizen. The cares of the state
are lessened by decreasing poverty, and its prosperity is increased by growing
material wealth. We may clearly conceive, then, that the intention of the legislature
in the creation of building associations is, first, to encourage savings; second, to
secure homes for the savers.

In the case of Mandlin vs. American Savings and Loan Association ([1896],63 Minn.,
358), the court said:

So-called "building societies," operated on the plan of the defendant, have so often
become the instrument of oppression and extortion as to call down the censure of
some eminent courts. The original purpose of building societies, viz., to enable
people of small means to build or buy homes, is entirely wanting.

"Such a body" says Follet, J., in Seibel vs. Victoria Building Association (43 Ohio St.,
371, p. 373), "exists for the equal benefit of all its members, who are presumed to
be persons whose earnings are small, and who seek to use weekly savings in
procuring suitable homesteads. Every member is presumed to become after
sometime a borrower to the extent of his interest. Building associations are not
intended to enable money lenders to obtain extraordinary interest, but they are
intended to help in securing homes with the aid of small incomes." (Barry Law of
Building Societies, p. 3, sec. 4.)

In case of North American Building Associaton vs. Sutton ([1860], 35 Pa., 463), the
court said:

It is well known that the original design of the legislature was to encourage the
erection of buildings. The motive for the grant of the franchise was public
improvement. But the practical working of the associations formed under the law
has not been what was anticipated. Though called "building societies," they are, in
truth, only agencies by which a greater than legal interest is obtained from the
necessitous and unwary.

In the case of Continental National Building and Loan Association vs. Miller ([1902],
44 Fla., 757), the court said:

When local in their operations and prudently managed they have served a useful
purpose enabling the man of small means to build his modest homes or to make a
safe and profitable investment of his meager earnings; but when they branch out
and forget the original purposes and limitations that have given them this favored
position, trouble not infrequently arises.

In the case of St. Joseph and Kansas Loan and Building Association vs. Thompson
([1877], 19 Kansas, 321), the court said:

It was never intended that these corporations, organized as this one was for the
purpose of giving to its members through their savings an easy way to discharge
encumbrances and to build homes, should loan their funds to others than their own
members.

In case of Parker vs. Fulton Loan and Building Association ([1872],46 Ga., 166), the
court said:

Whether such a contract though legal upon its face, was, in fact, illegal, would
depend upon the object of the association. If it were, in truth, a mere devise to
evade the usury laws, then it would depend upon the object of the association. If it
were, in truth, a mere devise to evade the usury laws, then it would be illegal, if in
fact more was taken for the use of money than 7 per cent per annum. But if the
organization were in fact and bona fide a plan with the real intent and object of
accumulating a fund by monthly subscriptions or savings of the members thereof, to
assist them in procuring for themselves such real estates as they may deem
proper,' then it would not be illegal.

The practical application of the resources of these institutions (building and loan
associations) to the building of homes and aiding their members to change their
conditions from rent-paying tenants to home-owning citizens has been recognized
as a work of vital importance and of the highest helpfulness to the interest of the
state and nation. (Rosenthal Cyc. of Building, Loan & Savings Association, p. 73.)

The aim and purpose of a building association is to aid and encourage its members
to learn and practice thrift by regular systematic saving, and to provide ways and
means so that every family may procure home. (Rosenthal Cyc. of Building, Loan &
Savings Association, p. 9.)

The funds of the first associations were applied to aid its members to procure
homes. This was in fact the one outstanding feature of the plan and the high
purpose for which the association was organized. The wish and desire to own their
own home, was, in fact the primary, fundamental inspiration on which the first
building association was formed, and has ever continued to be the shining pole star
which has guided and directed the progress of these building associations to the
present day. The desire to own a home is one of the primary, natural instincts of
every real man or woman. An institution organized and operated on a fair and
equitable plan which has for its object the gratifying of that desire, is sure to make a
strong appeal to all humanity. The constant appeal which building associations have
always made to this deep-seated human desire, is the real secret of their great
success. (Rosenthal Cyc. of Building, Loan & Savings Association, p. 13.)

A recent president of the United States League of Local Building and Loan
Associations said the "Our associations are serving just two classes of customers:
receiving the savings of thrifty and farseeing people, and loaning these funds to
members who wish to buy or build a home. Never was the need for building or
owning a home greater than in the past few years, and as you well know, lack of
sufficient funds has been one of our problems."

Building and Loan Associations started as neighborhood clubs in most parts of the
country. Neighbors wished to become home owners and began contributing a
certain sum monthly to a treasurer. The aggregate of these monthly payments was
soon sufficient to buy or build a home for one of the members. The fund was then
loaned to one of them, and as other funds accumulated, others could borrow. The
joint purposes of thrift and home ownership are inseparable and are of equal
importance. There could be no cooperative building and loan association without
both. (Clark and Chase Building and Loan Association, p. 4).

The Commissioner of Internal Revenue of the United States in article 515 of his new
regulations, outlines the particular associations entitled to exemption, under the
Federal Law as follows:

In general, a building and loan association entitled to exemption is one organized

pursuant to the laws of any state, territory or the District of Colulmbia, which
accumulates funds to be loaned primarily to the shareholders for the purpose of
building or acquiring homes. (Rosenthal Cyc. of Building, Loan & Savings
Association, p. 94.)

The authorities could be piled up mountain high. They all disclose that mutual
building and loan associations are peculiar and special corporations. They can
exercise only such powers as are conferred by the legislative body creating them,
either by express terms or by necessary implication. Their basic and essential idea
is mutuality. The primary object is to encourage thrift and to assist in home building.
"El Hogar Filipino" or as it is in English "The Filipino Home" that is the magic
thought which attracts small investors. But when pseudo associations branch out
and forget the original purposes and limitations that have given them their favored
positions, it is incumbent on the judiciary to place them back in their rightful places.
We are frank to say that it is these elementary principles, which, in our opinion, the
majority have failed to grasp, which have led them into error in the decision of this
case.

Why are mutual building and loan associations granted special privileges? Why are
mutual building and loan associations exempted from taxation, as disclosed in El
Hogar Filipino vs. Rafferty, supra? Why are building and loan associations permitted
to charge high rates of interest, as disclosed in Lopez and Javelona vs. El Hogar
Filipino, and Registrar of Deeds of Occidental Negros, supra? Why? Need answers be
given. If so, it is so that mutual building and loan associations may with one hand
accept favors rightfully theirs, and with the other hand grasp favors properly
belonging to strictly private corporations or loan societies.

El Hogar Filipino has offended against the law of its creation, and has departed from
the fundamental purposes of mutual building and loan associations in this:

A. In that it has engaged in business activities entirely foreign to and not reasonably
necessary for the purposes for which it was organized, such as the administration of
properties and the management of properties not mortgaged;

B. In that it has inserted in article 10 of its by-laws a provision giving the board of
directors, by majority vote, the unqualified right to cancel and forfeit shares by
merely returning to their owners the amount which may result from the accounting,
in violation of the Corporation Law;

C. In that its board of directors has become a permanent and self- perpetuating
body, since with the exception of the years 1911, 1912, and 1917, there has been
no election of directors and since between 1912 and 1917, and from 1917 until the
present, the membership of the board has not been changed, except to fill
vacancies which have been filled by the board itself, in violation of the Corporation
Law, and of the by-laws of the corporation;

D. In that the directors, instead of serving without pay or for nominal salaries, have
been receiving relatively large compensations out of the profits in accordance with
article 92 of the by-laws, providing that 5 percent of the annual profits shall be
devoted to the compensation of the directors, according to their attendance at the
meetings;

E. In that the corporation has been giving to Antonio Melian, its founder, under
provisions of article 92 of its by-laws 5 per cent of the yearly net profits, and will
continue to do so, for the full fifty-year period of life of the defendant, and under
which Mr. Melian has received a total sum of P615,834;

F. In that articles 70 and 76 of its by-laws are contrary to law, since they only permit
the election or appointment to the board of directors of persons owning P5,000
worth of paid up shares, which is made a condition precedent to eligibility to the
board of directors;

G. In that it has issued so-called special shares, in violation both of the letter and
spirit of the Corporation Law;

H. In that it has maintained out of its profits an unnecessarily large reserve fund,
classified into general reserve fund and special reserve fund, instead of distributing
its profits among its members;

I. In that it has made large loans to persons and companies, such as a loan of
P2,320,000 to the Pacific Warehouse Company, which so depleted the funds of the
corporation that for sometime it was unable to act on applications for small loans
and for the retirement of shares;

J. In that under articles 92 and 95 of the by-laws of the corporation, upon the
expiration of its period of life or upon earlier liquidation of its business, the
accumulated reserves and other properties will be distributed among and will
benefit only its directors and its founder, together with a few other persons;

K. In that its membership is in part composed of corporations, companies, and

associations, for instance of sixteen corporations and fourteen partnerships;

L. In that it has disposed of real estate purchased by it in the collection of its loans
on credit, thereafter accepting mortgages on the property transferred, in violation of
the Corporation Law;

M. And, lastly, in the El Hogar Filipino has failed to carry our and fulfill the main
purpose for which it was created, and in consideration of which it has been granted
special privileges and exemptions.

The foregoing are not trivial or isolated infractions of the law to be brushed away
with a wave of the hand. They constitute grave abuses. They disclose El Hogar
Filipino as an octopus whose tentacles have reached out to embrace and stifle vital
public interests. The court would be entirely justified in peremptorily decreeing the
dissolution of the corporation for misuse of its powers.

Section 190-A of the Corporation Law, inserted by section 3 of Act No. 2792, makes
it the imperative duty of the court to dissolve a corporation for any violation which it
has committed. It is believed, however, that counsel for the defendant is entirely
correct in his argument to the effect that the legislature is without power to diminish
the jurisdiction of the court, and to direct a particular judgment in a particular case.
Rather would we prefer to follow the precedent in the case of the Government of the
Philippine Islands vs. Philippine Sugar Estates Development Company ([1918], 38
Phil., 15),wherein in was ordered that the corporation be dissolved and prohibited

from continuing to do business in the Philippine Islands unless it complied with the
conditions mentioned in the decision.

In amplification of the above suggestion, it must be said that El Hogar Filipino is the
possessor of important property rights which should not be disastrously disturbed. It
must also be said that a mutual building and loan association properly conducted is
an institution which should be encourage in the community. The result should,
therefore, be to confine El Hogar Filipino to its legitimate purposes and to force it to
eliminate its illegitimate purposes and The government has made out its case, but
the defendant should be permitted a reasonable time to fulfill the conditions laid
down in this decision.

ROMUALDEZ, J., dissenting:

I believe that the defendant corporation should be compelled to observe the law
and to confine itself to its object and purposes as a building and loan association
existing under Act. No. 1459, and that it should be given a reasonable period within
which to do so.

I am of this opinion on the ground that, to my mind, said corporation has deviated
from the law and its own object and purposes by adopting articles 10, 70, and 76 of
its by-laws in permitting the perpetuation of the same directors, and in making
loans to persons who are not stockholders and to wealthy persons or companies in
extremely large amounts.

Footnotes

149 Phil., 823.

2Promulgated March 31, 1926, not reported.

The Lawphil Project - Arellano Law Foundation

Lapiz vs. RAmrez
G.R. No. L-16197

March 12, 1920

CENTRAL CAPIZ, a corporation, petitioner,

vs.
ANA RAMIREZ, respondent.
Williams and Ferrier for petitioner.
Cohn, Fisher and Dewit for respondent.
JOHNSON, J.:
This is an original action brought in the Supreme Court. Its purpose is to obtain an interpretation and
application of the intent, purpose and scope of Act No. 2874 of the Philippine Legislature, known as
the "Public Land Act," so far as it affects agricultural lands, privately owned.
The only question presented is, whether or not said Act No. 2874 is applicable to agricultural lands,
in the Philippine Islands which are privately owned.
There is not dispute about the facts. They are admitted. The petitioner alleges and respondent
admits that on or about July 1, 1919, the latter contracted with the petitioner to supply to it for a term
of thirty years all sugar cane produced upon her plantation, which said contract, by agreement, was
to be converted later into a right in rem and recorded in the Registry of Property as an encumbrance
upon the land, and to be binding upon all future owners of the same. In the interim the execution of
said contract and its conversion into a right in rem upon the respondent's property, said Act No. 2874
became effective. The respondent, while admitting said contract and her obligation thereunder to
execute a deed pursuant thereto, bases her refusal so to do upon the fact that more than 61 per cent
of the capital stock of the petitioner is held and owned by persons who are not citizens of the
Philippine Islands or of the United States.
It is conceded by the parties that the land involved is private agricultural land, that is, land which is
held and owned by the respondent, for which she holds a Torrens title.
The defendant answered the petition. To the defendant's answer the petitioner demurred. From an
examination of the petition, the answer and the demurrer, it appears that the real issue presented is,
whether the said Act (No. 2874) is limited in its application to agricultural lands of the public domain,
or whether its provisions also extend to agricultural lands held in private ownership.
Inasmuch as the wording of certain sections of said Act (secs. 23, 24, 121 and 122) give rise to a
possible construction that private lands are included within its terms, and inasmuch as said Act
specifically provides that any land coming within its purview cannot be encumbered, alienated or
transferred to corporations in which at least 61 per cent of the capital stock does not belong wholly to
citizens of the Philippine Islands or of the United States, the respondent, while not desiring to evade
her contract, fears to assume the risk of giving effect to her said contract in view of the drastic

penalty prescribed, should her action prove unlawful. The penalty provided in section 122 of said Act
includes not only a nullity of the contract but also a reversion of the property and its improvements to
the Government.
On behalf of the plaintiff it is argued, first, that the intent of the Legislature, gathered from a reading
of Act No. 2874 in its entirety, is to provide simply for the sale, lease and other disposition of lands of
the public domain; that lands held in private ownership are not affected thereby; and, second, that
even had the Legislature intended to include private as well as public land within the scope of the
Act, this intent fails because under the Act as entitledsuch attempt would be in direct violation of
section three of the Act of Congress of August 29, 1916, which provides that: "No bill which may be
enacted into law shall embrace more than one subject, and that subject shall be expressed in the
title of the bill."
Examining Act No. 2874 in detail, there can be little question but that it was intended to apply to and
regulate the sale, lease and other disposition of public lands only. The title of the Act, always
indicative of legislative intent, reads: "an Act to amend and compile the laws relating to lands of the
public domain, and for other purposes." Section one of such act provides: "That short title of this Act
shall be 'The public Land Act.' " Section two, wherein the purpose of the Act is expressly stated,
reads: " The provisions of this Act shall apply to lands of the public domain." Section three provides:
While title to lands of the public domain remains in the Government, the Secretary of
Agriculture and Natural Resources shall be the executive officer charged with carrying out
the provisions of this Act, through the Director of Lands, who shall act under his immediate
control.
It cannot be contemplated that these officers, charged "with carrying out the provisions of the Act,"
were intended to exercise authority and control over the sale or other disposition of lands hold in
private ownership.
To the same effect are sections four, five, and eighty-seven of the Act, wherein executive control is
vested in the Director of Lands with respect to the survey, appraisal, classification, etc., of lands of
the public domain, with authority to prepare rules and regulations for carrying into effect the
provisions of the Act, and to receive all applications filed pursuant thereto, etc.
Sections 105 contains another indication that said Act does not apply to privately owned agricultural
lands. Said section provides: "All patents or certificates for lands granted under this Act . . . shall
issue in the name of the Government of the Philippine Islands, under the signature of the GovernorGeneral, countersigned by the Secretary of Agriculture and Natural Resources." The Legislature
certainly did not intend that all sales, leases, etc. of privately owned agricultural lands should
hereafter be "issued in the name of the Government of the Philippine Islands, under the signature of
the Government of the Philippine Islands, under the signature of the Governor-General," etc.
Section 23, after describing the persons and corporations authorized to purchase any tract of public
agricultural lands "disposable under this Act," proceeds:
Provided, further, That citizens of countries the laws of which grant to citizens of the
Philippine Islands the same right to acquire public lands as to their own citizens, may, while
such laws are in force, but not thereafter . . . purchase any parcel of agricultural land . . .
available under this Act.
In other words, it is only necessary for other countries to grant to citizens of the Philippine Islands
the right to acquire "public lands," in order that their citizens may have the right to acquire any

land available under this Act. This provision would be altogether anomalous had it been the intent to
apply Act No. 2874 to lands held in private ownership.
Referring again to section two of said Act, we find the following:
That nothing in this Act provided shall be understood or construed to change or modify the
government and disposition of the lands commonly known as "friar lands" and those which,
being privately owned, have reverted to or become the property of the Philippine
Government, which administration and disposition shall be governed by the laws at present
in force or which may hereafter be enacted by the Legislature.
The purpose of said provision is obvious. Inasmuch as these friar estates and other real property
purchased or owned by the Government are subject to its control and disposition equally with lands
of the public domain, it could be reasonably argued that they should be subject to and governed by
the laws applicable to public lands. Through the insertion of the provision above quoted, however,
this construction of the Act is avoided. If said Act, by express provisions, does not apply to
lands privately owned by the Government, it could hardly have been the intent of the Legislature to
make the Act applicable to lands held in private ownership by individuals.
The Act nowhere contains any direct or express provision applying its terms to privately owned
lands. The doubts of defendant in that regard are caused by inferences drawn from the language
used in sections 24 and 121 of the Act. The first paragraph of section 24 provides:
No . . . corporation . . . other than those mentioned in the last preceding section may acquire
or ownagricultural public land or land of any other denomination or classification, not used for
industrial or residence purposes, that is at the time or was originally, really or presumptively,
of the public domain, or any permanent improvement thereon, or any real right on such land
and improvement.
Said section as worded, and standing alone, presents come question as to the character of land
sought to be included therein. This doubt is dispelled, however, when its provisions are read in
connection with other sections of the same chapter. Chapter five, in which section 24 is found, deals
with "Sales," and section 25 thereof specifically provides that: "Lands sold under the provisions of
this chapter must be appraised in accordance with section 114 of this Act." Section 114 confers
authority upon the Director of Lands, with the approval of the Secretary of Agriculture and Natural
Resources, to appraise lands or improvements subject to concession or disposition under the
provisions of this Act. Inasmuch as the Legislature cannot vest authority in the Director of Lands to
"appraise" or "sell" lands held in private ownership, it is not presumed it was the intention to include
private lands in the Act or subject them in the manner indicated to any such authority. The same
observations and the same conclusions apply to section 121 of the Act, where much the same
language is used as found in section 24 above quoted.
Whatever interpretation said sections 24 and 121 might receive if standing alone, it is clear they
cannot prevail against the general intent of the Act, derived not only from the language used but from
the machinery adopted for giving effect to its provisions. (See secs. 87, 88, 90, 93, 94, 99, 103, 105,
and 115.)
We hold, therefore, that the purpose of the Legislature in adopting Act No. 2874 was and is to limit its
application to lands of the public domain, and that lands held in private ownership are not included
therein and are not affected in any manner whatsoever thereby.

Even should the holding of the court upon this question of intent be different, it would not affect the
final outcome of the case. Under the Act as entitled, any attempt by the Legislature to insert
provisions in the body thereof relating to lands of private ownership would be in violation of the
provisions of the Jones Law and therefore, null and void.
It is provided in section 3 of the Jones Law (Act of Congress of August 29, 1916): "That no bill which
may be enacted into law shall embrace more than one subject, and that subject shall be expressed
in the title of the bill."
Identical provisions to the above are contained in most of the State Constitutions, and have been
repeatedly construed. In the States of Alabama, California, Georgia, Idaho, Illinois, Indiana, Iowa,
Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska,
Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Tennessee,
Virginia, West Virginia, Wisconsin and Wyoming, identical provisions are found in the Constitution.
The purpose of this legislative restriction, and the evils sought to be remedied thereby, are clearly
stated by Surtherland in his valuable work on Statutory Construction. In Section 111 he says that:
In the construction and application of this constitutional restriction the courts have kept
steadily in view the correction of the mischief against which it was aimed. The object is to
prevent the practice, which was common in all legislative bodies where no such restrictions
existed, of embracing in the same bill incongruous matters having no relation to each other
or to the subject specified in the title, by which measures were often adopted without
attracting attention. Such distinct subjects represented diverse interests, and were combined
in order to unite the members of the legislature who favor either in support of all. These
combinations were corruptive of the legislature and dangerous to the State.
Such omnibus bills sometimes included more than a hundred sections on as many different
subjects, with a title appropriate to the first section, "and for other purposes."
The failure to indicate in the title of the bill the object intended to be accomplished by the
legislation often resulted in members voting ignorantly for measures which they would not
knowingly have approved; and not only were legislators thus misled, but the public also; so
that legislative provisions were steadily pushed through in the closing hours of a session,
which, having no merit to commend them, would have been made odious by popular
discussion and remonstrance if their pendency had been seasonably announced. The
constitutional clause under discussion is intended to correct these evils; to prevent such
corrupting aggregations of incongruous measures, by confining each act to one subject or
object; to prevent surprise and inadvertence by requiring that subject or object to be
expressed in the title.
In the case of Walker vs. State (49 Ala., 329), the Supreme Court of Alabama stated the proposition
as follows citing and quoting from Cooley's Constitutional Limitations; p. 143:
The object sought to be accomplished and the mischief proposed to be remedied by this
provision are well known. Legislative assemblies, for the dispatch of business, often pass
bills by their titles only without requiring them to be read. A specious title sometimes covers
legislation which, if real character had been disclosed, would not have commanded assent.
To prevent surprise and fraud on the legislature is one of the purposes this provision was
intended to accomplish. Before the adoption of this provision the title of a statute was often
no indication of its subject or contents.

An evil this constitutional requirement was intended to correct was the blending in one and
the same statute of such things as were diverse in their nature, and were connected only to
combine in favor of all the advocates of each, thus often securing the passage of several
measures no one of which could have succeeded on its own merits. Mr. Cooley thus sums
up in his review of the authorities defining the objects of this provision: "It may therefore be
assumed as settled that the purpose of this provision was: First, to prevent hodge-podge or
log-rolling legislation; second, to prevent surprise or fraud upon the legislature by means of
provisions in bills of which the titles gave no information, and which might therefore be
overlooked and carelessly and unintentionally adopted; and , third, to fairly apprise the
people, through such publication of legislative proceedings as is usually made, of the
subjects of legislation that are being considered, in order that they may have opportunity of
being heard thereon by petition or otherwise if they shall so desire.' (Cooley's Constitutional
Limitations, p. 143.)
To the same effect, in the case of Lindsay vs. U. S. Say. & Loan Ass'n. (120 Ala., 156 [42 L. R. A., N.
S., 783]), the court said:
The purposes of the constitutional requirement must be borne steadily in mind when it
becomes necessary to determine whether there has been legislative observance of it. The
exposition of these purposes by Judge Cooley is accepted, we believe, in all the states in
which alike limitation prevails. (Then follows quotation from Cooley, supra.)
In the case of People vs. Parks (58 Cal., 624) where, in the body of an act, provision was made for
something not included in the title, the Supreme Court of California said:
At least, then, two heterogeneous subjects are embraced in the act, one of which is not
expressed in the title, and they cannot be segregated. The title does not express the objects
of legislation embodied in the provisions of the act. It is, therefore, narrower than the body of
the act, and fails to impart that notice of the measures enacted, which the Constitution
requires. To prohibit such legislation was the sole end and aim of the constitutional
requirement. 'The practice,' says the Supreme Court of Missouri, 'of comprising in one bill
subjects of a diverse and antogonistic nature, in order to combine in their support members
who were in favor of particular measures, but neither of which could command the requisite
majority on its own merits, was found to be not a corruptive influence in the Legislature itself,
but destructive of the best interests of the State. But this was not more detrimental than that
other pernicious practice, by which, through dexterous and unscrupulous management,
designing men inserted clauses in the bodies of bills, of the true meaning of which the titles
gave no indication, and by skillful maneuvering urged them on to their passage. These things
led to fraud and injury, and it was found necessary to apply a corrective in the shape of a
constitutional provision.' (City of St. Louis vs. Tiefel, 42 Mo., 590.) This provision has been
framed in the constitutions of may of the States of the Union; and courts, whenever it has
come before the, have liberally construed it as the will of the people in the interests of honest
legislation.
The authorities are to all intents uniform that this constitutional requirement is mandatory and not
directory. Sutherland on Statutory Construction, section 112, states the rule correctly as follows:
The efficiency of this constitutional remedy to cure the evil and mischief which has been
pointed out, depends on judicial enforcement; on this constitutional injunction being regarded
as mandatory, and compliance with it essential to the validity of legislation. The mischief
existed notwithstanding the sworn official obligation of legislators; it might be expected to
continue notwithstanding that that obligation is formulated and emphasized in this

constitutional injunction if it be construed as addressed exclusively to them and only

directory. It would in a general sense be a dangerous doctrine to announce that any of the
provisions of the constitution may be obeyed or disregarded at the mere will or pleasure of
the legislature unless it is clear beyond all question that such was the intention of the framers
of that instrument. It would seem to be a lowering of the proper dignity of the fundamental
law to say that it descends to prescribing rules of order in unessential matters which may be
followed or disregarded at pleasure. The fact is this: That whatever constitutional provision
can be looked upon as directory merely is very likely to be treated by the legislature as if it
was devoid of moral obligation, and to be therefore habitually disregarded.
In the case of Cannon vs. Mathes (8 Heisk. [Tenn.], 504) Nicholson, C. J., referring to the provision
that "No bill shall become a law which embraces more than one subject," said:
This is a direct, positive and imperative limitation upon the power of the legislature. It matters
not that a bill has passed through three readings in each house on three different days and
has received the approval of the governor, still it is not a law of the State if it embraces more
than one subject.
In the case of Walker vs. State (49 Ala., 329) supra, the court said:
It is the settled law of this court, founded on reasoning which seems to us unanswerable that
this provision of the constitution is not a mere rule of legislative procedure, directory to the
general assembly, but that it is mandatory, and it is the duty of courts to declare void any
statute not conforming to it.
Justice Cooley, in his work on Constitutional Limitations (pp. 179-180) states that our courts have
held, without exception, that such constitutional provision is mandatory.
As heretofore noted, the title of Act 2874, here under constructions, reads: "An Act to amend and
compile laws relative to lands of the public domain, and for other purposes."
In our interpretation of said Act, the words "and for other purposes" contained in its title, must be
treated as non-existent. Under all the authorities wherein the requirement "That no bill shall
embrace more than one subject, which subject shall be expressed in the title of the bill" has been
considered, the words "and for other purposes" when found in the title, have been held to be without
force or effect whatsoever and have been altogether discarded in construing the Act.
Upon this point, Justice Cooley in his Constitutional Limitations, 6th ed., pp. 173 - 173, states as
follows:
One thing, however, is very plain: That the use of the words "other purposes," which has
heretofore been so common in the title to acts, with a view to cover any and everything
whether connect with the main purpose indicated by the title or not, can no longer be of any
avail where these provisions exist. As was said by the Supreme Court of New York in a case
where these words had been made use of in the title to a local bill: "The words "for other
purposes" must be laid out of consideration. They express nothing and amount to nothing as
a compliance with this constitutional requirement. Nothing which the act could not embrace
without them can be brought in by their aid."
Sutherland on Statutory Construction, section 122 says:

The phrase "and for other purposes" expresses no specific purpose and imports indefinitely
something different from that which precedes it in the title. It is, therefore, universally rejected
as having no force or effect wherever this constitutional restriction operates. (Citing
numerous cases).
In the case of Ryerson vs. Utley (16 Mich., 269), an Act was construed by the court reading: "An Act
to provide for the preservation of the Muskegon river improvements, and for other purposes."
Cooley, C. J., who wrote the opinion, said:
The Constitution (of Michigan) provides that no law shall embrace more than one subject,
which shall be expressed in its title. We have heretofore had occasion to consider this
section, and have said of it that it ought to be construed reasonably and not in so narrow and
technical a sense as unnecessarily to embarrass legislation. But the only object mentioned in
the title of this Act is the preservation of the Muskegon River Improvements, for which
purpose the act authorizes tools to be levied and expended.
The payment of Beard's claim is in no way connected with this object and the title to the act
would apprise neither the legislature nor the public that it covered provisions under which a
large sum was to be collected and disbursed to pay for the original construction of the work.
The words "other purposes" in the title can have no force whatever under the constitutional
provision which has been quoted.
In the case of Board of Education vs. Barlow (49 Ga., 232) the title of the Act under consideration
read: "An Act to establish a permanent Board of Education for the City of Americus and to
incorporate the same, and for other purposes." The State constitution prohibited any law which
referred to more than one subject, or contained matter different from that expressed in the title of the
act. The court said:
Does this not close the door to any force and effect being given the words "for other
purposes?" If these words were once necessary to permit the introduction of matter in the
bill, different from what was expressed in the order portion of the title, would not that every
thing show now that the bill would thereby become obnoxious to the other clause prohibiting
more than one subject matter? The necessity of such words under the provision as it
formerly stood to prevent the bill from containing matter different from the title could only
arise because such matter is something different from what had already been expressed. It
shows that something more than one subject-matter is intended. If so, although it was
allowed under the clause as it was formerly, it cannot now be done.
Equally may it be said of the Act of the Philippine Legislature here involved, the addition of the words
"and for other purposes," contained in its title, can only be explained on the theory that something
different was to be included therein from that previously expressed, i. e., "lands of the public
domain."
Another case where the same conclusion is forcibly expressed is that of Spier vs. Baker, (120 Ca.,
370). There the court construed an Act reading: "An Act providing for general primary elections within
the State of California and to promote the purity thereof by regulating the conduct thereof, and to
support the privileges of free suffrage thereat, by prohibiting certain acts and practices in relation
thereto, and providing for the punishment thereof, and for other purposes." the California State
Constitution provides: "Every Act shall embrace but one subject, which shall be expressed in its title;
but, if any subject shall be embraced in an act which shall not be expressed in its title, such act shall
be void only as to so much thereof as shall not be expressed in its title." The court, after citing this
constitutional provision, said:

Let us test the title of this act in the crucible furnished by the foregoing provision of the
constitution. The legislature, in framing this title, was above all things candid. Upon its very
face the law-making power challenged the sound policy of this provision of the constitution,
and avowedly disregarding it, declared that the purpose of the act was the creation of a
primary election law and "other purposes." Under the cloak of "other purposes," all and every
conceivable kind of legislation could hide and thrive in the body of the act, and thus the
constitutional provision be set at naught. In this state, when these words "for other purposes"
are found in the title of an act of the state legislature they accomplish nothing, and in reading
the title our eyes are closed to them. We then have before us, tested by its title, an act
dealing solely with general primary elections, and providing penalties for violating the law
relating thereto. Any matters of legislation contained in the body of the act not bearing upon
primary elections must go out; the constitutional provision quoted so declares. Weighing and
measuring the legislation found in the act by this test, very many provisions have no place
there. It would seem that the legislature, in using the words "for other purposes" in the title,
used those words advisedly, and in good faith lived up to them fully. For the legislation found
in section after section of the act can find no justification in its title, save under these words
of boundless meaning, "for other purposes."
The court, after referring to various matters included in the bill but not specified in the title, said:
Many of these things are totally foreign to any question relating to primary elections, and
others are so remotely connected with that subject as to clearly come within the prohibition
of the constitutional provision. These matters of legislation, not being embraced within the
purview of the title, are void and fall to the ground.
Applying the doctrine of the above cases to the Act before us for interpretation, its title must be
considered and treated as though reading: "An Act to amend and compile the laws relative to lands
of the public domain."
Inasmuch as agricultural lands in the Philippine Islands held in private ownership, under fee title,
constitute no part of "the public domain." they cannot come within the purview of Act No. 2874 as it is
entitled.
The words "public land" are habitually used in our legislation to described such as are subject to sale
or other disposal under general laws.
In the case of Wilcox vs. Jackson (13 Peters, 498 [10 L. ed., 264]) the court, in dealing with the
matter of public lands, stated:
Whensoever a tract of land shall have once been legally appropriated to any purpose, from
that moment the land thus appropriated becomes severed from the mass of public
lands; and no subsequent law, or proclamation, or sale, would be construed to embrace it, or
to operate upon it, although no reservation were made of it.
The above case is quoted and applied in the case of United States vs. Blendoner (122 Feb. Rep.,
703, 708). In U. S. vs. Garreston (42 Feb., 22), the court said:
Such lands comprise the general public domain; unappropriated lands; lands not held back
or reserved for any special governmental or public purpose.

In the case of Yakima County vs. Tuller (3 Wash., T., 393), the court said that the term "public lands"
in a grant of public lands for roads, etc., shall be construed to mean strictly public lands, such as are
open to entry and settlement, and not those in which the rights of the public have passed and which
have become subject to some individual right of a settler.
In the case of Bardon vs. Nor. Pac. R. R. Co. (145 U. S., 535), the court said:
. . . It has long been settled . . . that all land to which any claims or rights of others have
attached does not fall within the designation of public lands.
The Attorney-General of the Philippine Islands, in a very elucidated opinion in which the AttorneyGeneral of the United States agreed, held that "friar lands" purchased by the Insular Government
formed no part of the "public domain" and were not affected by nor subject to the restrictions of the
Act relating to public lands.
Section 2 of the Act before us exempts not only "friar lands" from its operation but also all lands
which have reverted to, or become the property of, the Philippine Government.
It is clearly evident, therefore, that under no possible construction of the law can the words "lands of
the public domain," used in the title of Act No. 2874, be held to include, or be authorized to include,
lands held in freehold. While this is true generally, it is peculiarly applicable to lands held and owned
under Torrens title as are the lands of the defendant herein in which all interest of the
Government is expressly eliminated. Section 38 of the Land Registration Act (No. 496) provides that
such registered title "shall be conclusive upon and against all persons, including the Insular
Government and all branches thereof, whether mentioned by name in the application, notice or
citation, or included in the general description 'To all whom it may concern.' "
The judicial department of the government hesitates to pronounce invalid the Acts of the legislative
department, and will not do so until and unless it is shown that the same exceed the authority
conferred upon said department or contravene some express or necessarily implied provision of the
Organic Law of the state. (Case vs. Board of Health, and Heiser, 24 Phil., 250; U. S. vs. Joson, 26
Phil., 1, 64; U. S. vs. Gomez Jesus, 31 Phil., 218, 225, 228; Tajanlangit vs. Pearanda, 37 Phil.,
155.)
In the interpretation and construction of statutes the court should give them the meaning and effect
which the legislature intended, unless that meaning and effect is in conflict with the organic law of
the land. The question of the validity of the statutes is first determined by the legislative department
of the government, and the courts will resolved every presumption in its favor. The wisdom or
advisability of a particular statute is within the constitutional powers of the legislature, it will be
sustained, whether the courts agree or not in the wisdom of its enactment. If the statute covers a
subject not authorized by the fundamental laws of the state, or by the constitution, then the courts
are not only authorized but are justified in pronouncing the same illegal and void, no matter how wise
and beneficent such legislation may seem to be. The courts are not justified in measuring their
opinion with the opinion of the legislative department of the government, as expressed in statutes,
upon the question of the wisdom, justice and advisability of a particular law. The courts have no right
to dictate what law shall be adopted by the legislative department of the government, so long as a
well defined public policy or an organic act is not violated. (Case vs. Board of Health, and Heiser, 24
Phil., 250; U. S. vs. Gomez Jesus, 31 Phil., 218.)
Our conclusions, therefore, from all of the foregoing are:

1. That it was the purpose and intent of the legislature to comply with the provisions of the Jones
Law and to limit the application of Act No. 2874 to lands of the public domain;
2. That the phrase "and for other purposes," found in the title of said Act (No. 2874), by virtue of the
provisions of section 3 of the Act of Congress of August 29, 1916 (the Jones Law), cannot be
interpreted to include, nor be made applicable to any lands not public;
3. That eliminating the phrase 'and for other purposes" from the title of said Act, the same must be
considered and treated as though reading: "An Act to amend and compile the laws relative to lands
of the public domain;"
4. That lands held in freehold or fee title, or private ownership, constitute no part of the public
domain and cannot possibly come within the purview of said Act No. 2874, inasmuch as the
"subject" of such freehold or private land is not embraced in nay manner in the title of the Act.
5. That it is the uniform holding of the United States Supreme Court, and of other courts interpreting
the phrase "public lands," that once such lands have been "legally appropriated" by the Government
or by individuals, they become segregated from the mass of public lands, and no law or
proclamation thereafter made or issued relating to "public lands" operate upon them.
6. That whatever right or authority the Government of the Philippine Islands may have had at any
time to assert any right, title, or interest in and to the lands involved in this proceeding, whether as a
part of the "public domain" or otherwise, was absolutely divested by virtue of the provisions of
section 38 of Act No. 496, after such lands were registered in the court of land registration under the
Torrens system.
7. That under said Act (No. 2874) as entitled any provisions or provisions in the body thereof
applicable to lands held under fee title is null and void and of no effect.
8. That inasmuch as said Act (No. 2874) cannot be interpreted to apply to, nor include, lands held in
fee title, the penal provisions thereof cannot be held to apply to leases, sales, concessions, nor any
other transaction by the holders.
9. That by virtue of the provisions of section 127, as well as the general jurisprudence upon that
subject our conclusions herein shall not be held to affect any of the provisions of said Act No. 2874
except those provisions which relate to private agricultural lands, or lands held in private ownership,
in contradistinction to lands of the public domain.
Therefore, having demonstrated that said Act No. 2874 does not apply to lands of the respondent,
and there being no objection to the form of the remedy prayed for, the same is hereby granted,
without any finding as to costs. So ordered.
Arellano, C.J., Malcolm and Avancea, JJ., concur.

Separate Opinions
TORRES, J., concurring:

Inasmuch as it does not appear what action or remedy is prayed for and the petition is only
concerned with the interpretation of Act No. 2874, I concur with the foregoing decision.
Araullo, J., concurs.