Title
Government of the Philippine Islands vs. El Ahorro Insular
Case
G.R. No. 37640
Decision Date
Dec 21, 1933
Quo warranto proceedings against El Ahorro Insular challenged illegal compensations to incorporators and "fundadores" shares issuance; Supreme Court upheld trial court's dissolution order, affirming violations of mutual building and loan association principles.
validity of resolutions
compensation
incorporators
A

Case Digest (G.R. No. 37640)

Facts:

  • Institution of Quo Warranto Proceedings:
On September 28, 1931, the Government of the Philippine Islands, through the Attorney-General, filed quo warranto proceedings against El Ahorro Insular, a mutual building and loan association organized under Act No. 1459 (Corporation Law). The government sought to:
  • Deprive the defendant of its corporate rights, privileges, and franchises.
  • Dissolve the defendant corporation.
  • Obtain other just and equitable relief.
  • Judgment of the Trial Court:
The trial court ordered El Ahorro Insular to comply with the orders of the Bank Commissioner and the Secretary of Finance within two months. Failure to comply would result in the dissolution of the corporation. The court also ruled that certain orders would take effect from January 1, 1932, to avoid undue hardship on the defendant.
  • Assignments of Error:
The defendant appealed, raising four assignments of error:
  • First Assignment: The trial court erred in prohibiting the defendant from paying compensation to its incorporators.
  • Second Assignment: The trial court erred in ordering the defendant to demand payment of loans obtained on "fundadores" shares.
  • Third Assignment: The trial court erred in holding it illegal for the defendant to maintain a certain proportion between its shares.
  • Fourth Assignment: The trial court erred in denying the defendant's motion for a new trial.
  • Compensation to Incorporators:
    • On February 23, 1930, the stockholders approved a resolution granting P140,000 in compensation to six incorporators. The beneficiaries renounced this compensation.
    • On February 22, 1931, another resolution was passed, setting aside 2% to 8% of net profits (not exceeding P140,000) for the incorporators. This resolution was not repealed despite instructions from the Bank Commissioner declaring it illegal.
  • "Fundadores" Shares:
    • The defendant issued "fundadores" shares with a par value of P200 each. Subscribers paid only 20% or less of the par value, issuing promissory notes for the balance.
    • The Bank Commissioner ordered the cancellation of these shares or full payment from subscribers. The defendant appealed to the Secretary of Finance, who upheld the Bank Commissioner's orders.
  • Pending Litigation:
The defendant had previously filed a civil case (No. 37703) challenging the Bank Commissioner's orders. The case was dismissed, and the appeal (G.R. No. 35982) was also dismissed.

Issues:

  • Whether the trial court erred in prohibiting the defendant from paying compensation to its incorporators.
  • Whether the trial court erred in ordering the defendant to demand payment of loans obtained on "fundadores" shares.
  • Whether the trial court erred in holding it illegal for the defendant to maintain a certain proportion between its shares.
  • Whether the trial court erred in denying the defendant's motion for a new trial.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)
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