Republic of the Philippines


G.R. No. L-45963             October 12, 1939

EL HOGAR FILIPINO, INC., defendant-appellee.
TAVERA-LUNA, INC., defendant-appellant;
VICENTE MADRIGAL, defendant-appellee.

Carlos P. de Tavera and E. Voltaire Garcia for plaintiffs and appellants.
Pedro Sabido and Jose Avanceña for defendant and appellant.
Camus and Zavalla for appellee El Hogar Filipino.
Vicente Madrigal in his own behalf.


On January 17, 1931, defendant corporation, Tavera-Luna Inc., for the purpose of constructing the Crystal Arcade building on its premises at Escolta, Manila. To secure this loan, the corporation executed a first mortgage on said premises and on the building proposed to be erected thereon. On February 11, 1932, Tavera-Luna, Inc., secured from El Hogar Filipino an additional loan of P300,000 with the same security executed for the original loan. The Tavera-Luna, Inc., thereafter, defaulted in the payment of the monthly amortizations on the loan: whereupon, El Hogar Filipino foreclosed the mortgage proceeded with the extra-judicial sale of the Crystal Arcade building, at which it was the highest bidder for P1,363,555.36. One day before the expiration of the period of redemption, Carlos Pardo de Tavera and Carmen Pardo de Tavera Manzano, in their capacity as stockholders of the Tavera-Luna, Inc., and El Hogar Filipino, Inc., to annul the two secured loans as well as extra-judicial sale made in favor of the latter. Vicente Madrigal was included as party defendant because of his having signed the second contract of loans aforementioned. From the judgment dismissing the complaint and cross-complaint, plaintiffs and cross-complainant took the present appeal.

The most important question raised by appellant is whether or not the two secured loans are null and void. It is contended that they are, on the ground that the Crystal Arcade building, given as security form the loans, is a public building. This contention is predicated upon section 171 of the Corporation Law which reads as follows:

It shall be unlawful for any building and loan association to make any loan after the date when this Act, as amended, shall become effective upon property that is able for use only as a manufacturing plant, theater, public hall, church, convent, school, club, hotel, garage, or other public building. To facilitate the investment of the idle funds of a building and loan association, however, the Bank Commissioner, with the approval of the Secretary of Finance, may, in special instances. waive the provisions of this paragraph.

We find it unnecessary to determine, in the instant case, whether the Crystal Arcade is or is not a public building, for, even if it is, the loan are valid. It may be said, in passing the evidence is sufficient to show that the Secretary of Finance and the Bank Commissioner had knowledge of the loans and of the security given therefor, and that they have impliedly approved the same. On the other hand, under the legal provision above quoted, a loan given on a property which may be considered as a public building, is not, in itself, null and void. It is unlawful to make loans on that kind of security, but the law does not declare the loan, once made, to be null and void. The unlawful taking of the security may constitute a misuser of the powers conferred upon the corporation by its charter, for which it may be made to answer in an action for ouster or dissolution; but certainly the stockholders and depositors of the corporation should not be punished with a loss of the money loaned nor the borrower be rewarded with it. As held by the Supreme Court of the United States, in a similar case:

The statute does not declare such a security void. If congress so meant, it would have been easy to say so; and it is hardly to be believed that this would not have been done, instead of leaving the question to be settled by the uncertain result of litigation and judicial decision . . ..

We cannot believe it was meant that stockholders, and perhaps depositors and other creditors, should be punished and the borrower rewarded, by giving success to this defense whenever the offensive fact shall occur. The impending danger of a judgment of ouster and dissolution was, we think, the check, and none other contemplated by congress.

That has been always the punishment prescribed for the wanton violation of a charter, and it may be made to follow whenever the proper public authority shall see fit to invoke its application. . . . (Union Nat. Bank of St. Louis vs. Matthews, 98 U.S., 621; 25 L. ed., 188.) In the same case it has been likewise held that:

Where it is a simple question of authority to contract, arising either on a question of regularity of organization or of power conferred by the charter, a party who has had the benefit of the agreement cannot he permitted, in an action founded upon it, to question its validity.

Fletcher on this matter says:

There is a direct conflict in the decisions as to the effect of a charter or statutory prohibition against discounting or lending money on certain securities. If the statute expressly declares that securities taken in violation of the prohibition shall be void, such securities cannot be enforced. Some courts have gone further and have held that the mere fact of prohibition renders them unenforceable; but this construction is not supported by the weight of authority. The better opinion is that where the charter of a corporation or some other statute prohibits it from lending money on certain kinds of security, but does not declare that prohibited securities taken by it shall be void, they are not void, and may be enforced by it. The taking of such security is a misuser of the powers conferred upon the corporation by its charter, for which the state may enforce a forfeiture, but the misuser cannot be set up by the borrower to prevent the corporation from enforcing the security. In case of a state statute prohibiting savings banks from lending their funds on the security of names alone, it has been held that a savings bank may enforce payment of a promissory note taken for money loaned in violation of the statute. (Vol. 7, Fletcher Cyc. Corp., sec. 3616, pp. 744, 745.)

It is contended that the contracts in question are not of mortgage, but of antichresis. The distinction, however, is immaterial, for even if the contracts are of antichresis, the extra-judicial foreclosure of the security is valid. Stipulations in a contract of antichresis for the extra-judicial foreclosure of the security may be allowed in the same manner as they are allowed in contracts of mortgage and of pledge. (El Hogar Filipino vs. Paredes, 45 Phil., 178; Peterson vs. Azada, 8 Phil., 432, 437.)lwphi1.nt

Appellants contend that El Hogar Filipino has been given the possession and administration of the Crystal Arcade building, so that it may apply the rentals thereof to the payment of interest and the capital owed by Tavera-Luna, Inc., and that due to the negligence of El Hogar Filipino, no rental sufficient to cover the monthly amortizations on the debt had been realized therefrom. The alleged negligence is made to consist in the failure of El Hogar Filipino to advertise the rooms of the Crystal Arcade building for rent and to employ agents to solicit and attract tenants. But the evidence presented to this effect has been sufficiently contradicted by the evidence adduced by the defendant-appellant. Besides, it appears that El Hogar Filipino appointed Jose V. Ramirez as its representative in the management and administration of the Crystal Arcade building, and the appointment was made in agreement with Tavera-Luna, Inc. The ability of Ramirez to do the work entrusted to him is not disputed. As a matter of fact, Ramirez, during his management of the building, was a stockholder and director of the Tavera-Luna, Inc., and was serving that corporation as its secretary and treasurer. Under all these circumstances, we see no reason to disturb the findings of the lower court.

Judgment is affirmed, with costs against appellants.

Avanceña, C.J., Villa-Real, Imperial, Diaz, and Concepcion, JJ., concur.

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