Benguet Consolidated Mining Co. vs. Pineda

A sociedad anonima existing at the time of the enactment of the Corporation Law (Act No. 1459) cannot extend its corporate life by amending its original articles of association, nor can it belatedly exercise the option to reform into a corporation under Section 75 after having elected by conduct to continue as a sociedad anonima, where no agreement to extend the original term was perfected before the law's enactment.

Benguet Consolidated Mining Co. was organized on June 24, 1903, as a sociedad anonima under Articles 151 et seq. of the Spanish Code of Commerce of 1886, with articles of association expressly providing a term of fifty years. In 1906, the Philippine Commission enacted Act No. 1459, commonly known as the Corporation Law, which introduced the American-type corporation and took effect on April 1, 1906. Sections 75 and 191 of that law gave existing sociedades anonimas the option either to continue business as such or to reform and organize under the new law, while Section 18 prohibited extending corporate life by amendment beyond the time fixed in the original articles. Benguet was one of approximately nine sociedades anonimas in the country and had become a major mining enterprise employing over four thousand workers.

Benguet Consolidated Mining Co. was organized on June 24, 1903, as a sociedad anonima under the Spanish Code of Commerce of 1886, with articles of association expressly providing a term of fifty years. Three years later, on April 1, 1906, the Philippine Commission enacted Act No. 1459, the Corporation Law, which introduced the American-type corporation into the Philippines and gave existing sociedades anonimas the option either to continue business as such or to reform and organize under the new law. Benguet did not exercise the option to reform and instead continued to operate as a sociedad anonima. Around 1933, Benguet even claimed and defended in court its acquisition of shares in the Balatoc Mining Company on the ground that, as a sociedad anonima, it was not a "corporation" within the purview of laws prohibiting mining corporations from holding interests in other mining corporations.

As the expiration of its original fifty-year term approached, Benguet's Board of Directors adopted in 1946 a resolution to extend the company's life for another fifty years from July 3, 1946, and submitted it for registration to the Securities and Exchange Commissioner. Upon advice of the Secretary of Justice that such extension was contrary to law, the registration was denied. The matter was dropped, allegedly because the stockholders did not approve of the Directors' action.

Some six years later, in 1953, the shareholders of Benguet adopted a resolution empowering the Board to effectuate the extension of the company's business life for not less than twenty and not more than fifty years, by either amending the articles of association, reforming and reorganizing under the Corporation Law, or both. On May 27, 1953, the Board resolved to reform, reorganize, and organize under Section 75 of the Corporation Law as a Philippine corporation. In June 1953, Benguet submitted to the Securities and Exchange Commissioner two documents for alternative registration: a certification modifying the articles of association to extend the term for another fifty years from June 15, 1953, and articles of incorporation for reformation as a corporation under Section 75.

Relying mainly on an adverse opinion of the Secretary of Justice (Op. No. 180, s. 1953), the Securities and Exchange Commissioner denied the registration on October 27, 1953, ruling that Benguet as a sociedad anonima had no right to extend its original term by amendment adopted after enactment of the Corporation Law, and that Benguet had by its conduct chosen to continue as a sociedad anonima and could no longer exercise the option to reform into a corporation, especially since reformation would indirectly produce the effect of extending its life. Benguet appealed.

• Applicability of Section 18: Petitioner contended that the proviso of Section 18 of the Corporation Law prohibiting extension of corporate life by amendment beyond the time fixed in the original articles does not apply to sociedades anonimas already in existence at the passage of the law, since the last proviso of Section 191 preserves prior law as to their organization and the rights of members inter se.
• Constitutional Inhibition: Petitioner argued that applying the Section 18 restriction to pre-existing sociedades anonimas would violate constitutional inhibitions, particularly those securing equal protection of the laws and prohibiting impairment of the obligation of contracts, because the possibility of extension under the Code of Commerce constituted a vested right.
• Option to Reform: Petitioner maintained that even assuming the restriction applied, Benguet could still exercise the option to reform and reorganize under Section 75 of the Corporation Law, thereby prolonging its corporate existence, since the law is silent as to the time when such option may be exercised or availed of.

• No Right to Extend: Respondent ruled that Benguet, as a sociedad anonima, had no right to extend the original term of corporate existence stated in its articles of association by subsequent amendment adopted after enactment of the Corporation Law.
• Election Already Made: Respondent ruled that Benguet had by its conduct chosen to continue as a sociedad anonima under Section 75 of Act No. 1459 and could no longer exercise the option to reform into a corporation, especially since reformation would indirectly produce the effect of extending its life.

• Applicability of Section 18: Whether the prohibition in Section 18 of the Corporation Law against extending corporate life by amendment of the original articles applies to sociedades anonimas already formed, organized, and existing at the time of the law's enactment.
• Constitutionality and Vested Rights: Whether applying the Section 18 restriction to pre-existing sociedades anonimas violates constitutional inhibitions by impairing vested rights.
• Option to Reform: Whether a sociedad anonima that has continued to do business as such for decades after the Corporation Law's enactment may still exercise the option under Section 75 to reform and organize as a corporation.

• Applicability of Section 18: Yes. The prohibition was intended to apply, and does apply, to sociedades anonimas already existing at the time of the Corporation Law's effectivity in 1906, because the duration of corporate life pertains to relations with the public rather than to internal organization.
• Constitutionality and Vested Rights: No constitutional violation. The statutory prohibition impairs no vested rights where no agreement to extend the original period of corporate life was perfected before the enactment of the Corporation Law, as a mere possibility of future extension does not constitute a vested right.
• Option to Reform: No. A sociedad anonima that continues to do business as such for a reasonable time after the Corporation Law's enactment is deemed to have made its election and may not subsequently claim to reform into a corporation under Section 75, the election being irrevocable once made.

• Applicability of Section 18: The term of existence of a sociedad anonima is coterminous with its possession of independent legal personality. When the period expires, the entity loses the power to deal with third persons and can no longer acquire new rights or incur new obligations except for winding up its affairs. The duration of corporate life therefore directly involves the company's relations to the public at large. Under the last proviso of Section 191, existing sociedades anonimas are governed by prior law only as to "organization and method of transacting business and the rights of members among themselves," while "relations to the public and public officials shall be governed by the provisions of this Act." The term "organization" refers to the executive structure, personnel of management, and internal managerial affairs—not the prorogation of corporate life, as shown by dictionary and legal definitions. Since the duration of corporate life bears on public relations and not on organization, the prohibition in Section 18 applies to pre-existing sociedades anonimas. This conclusion is reinforced by the avowed policy of the Corporation Law to hasten the extinction of sociedades anonimas and replace them with the American-type corporation, as stated in Harden vs. Benguet Consolidated Mining Co., since indefinite prorogation would maintain an unnecessary duality of organizational types and confer upon obsolescent entities the advantageous privilege of perpetual existence that new corporations could not possess.

• Constitutionality and Vested Rights: No vested right to extend corporate life existed when Act No. 1459 was enacted in 1906. At that time, Benguet's existence was well within the fifty-year period set in its articles, and its members had not entered into any agreement to extend. The possibility of prorogation was purely speculative and conditional, depending on the ultimate decision of members and directors who might or might not agree to extend. In 1906, the success of Benguet's mining ventures was far from certain; as late as 1913, its shares were being offered at a fraction of par value to raise rehabilitation funds. A vested right requires an immediate, fixed, absolute, and unconditional right, independent of contingency—not a mere expectancy or contingent interest founded on anticipated continuance of existing laws. Since no agreement to extend existed in 1906, neither Benguet nor its members were deprived of any constitutionally protected right. It is a well-settled rule that no person has a vested interest in any rule of law entitling him to insist that it shall remain unchanged for his benefit; any right conferred by statute may be taken away by statute before it has become vested.

• Option to Reform: Under Section 75, by continuing to do business as a sociedad anonima, Benguet in fact rejected the alternative to reform as a corporation. No special act or manifestation is required from existing sociedades anonimas that prefer to remain as such; it is only when they choose to reform that they must transfer corporate interests to a new corporation. Benguet's election to remain a sociedad anonima is evidenced not only by its failure from 1906 to 1953 to adopt the reformation alternative, but also by positive acts, such as claiming in court around 1933 that as a sociedad anonima it was not subject to laws prohibiting mining corporations from holding interests in other mining corporations. Having made its choice, Benguet may not now change its position and adopt the reformation it had formerly repudiated. The election of one of several alternatives is irrevocable once made, as now expressly recognized in Article 940 of the new Civil Code. While no express period was fixed for the election, the legislature intended the choice to be made within a reasonable time from the Act's effectivity, because belated reformation would allow a sociedad anonima to enjoy a term far longer than that granted to corporations organized under the Corporation Law—in Benguet's case, fifty years as sociedad anonima plus another fifty as a corporation—and would defeat the Act's purpose of eliminating sociedades anonimas. The fact that Compañia Maritima had been permitted to extend its life did not bind the Commissioner, as the government is never estopped by mistake or error on the part of its agents.

• Vested Rights Doctrine — A vested right is "some right or interest in the property which has become fixed and established, and is no longer open to doubt or controversy," an "immediate fixed right of present or future enjoyment" that is "absolute, complete, and unconditional, independent of a contingency." A mere expectancy of future benefit, or a contingent interest founded on anticipated continuance of existing laws, does not constitute a vested right. The Court applied this doctrine to hold that Benguet's possibility of extending its corporate life under the Code of Commerce was merely speculative in 1906, as no agreement to extend had been perfected, and thus was not a vested right protected by the Constitution.

• Irrevocability of Election — The election of one of several alternatives is irrevocable once made; this rule is inherent in the nature of choice, its purpose being to clarify and render definite the rights of the one exercising the option so that other persons may act in consequence. The Court applied this doctrine to hold that Benguet, having elected to remain a sociedad anonima by conduct and positive acts over decades—including litigating its status as a non-corporation to avoid statutory restrictions—could not subsequently change its position and seek reformation under Section 75.

• No Vested Right in Rules of Law — No person has a vested interest in any rule of law entitling him to insist that it shall remain unchanged for his benefit. Any right conferred by statute may be taken away by statute before it has become vested, but after a right has vested, repeal of the statute does not affect it. The Court relied on this principle to reject Benguet's claim that the Corporation Law could not deprive it of the possibility of future extension under the Code of Commerce.

• Government Not Estopped by Mistakes of Agents — The government is never estopped by mistake or error on the part of its agents, and estoppel cannot give validity to an act that is prohibited by law or is against public policy. The Court applied this doctrine to hold that the SEC Commissioner was not bound by prior erroneous rulings that had allowed Compañia Maritima to extend its corporate life.

• "The term of existence of association (partnership or sociedad anonima) is coterminous with their possession of an independent legal personality, distinct from that of their component members. When the period expires, the sociedad anonima loses the power to deal and enter into further legal relations with other persons" — This passage establishes the ratio decidendi for why the duration of corporate life pertains to public relations rather than internal organization, thereby bringing it within the scope of the Corporation Law's prohibitions.

• "Vested right is 'some right or interest in the property which has become fixed and established, and is no longer open to doubt or controversy'" — This is the Court's canonical definition of vested rights as quoted from Balboa vs. Farrales, frequently cited in subsequent jurisprudence on vested rights and statutory repeal.

• "Having thus made its choice, Benguet may not now go back and seek to change its position and adopt the reformation that it had formerly repudiated. The election of one of several alternatives is irrevocable once made" — This articulates the irrevocability of election doctrine as applied to statutory options, tying it to the purpose of rendering rights definite so that third parties may act in consequence.

• "It is a well settled rule that no person has a vested interest in any rule of law entitling him to insist that it shall remain unchanged for his benefit." — This states the fundamental principle that legislative changes do not impair vested rights unless the right has already become fixed and unconditional, a proposition central to the Court's rejection of Benguet's constitutional challenge.

• Harden vs. Benguet Consolidated Mining Co., 58 Phil. 141 — Controlling authority on the legislative intent behind the Corporation Law, particularly the policy to hasten the obsolescence of sociedades anonimas and the interpretation that "corporation" and "sociedad anonima" are used interchangeably in Sections 75 and 191 but require close discrimination elsewhere. Followed and relied upon extensively in the majority opinion.

• Balboa vs. Farrales, 51 Phil. 498 — Cited for the definition of vested rights, which the Court applied to determine that Benguet's speculative possibility of extension was not a vested right entitled to constitutional protection.

• Hanlon vs. Hausermann and Beam, 40 Phil. 796 — Cited to show Benguet's early financial difficulties, with shares offered at a fraction of par value as late as 1913, undermining any claim that extension of corporate life was anticipated or certain in 1906.

• Pineda vs. Court of First Instance of Tayabas, 52 Phil. 803 — Cited for the doctrine that the government is never estopped by mistake or error on the part of its agents, applied to reject the argument that prior approval of Compañia Maritima's extensions bound the SEC Commissioner.

• Section 18, Act No. 1459 (Corporation Law) — Prohibits extension of corporate life by amendment beyond the time fixed in the original articles. Held applicable to pre-existing sociedades anonimas because the duration of corporate life pertains to public relations, not internal organization.

• Section 75, Act No. 1459 — Gives existing sociedades anonimas the option to continue business as such or to reform and organize under the Corporation Law by transferring corporate interests to a new corporation. Held to require election within a reasonable time, with the election being irrevocable once made; continued operation as a sociedad anonima constitutes rejection of the reformation alternative.

• Section 191, Act No. 1459 — Repeals the Code of Commerce insofar as it relates to sociedades anonimas, but provides that existing sociedades anonimas electing to continue as such shall be governed by prior law as to "organization and method of transacting business and the rights of members among themselves," while "relations to the public and public officials shall be governed by the provisions of this Act." The Court interpreted "organization" as referring to internal managerial affairs, not the prorogation of corporate life.

• Article 223, Code of Commerce of 1886 — Provides that after termination of the period for which commercial associations are constituted, they shall not be understood as extended by implied will of members, and if members desire to continue, they must draw up new articles. The Court found this provision implied that extension was possible under the old law but held that no vested right to such extension existed when the Corporation Law was enacted.

• Article 940, New Civil Code of the Philippines — Recognizes that the election of one of several alternatives is irrevocable once made. Cited to support the doctrine that Benguet's election to remain a sociedad anonima could not thereafter be revoked.

Padilla, Montemayor, Reyes, A. Labrador, Concepcion, and Endencia, JJ., concurred.

• Paras, C.J. — The dissent argued that Section 18's prohibition does not apply to sociedades anonimas because the term "corporation" in Section 18 was not accompanied by "or sociedad anonima" as was expressly done in Sections 75 and 191, indicating legislative intent to exclude sociedades anonimas from that restriction. The dissent contended that extension of corporate life is an incident of "organization" and a matter affecting the rights of members as between themselves under Section 191, and should accordingly be governed by the Code of Commerce, which does not prohibit extension. Alternatively, the dissent argued that no period was fixed for exercising the option under Section 75, and Benguet could reform at any time during its corporate existence; the "new corporation" resulting from reformation should enjoy the full maximum duration prescribed by law regardless of the old entity's remaining term. The dissent also emphasized the severe economic consequences of terminating Benguet's existence—loss of employment for 4,000 workers and livelihood for 20,000 dependents—and noted that Compañia Maritima had twice been allowed to extend its life, suggesting that Sections 75 and 191 were of doubtful construction warranting resolution in Benguet's favor. Jugo and Bautista Angelo, JJ., concurred in the dissent.