Government of the Phil. Island vs. El Hogar Filipino

A corporation’s violation of the Corporation Law does not automatically require dissolution; quo warranto dissolution is discretionary under Section 212 of the Code of Civil Procedure, and a statute that purports to make dissolution mandatory for any violation is invalid if its subject is not expressed in its title. In this case, Section 3 of Act No. 2792, which inserted Section 190-A, was void under the one-subject/title requirement of the Jones Law, and the phrase “shall be dissolved by quo warranto proceedings” was construed as a grant of authority meaning “may” rather than a mandatory command addressed to the courts.

El Hogar Filipino was organized in 1911 as a building and loan association under Act No. 1459, the Corporation Law, and was the first such corporation formed under that statute’s building and loan provisions. By December 31, 1925, it had grown to 5,826 shareholders holding 125,750 shares, with a total paid-up value of P8,703,602.25. The Government of the Philippine Islands, on relation of the Attorney-General, sought to deprive it of its franchise, exclude it from corporate rights, and dissolve it. Building and loan associations were governed by Sections 171 to 190 of the Corporation Law; Section 75 of the Act of Congress of July 1, 1902, repeated in subsection 5 of Section 13 of the Corporation Law, required corporations to dispose of real estate acquired in collection of loans within five years after receiving title, and Act No. 2792 added penalties for Corporation Law violations.

El Hogar Filipino was organized in 1911 as a building and loan association under the Corporation Law, with articles of incorporation dated December 28, 1910, when subscribed capital was P150,000 and paid-in capital was P10,620. After Act No. 2092 increased permissible capitalization to P10,000,000, the association amended its articles accordingly. By December 31, 1925, it had 5,826 shareholders holding 125,750 shares with total paid-up value of P8,703,602.25; it had paid withdrawing stockholders P7,618,257.72 and distributed P7,621,565.81 in dividends. The Government of the Philippine Islands, on relation of the Attorney-General, brought an original quo warranto proceeding in the Supreme Court, alleging seventeen causes of action for forfeiture of franchise and dissolution. The parties filed an agreed statement of facts.

The first cause concerned a tract in San Clemente, Tarlac, upon which El Hogar Filipino held a recorded mortgage securing a P24,000 loan to its shareholders. After default, it foreclosed and bought the land at auction on November 18, 1920 for P23,744.18, and the deed to it was executed and delivered December 22, 1920. The deed was sent to the register of deeds on December 27, 1920 and received there on December 28, 1920, with annotation dated January 12, 1921; however, the new certificate of title did not reach El Hogar Filipino until May 7, 1921, after inquiries to the Chief of the General Land Registration Office. The association authorized Vicente Bengzon on March 10, 1921 and Jose Laguardia on July 27, 1921 to find a purchaser, the latter at P23,000 with 5% commission; sent plans to prospective buyers in July 1923; advertised in El Debate, La Vanguardia, and Taliba in January 1926; and received its first written offer from Alcantara on March 16, 1926 for P4,000, payable P500 cash. The board accepted on March 25, 1926, but Alcantara failed to pay after extensions to April 30, 1926; the contract was treated as rescinded. The land was finally sold to Felipa Alberto for P6,000 by public instrument on July 30, 1926.

As to the second and third causes, El Hogar Filipino purchased on August 28, 1913 a 1,413-square-meter lot at the corner of Juan Luna Street and Muelle de la Industria in Manila, adjacent to the Hongkong and Shanghai Banking Corporation, together with an old building of Guadalupe stone and hewn timber. It demolished the old structure and erected a reinforced concrete office building, initially three stories, later adding a fourth story in 1920 and a fifth over 117.52 square meters; total outlay for land and improvements was P690,000, with assessed valuation at P786,478. The association occupied about 324 square meters of floor space and rented about 3,175 square meters to third persons. It also administered properties of delinquent mortgagor-shareholders under clause 8 of its standard mortgage, charging 2.5% commission on sums collected, and, between 1921 and 1925, managed improved real estate in Manila owned by shareholders but not mortgaged to it—eight properties in 1921, six in 1922, ten in 1923, fourteen in 1924, and fourteen in 1925—for commissions of 2.5% to 5%. Some owners became shareholders only to avail of that management service.

The by-laws contained several provisions at issue. Article 10 empowered the board of directors to cancel shares and return balances whenever continuation of owners was “not desirable”; it was never enforced, and after the Acting Insular Treasurer objected in November 1923, the board recommended its abrogation, but no annual meeting had a quorum to eliminate it. Under Section 31 of the Corporation Law and Article 61 of the by-laws, a quorum for election of directors was the owners of a majority of subscribed capital stock; annual meetings had a quorum only in 1911, 1912, and 1917, despite a special effort in February 1923 that produced representation of only 3,889 shares out of 106,491. Directors held over and filled vacancies under Article 71, choosing experienced businessmen of means, some related by blood or marriage. Article 92 allocated 5% of net profits to directors in proportion to attendance, producing total annual compensation from P4,167.96 in 1911 to P63,517.01 in 1920; attendance was regularly high. Articles 70 and 76 required directors to own shares of P5,000 paid-up value as security and to waive their right to loans. The founder Antonio Melian entered into a contract dated January 11, 1911 under which he served as manager for one year without salary, paid organization expenses, lent the corporation P6,000 interest-free for up to three years, and guaranteed capital of P400,000 in the first year, in exchange for 5% of annual net profits during the association’s life; from 1911 to 1925 he was paid P459,011.19 as founder’s royalty.

The articles provided that special shares could be issued upon payment of 80% of par in cash or in monthly dues of P10, with the remaining 20% completed from accumulated profits; quarterly and yearly dividends were payable, and the directors could apply part to amortize subscriptions. One plan required P10 on subscription and P10 monthly until P160 paid; since 1915 dividends were declared at 10% for special and ordinary shares, and a share matured when paid-in amount plus accumulated dividends reached P200. On December 31, 1925, total outstanding shares were 125,750, divided into 1,503 preferred, 20,884 special, and 103,363 ordinary. From organization to end of 1925, El Hogar Filipino made 1,373 loans secured by first mortgages and share pledges and bought 54 properties at foreclosure sales, bidding the full debt after deducting the withdrawal value of pledged shares; it carried the properties at cost and depreciated them at rates varying from nothing to a maximum of 14.138% per year. Article 92 carried 5% of annual net profits to a general reserve, Article 93 authorized a special reserve, and the board followed a policy of paying a 10% dividend to all special and ordinary shares and placing the balance in special reserve; by 1926 the general reserve was about 5% of paid-in share value, and the special reserve had been used three times to maintain dividends.

On December 31, 1925, El Hogar Filipino had 544 outstanding loans secured by real estate mortgages and share pledges; 351 were on city residences, 7 on commercial city buildings, 3 on unimproved city lots, and 183 on agricultural property totaling about 7,558 hectares. Borrowers reported intended uses: P693,200 to redeem real property, P280,800 to buy real estate, P449,100 to erect buildings, P24,000 to improve buildings, P1,480,900 for agricultural purposes, and P5,763,700 for undisclosed purposes. It made eight loans from P120,000 to P390,000, plus loans of P1,122,000 to the Roxas Estate and P2,320,000 to the Pacific Warehouse Company; after the largest loan its available funds were reduced and some withdrawal payments were delayed up to ten months. Of 5,826 shareholders, 28 were juridical entities—16 corporations and 14 partnerships—and 9 loans had been made to corporations and 5 to partnerships; some entities subscribed solely to qualify for loans. In disposing of foreclosed real estate, the association sometimes sold on credit, transferred title, and took a mortgage back to secure payment, carrying the obligation as a loan; purchasers were not shareholders, and several obligations remained outstanding. Article 95 provided that liquidation funds first repay shares, with any balance distributed according to the system for annual profits.

• Mandatory Dissolution Under Act No. 2792: The Government argued that Section 3 of Act No. 2792, inserting Section 190-A, had abrogated the Court’s discretion under Section 212 of the Code of Civil Procedure and made dissolution mandatory upon proof of any Corporation Law violation, however trivial.

• Five-Year Holding of Foreclosed Real Property: It contended that El Hogar Filipino held title to the San Clemente land from the execution and delivery of the deed on December 22, 1920 until the sale on July 30, 1926 — more than five years — violating Section 75 of the Act of Congress of July 1, 1902 and subsection 5 of Section 13 of the Corporation Law.

• Ultra Vires Realty Ownership and Leasing: It argued that the purchase of the 1,413-square-meter lot, the construction of an office building far exceeding the association’s needs, and the leasing of most space to strangers were ultra vires.

• Unauthorized Management of Non-Mortgaged Properties: It maintained that administering real estate owned by shareholders but not mortgaged to the association was foreign to the purposes of a building and loan association and not reasonably necessary.

• Invalid and Abusive By-Laws: It assailed Article 10’s share-cancellation power as unlawful and Articles 70 and 76 as improperly restricting or limiting director qualifications and member rights.

• Self-Perpetuating Board of Directors: It charged that failure to hold annual elections and the directorate’s practice of filling vacancies had created a permanent, self-perpetuating body of wealthy men rather than wage earners and persons of moderate means.

• Excessive Director Compensation and Founder’s Royalty: It contended that the directors’ 5% profit-share and Melian’s 5% founder’s royalty were unconscionable, excessive, and contrary to the spirit of building and loan associations.

• Special Shares, Depreciation, Reserves, and Fixed Dividends: It argued that issuance of special shares, 10% annual depreciation of foreclosed realty, excessive reserve funds, and a straight 10% dividend policy violated the Corporation Law and shareholders’ rights.

• Unlawful Loan Practices: It claimed that making loans for purposes other than home building, making excessively large loans to wealthy persons and companies, lending to juridical persons, and selling foreclosed realty on credit to non-shareholders with mortgages back were unlawful and warranted dissolution.

• Commencement and Exclusion in Five-Year Period: Respondent maintained that the five-year period should begin on May 7, 1921, when the new owner’s certificate was delivered, because only then could it pass an indefeasible Torrens title; it also argued that the period from March 25 to April 30, 1926 should be excluded because it was bound to sell to Alcantara and his default prevented completion.

• Proportionality of Remedy: It contended that dissolution would be excessively severe and disproportionate because it sold the San Clemente property before the action, acted in good faith, and made diligent efforts to sell; no public harm justified forfeiture.

• Invalidity of Section 3, Act No. 2792: It challenged the section as invalid under the Jones Law because its subject matter was not expressed in the Act’s title.

• “Shall” as a Grant of Authority to Courts: It argued that the phrase “shall be dissolved by quo warranto proceedings” addressed to the judiciary meant “may,” leaving the Court’s discretion intact.

• Lawful Use of Corporate Realty: It maintained that lawfully acquired real property could be put to full beneficial use, and renting surplus office space was an incident of its legitimate business, not ultra vires.

• Validity of Corporate Practices: It defended the by-laws, director holdovers, compensation, reserves, special shares, and loan practices as within expressed or implied corporate powers and director discretion.

• Mandatory Dissolution / Validity of Section 190-A: Whether Section 3 of Act No. 2792 validly makes dissolution mandatory upon proof of any Corporation Law violation and whether its subject matter is expressed in the Act’s title.

• Five-Year Holding: Whether El Hogar Filipino violated the requirement to dispose of foreclosed real property within five years after receiving title and whether any violation warrants forfeiture or dissolution.

• Acquisition and Leasing of Office Building: Whether El Hogar Filipino’s ownership and leasing of office space in excess of its own needs is ultra vires under subsection 5 of Section 13 of the Corporation Law.

• Management of Non-Mortgaged Property: Whether the administration and management of properties not mortgaged to the association is within its corporate powers.

• By-Laws Validity: Whether Articles 10, 70, and 76 are unlawful and whether their existence or non-enforcement justifies dissolution.

• Director Elections and Holdover: Whether failure to hold annual meetings, holdover of directors, and filling vacancies by the board constitute violations warranting dissolution.

• Compensation and Founder’s Royalty: Whether paying directors 5% of net profits and Melian 5% founder’s royalty is unlawful, excessive, or a ground for dissolution.

• Special Shares: Whether the issuance of “special” shares violates the Corporation Law.

• Depreciation, Reserves, and Dividends: Whether the association’s depreciation of foreclosed property, maintenance of reserves, and policy of regular 10% dividends are lawful.

• Loan Purposes, Size, and Borrowers: Whether loans for non-home-building purposes, large loans, and loans to juridical entities are unlawful or depart from the association’s character.

• Credit Sales to Non-Shareholders: Whether selling foreclosed realty on credit to non-shareholders and taking mortgages back constitutes prohibited loans.

• Future Liquidation Distribution: Whether Article 95’s provision for distribution of liquidation funds and accumulated reserves on future expiration is unlawful and a ground for relief.

• Mandatory Dissolution / Validity of Section 190-A: No. Section 3 of Act No. 2792 is invalid because its subject is not expressed in the Act’s title as required by the Jones Law; further, “shall be dissolved” addressed to the courts means “may,” preserving discretion under Section 212 of the Code of Civil Procedure.

• Five-Year Holding: Strict letter violated, but no dissolution. The association disposed of the property before suit, acted in good faith, and the equitable periods should not be counted against it; the offense did not warrant forfeiture.

• Acquisition and Leasing of Office Building: No. The acquisition and construction of a building in the financial district was reasonably necessary, and leasing surplus space was a lawful incident of ownership rather than ultra vires.

• Management of Non-Mortgaged Property: Unauthorized. The association was enjoined from continuing this activity, but it did not warrant dissolution.

• By-Laws Validity: Article 10 is a nullity but was never enforced and not a misdemeanor; Articles 70 and 76 are valid. No dissolution.

• Director Elections and Holdover: No violation. The corporation was not at fault for shareholder nonattendance; directors validly held over until successors qualified, and vacancies filled by the board were valid.

• Compensation and Founder’s Royalty: No. Compensation was left to by-laws; the Melian contract was intra vires, no fraud alleged, and not annullable in this proceeding. No dissolution.

• Special Shares: No. Special shares are advance-payment shares authorized by Section 178 of the Corporation Law.

• Depreciation, Reserves, and Dividends: No. These were within the board’s implied or discretionary powers; no judicial interference warranted.

• Loan Purposes, Size, and Borrowers: No. The law does not confine loans solely to home building, does not fix loan size, and allows “any person” to be a stockholder under Section 173.

• Credit Sales to Non-Shareholders: No. Credit sales of foreclosed realty with mortgages back are not loans, and the law does not require cash sales or shareholder purchasers.

• Future Liquidation Distribution: No. Article 95 is not objectionable, and possible future reserve distribution is premature and not a ground for relief.

• Mandatory Dissolution / Validity of Section 190-A: Section 212 of the Code of Civil Procedure prescribes a discretionary standard for quo warranto against corporations: when an offense or franchise misuse is not of a character to work a surrender or forfeiture, judgment shall be that the corporation be ousted from the continuance of the offense or the exercise of the power. Government of the Philippine Islands vs. Philippine Sugar Estates Development Co. applied this discretion by ordering conditional ouster rather than immediate dissolution. Section 3 of Act No. 2792, adding Section 190-A, states that a corporation “shall ... be dissolved by quo warranto proceedings”; this language merely indicates the remedy to be used, not the principles governing that remedy, and the judiciary remains controlled by established jurisprudence. Moreover, “shall” directed by the Legislature to the courts is generally a grant of authority meaning “may,” as in Becker vs. Lebanon and M. St. Ry. Co. Independently, Section 3 was void under the Jones Law because the phrase “establishing penalties for certain things, and for other purposes” expressed nothing and could not give notice of the legislative subject.

• Five-Year Holding: The law required disposition within five years after receiving title. Since a Torrens-system purchaser cannot pass indefeasible title until the owner’s duplicate is delivered, the delay until May 7, 1921 was attributable to the register of deeds, not to the respondent. The period from March 25 to April 30, 1926 should also be excluded because the respondent was obligated to sell to Alcantara, whose default prevented completion. The strict letter of the law was violated, but the property was sold before suit, good-faith efforts to sell were made, and the sale price collapsed from P23,744.18 to P6,000. Dissolution would be excessively severe and disproportionate.

• Acquisition and Leasing of Office Building: Under subsection 5 of Section 13 of the Corporation Law, a corporation may purchase, hold, and lease real property that the transaction of its lawful business may reasonably and necessarily require. The financial-district lot and building were reasonably necessary for the association’s offices. Because the lot was lawfully acquired, the association was entitled to full beneficial use, and the renting of surplus space was an incident of legitimate ownership. American precedents, including People vs. Pullman’s Palace-Car Co. and Rector vs. Hartford Deposit Co., sustained the practice, provided it was done in good faith and not as an evasion of public policy.

• Management of Non-Mortgaged Property: Corporations possess only express powers and those necessarily implied. The management and administration of shareholders’ properties not mortgaged to the association were not expressly authorized by law and were not necessary to the exercise of any granted power. The practice was more befitting a real estate agent or trust company than a building and loan association. It was therefore outside the corporation’s legitimate range of powers, but it did not justify dissolution; an injunction against further activity was the proper remedy.

• By-Laws Validity: Article 10 directly conflicted with the latter part of Section 187 of the Corporation Law, which prohibits directors from forcing the surrender and withdrawal of unmatured stock except upon liquidation or forfeiture for delinquency. It was therefore a nullity. It had never been enforced, and no law made the mere existence of an invalid by-law a misdemeanor warranting dissolution. Articles 70 and 76 were valid under Section 21, which empowers corporations to prescribe director qualifications in by-laws; requiring security from directors was prudent, and their waiver of the right to loans guarded against looting.

• Director Elections and Holdover: Section 31 requires a majority of subscribed capital stock for election of directors, but the failure of quorum was not the corporation’s fault. Unless the law or charter expressly makes an office vacant at the end of the term, officers hold over until successors are duly qualified; failure to elect does not terminate terms or dissolve the corporation. Article 66 embodied this holdover principle. Filling vacancies through the directors under Article 71 was valid, and choosing competent businessmen of means was not objectionable.

• Compensation and Founder’s Royalty: The Corporation Law does not prescribe directors’ compensation. Section 21 leaves the power to fix compensation, if any, to the by-laws; Article 92 fixed 5% of net profits. Whether the amount became excessive with growth was not a matter for quo warranto correction. The Melian contract was within corporate power as a contract for promoter services; no ultra vires or fraud was alleged, and any action to annul would require joining Melian and would properly belong to the corporation or a shareholder. El Hogar Filipino vs. Rafferty had previously recognized the contract did not affect the association’s legal character.

• Special Shares: Special shares were equivalent to American advance-payment shares. Section 178 of the Corporation Law permits advance payment of dues or interest, subject to limits, and thus presupposes this form of share. The association paid no separate interest on advance payments; participation in earnings under Section 188 compensated holders. The remaining 20% of par value was paid from declared earnings belonging to the shareholder, so shares were not issued below par. Prior decisions in El Hogar Filipino vs. Rafferty and Severino vs. El Hogar Filipino upheld the practice.

• Depreciation, Reserves, and Dividends: The board had discretion to write down reasonable depreciation and maintain reserves. Section 13(7) empowered by-laws for administration, management, care, control, and disposition of property, while Section 188 left the determination of profits and losses to the directors. Reserves protected against future losses and stabilized dividends; the law did not require annual distribution of every item of surplus. If reserves or depreciation were thought excessive, the remedy lay with the Legislature or the shareholders, not the courts.

• Loan Purposes, Size, and Borrowers: Section 171 mentions home building as one among several ends of building and loan associations; no statute in the jurisdiction restricted loans solely to home building. Section 181 expressly authorized the board to fix premiums. Lopez and Javelona vs. El Hogar Filipino upheld agricultural loans. The law set no limit on loan size, which was confided to director discretion, and this Court would not assume administrative control. Section 173 provides that “any person” may become a stockholder, and in that context “person” included juridical entities; the motive of subscription to qualify for loans was immaterial.

• Credit Sales to Non-Shareholders: The requirement to dispose of foreclosed real estate within five years did not require cash sales or shareholder purchasers. Where the association sold property on credit, transferred title, and took a mortgage to secure deferred payments, the purchaser’s obligation was not a true loan. Bookkeeping treatment as a loan did not make it one in law.

• Future Liquidation Distribution: Article 95 applied liquidation funds first to repayment of shares and then distributed any balance under the annual profit-sharing system. That provision was not objectionable. The Government’s criticism concerned only possible future accumulation of reserves until expiration some thirty-five years hence, which was speculative and premature. That was a matter for director prevision or legislative action, not judicial interference.

• Quo warranto dissolution is discretionary, not mandatory per se — Under Section 212 of the Code of Civil Procedure, when a corporation has misused a franchise in a manner not of a character to work a surrender or forfeiture, the proper judgment is ouster from the continuance of the offense or the exercise of the power, not automatic dissolution. The Court applied this doctrine to deny dissolution because the respondent’s violations were not characterized by obduracy, and the San Clemente property had been sold before suit.

• “Shall” addressed by the Legislature to courts is generally a grant of authority meaning “may” — A statute directing a court to issue a remedy does not compel that remedy unless a proper case is made out under existing principles and practice. Applied to Section 190-A, the phrase “shall be dissolved by quo warranto proceedings” was construed as allowing, not mandating, dissolution.

• One-subject/title requirement under the Jones Law — Section 3 of the Jones Law requires that no bill embrace more than one subject, and that the subject be expressed in the title. Expressions such as “establishing penalties for certain things” and “for other purposes” express nothing and cannot give the public notice of legislative purpose. The Court applied this doctrine to invalidate Section 3 of Act No. 2792.

• Five-year disposition rule for corporate real property — Corporations may loan funds upon real estate security and purchase real estate when necessary for collection of loans, but must dispose of real estate so obtained within five years after receiving title. Under the Torrens system, a fair interpretation equates “receiving title” with delivery of the owner’s certificate, because only then can the corporation pass an unequivocal and complete title. The Court applied this equitable interpretation to excuse delay caused by the register of deeds and a defaulting purchaser.

• Lawful corporate ownership includes full beneficial use of surplus office space — A corporation whose business may properly be conducted in a populous center may acquire an appropriate lot and construct an edifice with facilities in excess of its immediate requirements. Renting unused portions is an incident of its real business, provided it is done in good faith and not as a mere evasion of public policy. The Court applied this doctrine to uphold the El Hogar building and its leasing of space to third persons.

• Limited corporate powers and necessary implication — Corporations possess only express powers and those reasonably necessary to exercise granted powers. Management and administration of shareholders’ properties not mortgaged to the corporation were not expressly authorized and were beyond its legitimate range. The Court applied this doctrine to enjoin that activity without dissolving the corporation.

• Director holdover doctrine — Unless the law or charter expressly provides that an office shall become vacant at the expiration of the term, the general rule allows the officer to hold over until a successor is duly qualified. Mere failure to elect officers does not terminate existing terms or dissolve the corporation. The Court relied on this doctrine to uphold the continuation of directors after failed annual meetings.

• Internal business discretion of directors — The board of directors has discretion over depreciation, reserves, dividend policy, and loan size as administrative matters confided to it by law. Courts will not substitute their judgment or control such discretion; remedies for abuse lie with the Legislature or shareholders. Applied to the tenth, eleventh, twelfth, fourteenth, and fifteenth causes of action.

• "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." — This passage states the ratio that Section 190-A did not eliminate judicial discretion in quo warranto.

• "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." — This articulation of Section 212 of the Code of Civil Procedure underlies the denial of dissolution.

• "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." — This passage defines the basis for invalidating Section 3 of Act No. 2792 under the Jones Law title requirement.

• "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." — This passage captures the ratio for enjoining the administration of non-mortgaged properties.

• Government of the Philippine Islands vs. Philippine Sugar Estates Development Co. (38 Phil. 15) — Followed as controlling precedent under Section 212 of the Code of Civil Procedure; the Court relied on it for discretionary, conditional ouster in quo warranto rather than automatic dissolution.

• Director of Lands vs. Addison (49 Phil. 19) — Followed for the Torrens-system rule that a purchaser cannot acquire the status of an innocent purchaser for value unless the vendor can place in his hands an owner’s duplicate showing title in the vendor; used to interpret “receiving title.”

• Rodriguez vs. Llorente (G.R. No. 26615, 49 Phil. 823) — Cited with Addison on the same Torrens title-delivery principle.

• Becker vs. Lebanon and M. St. Ry. Co. (188 Pa. 484) — Followed for the proposition that “shall” when used by the Legislature to a court is usually a grant of authority meaning “may,” subject to the necessity that a proper case be made out.

• Lewis vs. Dunne (134 Cal. 291) — Followed for the proposition that a title which expresses no definite subject violates the constitutional one-subject/title requirement.

• Rader vs. Township of Union (39 N.J.L. 509, 515) — Followed for the rule that a title must express the legislative purpose, not merely embrace it in overly general language.

• Central Capiz vs. Ramirez (40 Phil. 883) — Cited as authority that the court may declare legislation invalid for noncompliance with the title requirement.

• People vs. Pullman’s Palace-Car Co. (175 Ill. 125; 64 L.R.A. 366) — Followed for the rule that a corporation may build a building with facilities exceeding immediate needs and rent surplus space.

• Rector vs. Hartford Deposit Co. (unreported in the excerpt, discussed under second cause) — Followed for the same surplus-space leasing principle, requiring good faith and absence of evasion.

• Home Savings Building Association vs. Driver (129 Ky. 754) — Followed for the rule that a building and loan association may build a larger home office than present needs require and lease unused portions as an incident of its real business.

• El Hogar Filipino vs. Rafferty (37 Phil. 995) — Followed; held that El Hogar Filipino remained a legitimate building and loan association notwithstanding special shares and the Melian contract.

• Severino vs. El Hogar Filipino (G.R. No. 24926, promulgated March 31, 1926, not reported) — Followed; held that issuance of special shares did not affect El Hogar Filipino’s character as a building and loan association or render its loans usurious.

• Lopez and Javelona vs. El Hogar Filipino and Registrar of Deeds of Occidental Negros (47 Phil. 249) — Followed; upheld a loan by El Hogar Filipino secured by agricultural land and rejected the view that loans must be solely for home building.

• Quitman Oil Company vs. Peacock (14 Ga. App. 550) — Cited for the holdover rule that mere failure to elect corporate officers does not terminate existing terms or dissolve the corporation.

• Section 75, Act of Congress of July 1, 1902, and subsection 5, Section 13, Corporation Law — Read together, these provisions permit corporations to loan funds on real estate security and purchase real estate necessary for collection of loans, but require disposal of real estate so obtained within five years after receiving title. The San Clemente holding violated the strict letter but did not justify dissolution.

• Section 212, Code of Civil Procedure — Prescribes discretionary judgment in quo warranto; when a corporation has offended in a manner not working a surrender or forfeiture, judgment is rendered that it be ousted from continuing the offense or exercising the power. Applied to deny automatic dissolution.

• Section 3, Jones Law — Provides that no bill may embrace more than one subject, and that subject must be expressed in the title. Applied to invalidate Section 3 of Act No. 2792.

• Section 3, Act No. 2792, inserting Section 190-A, Corporation Law — Provided penalties for violations and stated that a corporation “shall ... be dissolved by quo warranto proceedings.” Construed as indicating the remedy rather than mandating a particular judgment, and invalid for title defect.

• Section 21, Corporation Law — Grants the power to prescribe director qualifications and compensation in the by-laws. Applied to uphold Articles 70 and 76 and the directors’ compensation by-law.

• Section 31, Corporation Law — Requires the presence in person or by written proxy of owners of a majority of subscribed capital stock entitled to vote for director elections. Applied to the quorum failures and holdover doctrine.

• Section 173, Corporation Law — Provides that “any person” may become a stockholder in building and loan associations. Applied to permit juridical entities to be shareholders.

• Section 178, Corporation Law — Permits advance payment of dues or interest, with limits on interest. Applied to authorize special shares as advance-payment shares.

• Section 187, Corporation Law — Prohibits directors from forcing surrender and withdrawal of unmatured stock except upon liquidation or forfeiture for delinquency. Applied to render Article 10 a nullity.

• Section 188, Corporation Law — Directs that profits and losses be determined by the board of directors and apportioned annually among shareholders. Applied to uphold reserves, depreciation, and dividend policy.

• Section 13(7), Corporation Law — Grants power to make by-laws for corporate administration, management, and the care, control, and disposition of property. Applied to sustain the depreciation by-law.

Avanceña, C.J., Johnson, Villamor, and Vila-Real, JJ.

• Malcolm, J., joined by Ostrand and Johns, JJ.: He argued that mutual building and loan associations are special corporations whose essential idea is mutuality and whose primary object is to encourage thrift and home building. In his view, El Hogar Filipino had committed grave abuses and departed from its fundamental purposes through unauthorized property management, invalid Article 10, a self-perpetuating board, excessive director compensation and founder’s royalty, unauthorized special shares and reserves, large loans that depleted funds, juridical-entity membership, and credit sales. While agreeing that the Legislature cannot direct a particular judgment or diminish the Court’s jurisdiction, he would follow Government of the Philippine Islands vs. Philippine Sugar Estates Development Co. and require El Hogar Filipino to confine itself to legitimate purposes and eliminate illegitimate ones within a reasonable time, failing which dissolution should follow.

• Romualdez, J.: He dissented on the ground that the corporation had deviated from the law and its own object and purposes by adopting Articles 10, 70, and 76, permitting the perpetuation of the same directors, and making loans to persons who were not stockholders and to wealthy persons or companies in extremely large amounts. He would have compelled the corporation to observe the law and confine itself to its purposes, allowing a reasonable period within which to do so.