Mead vs. McCullough, et al.

A majority of stockholders and directors of a private, insolvent corporation may sell and transfer the corporate assets to one of its directors, even without the consent of an absent minority stockholder, provided the sale is made in good faith, for adequate consideration, and for the best interests of the corporation and all stockholders; such a sale is valid and binding on the minority.

Charles W. Mead and the individual defendants were the incorporators, stockholders, and directors of the Philippine Engineering and Construction Company, a private corporation organized as a sociedad anonima with general ordinary powers. The company's articles of incorporation vested administration in the board of directors, provided for majority stockholder voting at meetings, and authorized the board to adopt rules; the Civil Code and, subsidiarily, Articles 151 to 174 of the Code of Commerce governed its juridical personality and dissolution. The company was a private business corporation with no special public duty or eminent domain power, engaged in general engineering and construction work.

On March 15, 1902, Charles W. Mead and Edwin C. McCullough, Thomas L. Hartigan, Frank E. Green, and Frederick H. Hilbert organized the Philippine Engineering and Construction Company. They were the incorporators, the only stockholders, and the directors of the company, which had general ordinary powers. Each stockholder paid $2,000 Mexican currency in cash, except Mead, who turned over personal property in lieu of cash. Shortly after organization, the directors elected Mead as general manager, and the company began business about April 1, 1902. During Mead's management, the company undertook the wrecking contract with the Navy Department at Cavite for raising the Spanish ships sunk by Admiral Dewey; the construction of warehouses for the quartermaster department; the construction of a wharf at Fort McKinley for the Government; the supervision of the construction of the Pacific Oriental Trading Company's warehouse; and other odd jobs.

Mead held the position of general manager for nine months, then resigned to accept the position of engineer of the Canton and Shanghai Railway Company. The parties disputed his compensation. Mead insisted that he was to receive a salary of not less than $3,500 gold, the amount he had been receiving as city engineer, plus 20 per cent of the net profits. McCullough, Green, and Hilbert testified that Mead was to receive only his necessary expenses unless the company made a profit, in which case he could receive $3,500 per year and 20 per cent of the profits. The contract was verbal. Mead testified that the salary was unconditional and did not depend on the company's success, while his share of profits depended on net income. The Court found the contract contingent. Mead had received $1,500 gold for his services.

Shortly after Mead left the Philippines for China, the other directors held a meeting on December 24, 1903, to discuss the company's condition and determine what course to pursue. On that date, they entered into a contract assigning all the rights and interests of the Philippine Engineering and Construction Company in the wrecking contract to McCullough. The document was signed by McCullough as president, Green as treasurer, and Hartigan as secretary. On December 28, McCullough executed an instrument transferring his right, title, and interest in the contract, except one-sixth which he retained, to R. W. Brown, H. D. C. Jones, John T. Macleod, and T. H. Twentyman. The assignees, including McCullough, formed the Manila Salvage Association. That association paid McCullough $15,000 Mexican currency in cash for the assignment, and McCullough retained a one-sixth interest in the new association.

Mead claimed that the net profits accruing to the company from all contracts except the salvage contract, made before he resigned and up to the time the salvage contract was transferred, amounted to $5,628.37 gold. His computation listed profits of $6,962.54 from the Government warehouses, $500 from the Fort McKinley wall, $1,000 from inspection of the P.O.T. warehouse, and $1,000 from other projects, totaling $9,462.54, from which he deducted $3,834.17 in expenses for rents, a muchacho, notices, an engineer's salary for four months, and his own salary for nine months. He relied on Exhibit K, an abstract from ledger No. 3, folios 276-277, showing a balance of $10,728.44 Mexican currency for the period July 1, 1902, to April 1, 1903; that ledger was McCullough's, not one of the company's books. The lower court found that on January 25, 1903, after the transfer of the salvage contract to McCullough, the company was in debt $2,278.30 gold, using the $10,728.44 Mexican currency balance and McCullough's $16,439.40 Mexican currency losses in the Manila Salvage Association. McCullough presented Exhibits 1 and 2, detailed accounts of receipts and disbursements covering March 5, 1902, to June 9, 1905. Exhibit 1 showed the old company indebted to McCullough in the sum of $14,918.75 Mexican currency; Exhibit 2 showed indebtedness of $6,358.15 Mexican currency. The debits and credits were the same except that Exhibit 1 credited McCullough with the $10,000 Mexican currency borrowed from the bank and deposited with the admiral as a guarantee, while Exhibit 2 credited and charged him with that amount and also credited him with $16,439.40 Mexican currency in losses in the new company. Eliminating the $10,000, $15,000, and $16,439.40 Mexican currency items, the balance in McCullough's favor was $4,918.75 Mexican currency. As to the Government warehouse, McCullough's accounts showed profits of $4,005.02 gold, while Mead claimed $6,962.54 gold. Mead had made the contract and commenced the work before resigning; McCullough completed it. McCullough initially testified that the total received from the Government for the warehouse was $1,123 gold, but after the case was suspended to examine the Auditor's and quartermaster's records, vouchers showed an additional about $5,000 gold paid in checks. Those checks were endorsed by Mead and collected by him from the Hongkong and Shanghai Banking Corporation; McCullough did not handle the money, and it was presumed, absent proof, that Mead disbursed it. McCullough did not charge himself with the $2,500 gold claimed as profits from the Fort McKinley wall, the P.O.T. warehouse inspection, and other projects because that work was done under Mead's management and it was not shown that the profits ever reached McCullough. The other items Mead challenged were payments to Green of $2,000 on January 30, 1903, and $1,027.92 on February 2, 1903; to McCullough of $1,300 on February 2, 1903; a P.O.T. Company note of $2,236.80 on February 19, 1905; to Hilbert of $1,856.02 on May 23, 1905; and to Hartigan of $1,225 on June 9, 1905. McCullough testified that these represented cash borrowed from the parties to carry on the old company's operations while it tried to raise the sunken vessels. There was no proof to the contrary, and the work was the company's first undertaking, during which it made no profits and its expenses exceeded the original $8,000 Mexican currency. These amounts were outstanding debts when McCullough took charge to complete the warehouses and wind up the old company's business, not payments or refunds of original capital. McCullough did not credit himself for supervising the completion of the warehouses or for liquidating the company. The Court found the $4,918.75 Mexican currency balance in McCullough's favor to be a fair, equitable, and just settlement.

The company had a capital stock of $100,000 Mexican currency, divided into one thousand shares of $100 Mexican currency each. Each organizer paid $2,000 Mexican currency, and the remainder was to be offered to the public in shares of $100 Mexican currency each. The articles of agreement were in a public document and duly inscribed in the commercial register. The company was an industrial civil partnership, as distinguished from a commercial one, a civil partnership in mercantile form, a sociedad anonima legally constituted in Manila. Upon execution of the public instrument and contribution of funds and personal property, it became a juridical person with power to hold, buy, and sell property and to sue and be sued. The articles provided that the board of directors would elect the officers and have under its charge the administration of the corporation; that in all questions regarding administration, the unanimous vote of the board was necessary and at least three directors had to be present to constitute a legal meeting; and that in all meetings of stockholders, a majority vote of the stockholders present was necessary to determine any question discussed. When the sale or transfer took place, four directors were present and all consented. Mead was then absent, and his express consent was not obtained. He had resigned as manager but had not resigned as director. He accepted the China position knowing that it would require his whole time and attention and prevent his returning to the Philippines for at least a year or more; the position was incompatible with his directorship in a corporation whose operations were limited to the Philippines. These facts constituted an abandoning or vacating of his position as director. The sale was therefore made by the unanimous consent of all the directors at that time. There were only five stockholders, four of whom were the directors who made the sale, and the absent Mead; the sale was made by the unanimous consent of four-fifths of all the stockholders. The articles contained nothing expressly prohibiting the sale or transfer of corporate property to a stockholder. At the time of the sale, the corporation had been going from bad to worse. The work of trying to raise the sunken Spanish fleet had been abandoned for several months. The corporation under Mead's management had entirely failed in that undertaking, had broken its contract with the naval authorities, and had its $10,000 Mexican currency deposit confiscated. It had no money, was considerably in debt, was a losing concern and a financial failure, and had no prospect of success. The assets consisted of office furniture worth less than P400, the uncompleted contract for the construction of the Government warehouses, and the wrecking contract. The liabilities amounted to at least $19,645.74 Mexican currency, of which $9,645.74 was borrowed money and $10,000 was the confiscated deposit due the bank. McCullough's profits on the warehouse contract were almost enough to pay the amounts the corporation had borrowed from its members. The wrecking contract had been broken and was of no value because the naval authorities refused to have anything further to do with the Philippine Engineering and Construction Company; they declined to consider its petition for an extension and refused to reconsider the confiscation. They did agree, however, that if McCullough organized a new association, they would give the new concern an extension and reconsider the forfeiture. McCullough organized the Manila Salvage Company, sold five-sixths of the wrecking contract to the new company for $15,000 Mexican currency, and retained one-sixth as his share of stock. The Manila Salvage Company paid the bank the $10,000 Mexican currency that had been borrowed to deposit with the naval authorities and began operations. All of the $10,000 Mexican currency deposited was refunded to the new company except P2,000. The new association failed, and McCullough lost over $16,000 Mexican currency. The Court found that McCullough acted in good faith in purchasing the old corporation's assets and paid a valuable consideration.

Mead was manager of the Philippine Engineering Company from April 1, 1902, to January 1, 1903. During the previous December, he resigned to accept a position in China but did not leave Manila until about January 20. He remained in Manila about twenty days after severing his connection with the company. He lived in rooms in the same building rented by the company and used for its offices. When he left for China, he left his personal effects in those rooms, having turned them over to one Paulsen. He gave Mr. Haussermann power of attorney to represent him and demand payment. He had an inventory, but it was lost when the company took all the books and carried them away from the office. He remembered some items: a complete bedroom set, two marble tables, one glass bookcase, chairs, all the household effects he used when living in the Botanical Garden as city engineer, and one theodolite he bought after commencing work with the company. He estimated the total reasonable value at not less than $1,200 gold; the decision also records that he placed the value at P2,400. McCullough testified that he had no idea what became of the effects listed in Exhibit B, that he never saw them, and that he only heard of effects Mead had in his living room. He stated that those effects—bed, washstand, chairs, table, and other things—were sent to the warehouse of the Pacific Oriental Trading Company together with the office furniture, were finally sold by that company, and the money was turned over to him in the amount of P49.97. He took the money and considered it part of the company's assets. The other office effects sold at the same time brought P347.16. He thought Mead left Paulsen in charge, but Paulsen did not take the effects, so when the office was vacated they had to move them. Hartigan testified that the personal effects were sold for P50, or less than P100, and consisted of ordinary articles such as a person would use who had to move from place to place. McCullough was a member of the company and responsible for the rents where the offices were located. The company had no further use for the building after Mead resigned, and vacating it was proper. When Hilbert went to remove the company's office furniture, he found no one in charge of Mead's personal effects; he took them, stored them with the office furniture, later sold them, and turned the entire amount over to McCullough. Paulsen apparently took no interest in caring for the effects. The company would have had to continue paying rent solely because Mead's property remained there. Mead knew he would be away a long time, did not gather his effects, left them with Paulsen, and did not carry an inventory. His conduct showed extreme negligence and reckless indifference. McCullough personally had nothing to do with the effects at any time; he only accepted the money Hilbert turned over to him. Mead's testimony as to value was indefinite and uncertain, and he did not give a complete list or separate values. The Court found the great preponderance of evidence as to value favored the defendants and fixed the value at P49.97.

• Salary: Mead maintained that his verbal contract as general manager entitled him to a salary of not less than $3,500 gold, independent of the company's success, plus 20 per cent of net profits.
• Profits: Mead argued that net profits of $5,628.37 gold accrued from contracts completed during his management, based on $9,462.54 gold in profits less $3,834.17 gold in expenses, and that Exhibit K showed the company had a balance of $10,728.44 Mexican currency.
• Corporate Alienation: Mead contended that the board of directors possessed only ordinary powers of administration under Article X of the articles of incorporation and had no power to transfer the company's assets to McCullough, citing Article 1773 of the Civil Code and Spanish Supreme Court decisions.
• Personal Effects: Mead insisted that McCullough was responsible for the personal effects left in the company's rooms and that their value was P2,400.

• Salary: McCullough, Green, and Hilbert countered that Mead was to receive only necessary expenses unless the company made a profit, in which case he could receive $3,500 per year and 20 per cent of profits.
• Profits: McCullough argued that his Exhibits 1 and 2 showed the old company indebted to him, and that after eliminating certain items the balance in his favor was $4,918.75 Mexican currency; he also disputed Mead's claimed profits and credits.
• Corporate Alienation: McCullough and the other defendants maintained that the sale or transfer was valid because it was made by a quorum of directors who were also a majority of stockholders, the corporation was insolvent, and the sale was in good faith for adequate consideration.
• Personal Effects: McCullough denied personal responsibility, stating he had nothing to do with the effects, which were removed and sold by Hilbert and the proceeds turned over to him; Hartigan testified the effects sold for less than P100.

• Salary Contract: Whether Mead was entitled to a fixed salary of $3,500 gold plus 20 per cent of net profits, or only to necessary expenses unless the company made a profit.
• Net Profits: Whether Mead was entitled to $5,628.37 gold as net profits from contracts completed during his management.
• Corporate Alienation: Whether a majority of stockholders who were also a majority of directors had the power to sell or transfer the assets of the corporation to one of its members without the consent of the absent minority stockholder.
• Director Purchase: Whether a director or officer of an insolvent corporation may purchase its property from a majority of the directors or stockholders.
• Agency under Article 1713: Whether the sale was invalid under Article 1713 of the Civil Code because the directors acted as agents without express commission.
• Personal Effects Liability: Whether McCullough was responsible for Mead's personal effects.
• Value of Personal Effects: Whether the personal effects were worth P2,400 or P49.97.

• Salary Contract: No. The contract was contingent; Mead was entitled only to expenses unless the company made a profit, and he had already received $1,500 gold.
• Net Profits: No. The evidence showed no net profits due Mead; the balance of $4,918.75 Mexican currency in McCullough's favor represented a fair settlement.
• Corporate Alienation: Yes. The sale was valid and binding on the minority because it was made by a quorum of directors who were also a majority of stockholders, in good faith, for adequate consideration, and for the best interests of the insolvent corporation.
• Director Purchase: Yes. A director may in good faith and for adequate consideration purchase corporate property from a majority of directors or stockholders, even of an insolvent corporation.
• Agency under Article 1713: No. Article 1713 did not apply because McCullough did not represent the corporation; there was a quorum without him, and a corporate director with a joint interest in corporate property is not the agent contemplated by that article.
• Personal Effects Liability: No. McCullough did not personally remove or sell the effects; Mead's negligence in leaving them with Paulsen and the company's need to vacate the premises negated liability.
• Value of Personal Effects: P49.97. The preponderance of evidence showed the effects sold for P49.97, not P2,400.

• Salary Contract: The agreement was verbal and disputed. Mead testified that his salary was unconditional at $3,500 gold plus 20 per cent of net profits. McCullough, Green, and Hilbert testified that compensation depended on the company's success: if it made gains, Mead would receive $3,500 gold and a percentage; if not, only necessary living expenses. The Court credited the defendants' version because Mead contributed no money, the venture to raise the Spanish ships was risky, the original $8,000 Mexican currency was soon exhausted, and the defendants furnished private funds for expenses. The contract was therefore contingent, and Mead's receipt of $1,500 gold did not entitle him to more.

• Net Profits: Mead's computation of $5,628.37 gold rested on claimed profits of $9,462.54 gold less expenses of $3,834.17 gold, and on Exhibit K, an abstract from McCullough's ledger rather than the company's books. McCullough's Exhibits 1 and 2, covering March 5, 1902 to June 9, 1905, showed that after eliminating the $10,000 Mexican currency bank deposit, the $15,000 Mexican currency received from the Manila Salvage Association, and the $16,439.40 Mexican currency losses, the balance in McCullough's favor was $4,918.75 Mexican currency. As to the Government warehouse, Mead claimed $6,962.54 gold in profits, while McCullough's accounts showed $4,005.02 gold; records showed an additional about $5,000 gold paid in checks endorsed and collected by Mead, money McCullough did not handle and which was presumed disbursed by Mead. McCullough did not charge himself with the $2,500 gold claimed from the Fort McKinley wall, the P.O.T. warehouse inspection, and other projects because that work was under Mead and the profits were not shown to have reached McCullough. The amounts paid to Green, McCullough, the P.O.T. Company, Hilbert, and Hartigan represented borrowed funds to carry on operations, not refunds of capital. The Court thus found the $4,918.75 Mexican currency balance a fair, equitable, and just settlement.

• Corporate Alienation: The company was a private business corporation—an industrial civil partnership in mercantile form, a sociedad anonima—with no special public duty and no eminent domain power. Its articles vested administration in the board of directors. Although Article XI required a unanimous vote of the board on administration questions, it also required at least three directors for a legal meeting; three therefore constituted a quorum, and two could pass binding resolutions. When the sale occurred, four directors were present and all consented. Mead had resigned as manager but not as director; by accepting the China position, which required his whole time and absence from the Philippines for at least a year, he abandoned or vacated his directorship. The sale was thus made by the unanimous consent of all directors then acting and by four of the five stockholders. The articles contained no express prohibition, and neither the Civil Code nor the Code of Commerce prohibited a sale to a member. The majority's power was not unlimited: it could not break the essential compacts of the association, devote funds to foreign purposes, transform the partnership, violate public policy, or infringe third-party rights. But where the corporation was insolvent—its wrecking work abandoned, its contract with naval authorities broken, its $10,000 Mexican currency deposit confiscated, its debts at least $19,645.74 Mexican currency, and success impossible—the majority could sell the assets in good faith and for the best interests of all stockholders. McCullough assumed the debts, organized the Manila Salvage Company, sold five-sixths of the wrecking contract for $15,000 Mexican currency, retained one-sixth, and the new company paid the bank the $10,000 Mexican currency; all but P2,000 was refunded, and the new association failed, causing McCullough to lose over $16,000 Mexican currency. The sale was supported by valuable consideration and made in good faith, and was therefore valid and binding on Mead.

• Director Purchase: The authorities generally permit a director or officer to deal with the corporation. While the corporation is solvent, a director may, with authority of the majority stockholders or board, loan it money or buy property from it like a stranger. Upon insolvency, directors become trustees for all creditors and may not secure personal advantage over other creditors. Nevertheless, a director or officer may in good faith and for adequate consideration purchase corporate property from a majority of the directors or stockholders even of an insolvent corporation, and the sale is valid and binding on the minority. McCullough was a creditor, stockholder, and president, but he did not represent the corporation in the transaction; the quorum without him acted. His conduct was subjected to severe scrutiny, and the evidence showed candor, fair dealing, and no taint of selfish motive. The purchase was upheld.

• Agency under Article 1713: Article 1713 of the Civil Code provides that an agency in general terms includes only acts of administration and that an express commission is required to alienate property. The provision did not invalidate the sale. McCullough did not represent the corporation; it was represented by a quorum of the board of directors, who were also a majority of the stockholders, and there was a quorum without McCullough. Moreover, an officer or director of a corporation, being an agent of an artificial person and having a joint interest in corporate property, is not the kind of agent treated in Article 1713. The sale was therefore not a prohibited purchase by an agent from himself.

• Personal Effects Liability: Mead left his personal effects in rooms rented by the company and turned them over to Paulsen. After Mead resigned, the company had no further use for the building, and vacating it was proper. When Hilbert went to remove the company's office furniture, he found no one in charge of Mead's effects; he took them, stored them with the office furniture, later sold them, and turned the proceeds over to McCullough. McCullough personally did not remove or sell the effects; he only accepted the money. Mead remained in Manila about twenty days after resigning but did not care for his effects, left them with an irresponsible person, and did not carry an inventory. His conduct showed extreme negligence and reckless indifference. The company would otherwise have had to continue paying rent solely because of Mead's property. McCullough was not responsible for the loss.

• Value of Personal Effects: Mead's testimony as to value was indefinite and uncertain. He gave only a partial list, did not value any item separately, and estimated the effects at not less than $1,200 gold, while the decision records his estimate at P2,400. The defendants presented positive testimony: McCullough received P49.97 from the sale; Hartigan testified the effects sold for P50 or less than P100; and Hilbert testified as to the amount received. The great preponderance of evidence favored the defendants, and the value was fixed at P49.97.

• Majority Rule in Corporations and Its Limits — The voice of a majority of stockholders is generally the law of the corporation, but the majority's power is not absolute. It is limited by the essential compacts or articles of association, which cannot be broken; funds cannot be devoted to foreign purposes; the partnership cannot be transformed; and resolutions cannot violate public policy or infringe third-party rights. Resolutions passed in good faith and for just cause are generally binding on the minority. The Court applied this doctrine to uphold the sale because the articles did not prohibit it and the sale was made in good faith for the best interests of all stockholders.

• Power of a Private Corporation to Alienate All Its Property — A private business corporation that owes no special duty to the public and has no eminent domain power has the power, as against all persons except the State, to sell and dispose of all its property. The board of directors may do so without stockholder assent when the corporation is failing or insolvent or can no longer continue profitably and the sale is an imperative necessity. A majority of stockholders or directors may also do so, even against minority protest, where the business is a failure and the best interests of the corporation and all stockholders require it. The Court found these conditions present because the company was insolvent and its continued operation meant further losses.

• Director or Officer Dealing with the Corporation — A director or officer may deal with the corporation. While solvent, a director may, with proper authority, loan money to or buy property from the corporation like a stranger. Upon insolvency, directors become trustees for creditors and cannot secure personal advantage over other creditors. However, a director or officer may in good faith and for adequate consideration purchase corporate property from a majority of the directors or stockholders even of an insolvent corporation; such a sale is valid and binding on the minority. The Court applied this rule to McCullough's purchase after subjecting the transaction to severe scrutiny and finding good faith and adequate consideration.

• Corporate Quorum and Majority of Quorum — Where the articles require at least three directors to constitute a legal meeting, three directors constitute a quorum, and a majority of that quorum may pass binding resolutions on administration, unless the articles clearly require unanimity of the entire board. The Court interpreted Article XI of the articles of incorporation in this manner and held that the sale was validly approved by the quorum, especially since McCullough did not need to vote.

• Article 1713 Agency and Corporate Directors — Article 1713 of the Civil Code requires an express commission for an agent to alienate property, but a corporate director or officer who has a joint interest in corporate property is not the kind of agent contemplated by that article. Moreover, where the corporation is represented by a quorum of directors and the interested director does not vote or represent the corporation, the sale is not invalid under Article 1713. The Court used this doctrine to reject Mead's challenge to the transfer.

• Ordinary Care and Negligence — Every person must use ordinary care to avoid injury or damage to property. What constitutes ordinary care depends on the circumstances and the danger reasonably apprehended. Mead's failure to care for his personal effects, leaving them with an irresponsible person and not carrying an inventory, constituted extreme negligence and reckless indifference, which negated McCullough's liability for their loss.

• "Generally speaking, the voice of a majority of the stockholders is the law of the corporation, but there are exceptions to this rule. There must necessarily be a limit upon the power of the majority. Without such a limit the will of the majority would be absolute and irresistible and might easily degenerate into an arbitrary tyranny." — States the majority-rule principle and its inherent limitation, which frames the Court's analysis of the sale to McCullough.
• "From these authorities it appears to be well settled, first, that a private corporation, which owes no special duty to the public and which has not been given the right of eminent domain, has the absolute right and power as against the whole world except the state, to sell and dispose of all of its property; second, that the board of directors, has the power, without referrence to the assent or authority of the stockholders, when the corporation is in failing circumstances or insolvent or when it can no longer continue the business with profit, and when it is regarded as an imperative necessity; third, that a majority of the stockholders or directors, even against the protest of the minority, have this power where, from any cause, the business is a failure and the best interest of the corporation and all the stockholders require it." — Canonical formulation of the corporation's power to alienate all its property and the circumstances under which directors or majority stockholders may exercise it.
• "Nevertheless, a director or officer may in good faith and for an adequate consideration purchase from a majority of the directors or stockholders the property even of an insolvent corporation, and a sale thus made to him is valid and binding upon the minority." — States the rule allowing a director to purchase corporate property despite insolvency, subject to good faith and adequate consideration.
• "The acts of Hilbert, Green, Hartigan, and McCullough in this transaction, in view of the relations which they bore to the corporation, are subject to the most severe scrutiny. They are obliged to establish that they acted with the utmost candor and fair dealing for the interest of the corporation, and without taint motives." — Defines the fiduciary standard applied to the interested directors and explains why the sale survived judicial scrutiny.

• Compania Agricola de Ultimar vs. Reyes et al., 4 Phil. Rep., 2 — Cited for the rule that inscription of articles in the commercial register is not necessary to make the entity a juridical person; it only shows that it partook of the form of a commercial corporation.
• Twin-Lick Oil Company vs. Marbury, 91 U.S., 587 — Cited for the fiduciary relation of directors, the rule that contracts between directors and the corporation are generally voidable rather than void, and the principle that a director may loan money to the corporation when needed and the transaction is open and free from blame.
• Hancock vs. Holbrook et al., 40 La. Ann., 53 — Cited for the rule that a board may apply corporate property to debts and a majority may ratify and dissolve, but where the president is interested, the transaction is subject to severe scrutiny and must be shown to be in utmost candor and fair dealing.
• Beach et al. vs. Miller, 130 Ill., 162 — Cited among authorities holding that a director or officer may in good faith and for adequate consideration purchase corporate property even of an insolvent corporation, and the sale is valid and binding on the minority.
• Buell vs. Buckingham & Co., 16 Iowa, 284 — Cited for the rule that where three directors constitute a quorum, two may pass binding resolutions relating to administration.
• Robinson vs. Smith, 3 Paige, 222, 232 — Cited for the principle that directors are trustees or managing partners and stockholders are cestui que trust with a joint interest in corporate property.
• Spanish Supreme Court decisions dated April 2, 1862, and July 8, 1903 — Cited by Mead against the transfer; the Court held its conclusion was not contrary to those decisions.

• Article 1713, Civil Code — An agency in general terms includes only acts of administration; an express commission is required to compromise, alienate, mortgage, or execute other acts of strict ownership. The Court held it did not invalidate the sale because McCullough did not represent the corporation and a corporate director with a joint interest is not the agent contemplated by the article.
• Articles 1700 to 1708, Civil Code — These provisions deal with dissolution of corporations; the Court found nothing in them expressly or impliedly prohibiting the sale of corporate property to a member or a dissolution in that manner.
• Articles 151 to 174, Code of Commerce — Applicable subsidiarily to the corporation in mercantile form; the Court found nothing in them prohibiting dissolution by such sale or transfer.
• Article 151(10), Code of Commerce — Requires articles of incorporation to include submission to the vote of the majority of the meeting of members of matters properly brought before the same; the Court relied on this to show that the sale to a member was a matter the majority could properly consider.
• Article 1670, Civil Code — Cited to establish that the Code of Commerce provisions apply subsidiarily to the corporation insofar as they do not conflict with the Civil Code.
• Articles 37, 38, and 1656, Civil Code — Cited to establish that upon execution of the public instrument and contribution of funds and property, the sociedad anonima became a juridical person with power to hold, buy, sell property, and sue and be sued.
• Article 1773, Civil Code — Invoked by Mead as a ground against the board's power to transfer the company's assets; the Court instead analyzed Article 1713 and upheld the sale.

Arellano, C.J., Torres, Mapa, Carson, and Moreland, JJ., concurred.